Investing.com - The dollar hit multi-month highs against the other major currencies on Tuesday, as expectations for a near-term rate hike by the Federal Reserve underpinned demand, while sterling was pressured lower
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was near a nine-month high at 98.69.
The index has rallied around 3.5% so far this month as hawkish remarks by Federal Reserve officials in recent week solidified expectations for a rate hike before the year’s end.
Expectations for higher interest rates typically boost the dollar by making the currency more attractive to yield-seeking investors.
On Monday, Chicago Fed President Charles Evans said the U.S. central bank could raise rates three times between now and the end of next year so long as the inflation outlook and the labor market remain on track.
The Fed’s next meeting is in November, but a rate hike ahead of the presidential election is seen as unlikely.
Investors currently price a 72.5% chance of a rate hike at the Fed's December meeting; according to federal funds futures tracked by Investing.com's Fed Rate Monitor Tool.
The euro fell to a fresh seven-month trough, with EUR/USD touching lows of 1.0851.
The single currency remained on the back foot after the European Central Bank indicated last week that it could expand its stimulus program in December.
The euro shrugged off data showing that German business confidence hit a two-year high this month, despite uncertainty over the Brexit vote and the upcoming U.S. presidential election.
USD/JPY hit a high of 104.88, the most since April 29 and was last at 104.43, still up 0.25% for the day.
USD/CHF rose to a high of 0.9999, a level not seen since March 10, before easing to 0.9939.
Sterling came under pressure, with GBP/USD hitting a low of 1.2083, the lowest level since the flash-crash earlier this month, before pulling back to 1.2155.
The pound regained ground after Bank of England Governor Mark Carney said the bank has to weigh the recent increase in inflation against supporting the economy with low interest rates.
The remarks came as Carney testified about the economic consequences of the Brexit vote before the Economic Affairs Committee in the House of Lords.
Carney also said it is frustrating to have interest rates so low for so long, but added that the bank’s focus is on its remit to get inflation where it needs to be.