Dollar strengthens as Fed rate-hike bets build

The dollar pushed higher against major peers Monday as traders added to bets that the Federal Reserve will raise interest rates again before year-end. The euro slipped below $1.0850, while sterling tested $1.2650 support.

Fed funds futures now price a roughly 40% chance of a quarter-point hike at the November meeting, up from 28% a week ago. The shift followed stronger-than-expected retail sales data and comments from Fed Governor Christopher Waller, who said the central bank should "proceed carefully" but did not rule out further tightening.

Treasury yields rose across the curve, with the two-year note yielding 4.97%, its highest since early August. Higher yields widen the dollar's rate advantage against the euro and yen, where central banks remain on hold or only slowly normalizing policy.

The euro came under additional pressure after the European Central Bank's September meeting minutes showed some policymakers saw risks of overtightening. The ECB raised rates by 25 basis points this month but signaled that may be the last move in the current cycle.

Sterling fell for a third straight session as UK inflation data due Wednesday is expected to show a sharp slowdown. A soft print would reinforce expectations that the Bank of England will hold rates steady at its November meeting, narrowing the rate gap with the U.S.