Dollar Strengthens Globally and in Israel Amid Inflation Fears

The US dollar continued its upward trend on Thursday, both in global markets and locally against the Israeli shekel, following significant gains the previous day. In Israel, the dollar rose by 0.5% to trade around 3.05 shekels, while the euro climbed 0.5% to trade just below 3.47 shekels.

Globally, the US Dollar Index, which measures the dollar against a basket of major currencies, increased by 0.2% to 101.3 points. The euro dipped 0.1% against the dollar, trading above $1.13, and the British pound fell 0.1% to trade above $1.32. In Japan, the dollar strengthened by 0.3% to 158.8 yen.

This rise follows a substantial 0.5% jump in the Dollar Index on Wednesday, reaching a two-month high. The euro lost 0.6% and the pound 0.7% against the dollar, coinciding with a sharp increase in US Treasury yields, with the 10-year yield jumping 14 basis points to 4.11%.

Analysts attribute the dollar's strength to the robust US economic growth and increasing market expectations of aggressive interest rate hikes by the Federal Reserve. "Given the relative strength of US growth and the fact that markets are increasingly pricing in aggressive rate hikes from the Fed, the US dollar continues to maintain its appeal as a desirable asset to hold," stated Chris Weston, Head of Research at Pepperstone.

Concerns that the US economy might be overheating are now a primary focus, potentially prompting the Fed to tighten monetary policy further if inflation continues to rise unexpectedly. Inflationary risks have also been exacerbated by a nearly 4% surge in oil prices following statements from Iran's president, and by a US presidential ban on diesel exports.

Traders are now assigning nearly a 70% probability to another Fed interest rate hike at its upcoming meeting on October 27-28, an increase from the 60% probability assigned just a week prior.