The US dollar surged on Tuesday

FX:GBPUSD   British Pound / U.S. Dollar
The US dollar surged on Tuesday, reaching its highest level in 10 months as bond yields hit their highest in 16 years amid growing expectations that US interest rates will rise further this year.

At 03:15 ET (07:15 GMT), the Dollar Index, which tracks the greenback against six other major currencies, traded up 0.2% at 105.880, after touching its highest since November at 106.100 on Monday.

The USD received a boost after Minneapolis Federal Reserve President Neel Kashkari said late Monday that the US central bank may need to raise interest rates further and keep them high for a while to bring inflation down to 2%.

Last week, the Fed held its policy rate steady in a range of 5.25%-5.50%, but policymakers also indicated they might keep rates high longer than previously thought, with fewer than half expected to cut rates below 5% next year.

The combination of the hawkish Fed stance and flexible economic data has pushed the 10-year Treasury yield to 4.5% for the first time since 2007.

Economic numbers to be released next Tuesday, in the form of US consumer confidence and home sales data, may impact the dollar towards the end of the session.

The strength of the USD has weighed on the euro and the British pound, with the possibility of the Fed raising rates again this year contrasting with the European Central Bank hinting at pausing its rate-hike cycle, while the Bank of England paused its extended rate hike last week.

The GBP/USD exchange rate fell 0.3% to 1.2175, falling to a six-month low, and, of course, a steep 3.8% drop in the three months ending in September.

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