The U.S. dollar has surged to its highest levels since late July, primarily due to growing expectations that the Federal Reserve will adopt a more measured approach to interest rate cuts. With the economy showing resilience and the labor market remaining robust, traders now anticipate only two 25-basis-point cuts during the upcoming meetings in November and December, leaving the outlook for January uncertain. This sentiment has driven demand for the greenback, reinforcing the currency’s strength in the face of potential shifts in monetary policy.

The upcoming US election adds to the market volatility as it introduces another layer of unpredictability. The possibility of Donald Trump’s re-election is stirring concerns about inflationary pressures tied to his fiscal and trade policies, leading market participants to speculate on a more cautious stance from the Fed. U.S. yields have increased, especially the 10-year note, which is close to 4.23%. This creates a favorable situation for the dollar, which may rise as investors consider the effects of higher yields, inflation concerns, and the Federal Reserve’s response in the upcoming meetings. Current conditions could also favor an increase in treasury yields.