At 04:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 104.175, close to a near three-month high.
The dollar has climbed to its highest level since early August as reasonably healthy economic data has seen expectations for aggressive interest rate cuts from the Federal Reserve fade.
Traders were seen pricing in a 85.9% chance for a 25 basis point cut in November, and a 14.1% chance rates will remain unchanged, CME Fedwatch showed.
This change in stance has seen US Treasury yields surge on expectations of relatively higher rates, with the 10-year yield hitting a three-month high this week.
Also helping support the greenback has been the growing expectations that Republican candidate Donald Trump will win the US Presidential election earlier next month, given his protectionist policies are seen boosting the US currency.
“Key market factors continue to support the greenback. We could see some momentum fade today, but the balance of risks remains skewed to the upside into the US election,” said analysts at ING, in a note.
In Europe, EUR/USD edged 0.1% lower to 1.0785, with the euro weakening amid growing expectations that the European Central Bank may be more aggressive in rate cuts going forward given an uncertain growth outlook.
The ECB has already cut rates three times this year from a record high, and markets see policy easing at each of its upcoming meetings well into the new year.
The International Monetary Fund on Tuesday said the German economy, Europe’s biggest, would stagnate this year, cutting its forecast from 0.2% growth previously.
Additionally, eurozone inflation is easing and may fall back to 2% quicker than previously thought, ECB President Christine Lagarde said on Tuesday, supporting the case for further rate cuts.
GBP/USD fell 0.1% to 1.2969, ahead of a speech by Bank of England Governor Andrew Bailey later in the day, which could offer more clues of further monetary policy.
Bailey said in an interview earlier this month that the central bank could move more aggressively to cut interest rates if inflation pressures continue to weaken.
Since then the UK’s inflation rate has fallen to 1.7% on an annual basis – the first time it had fallen below the Bank of England’s 2% target since April 2021.
“Cable can still move to 1.28 by month-end,” ING added.
USD/JPY soared 0.9% to 152.38, climbing above the 152 level for the first time since July 31 with recent opinion polls indicating that the ruling Liberal Democratic Party could lose its majority with coalition partner Komeito at the weekend’s general election.
The risk of a minority coalition government has raised the prospect of political instability complicating the Bank of Japan’s effort to reduce dependence on monetary stimulus.
The BOJ is also set to meet next week, but is unlikely to hike rates. Before that, consumer inflation from Tokyo is due this Friday.
USD/CNY rose 0.1% to 7.1265, with the focus turning to an upcoming meeting of China’s National People’s Congress for more cues on fiscal spending.
USD/CAD rose 0.1% to 1.3824, ahead of the latest policy-setting meeting by the Bank of Canada later in this session.
“Markets are pricing in 45bp of easing by the Bank of Canada today. The reasoning is that inflation has now slowed below target and a soft growth picture warrants a faster, 50bp, move to neutral rates,” said ING. “It is a very close call, but we think 25bp remains slightly more likely.”
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