U.S. dollar holds more than two-month high

The dollar index soared 0.85% to the strongest level since March 31 in the previous session, its biggest single-day jump in over three months

The U.S. dollar clung to ​a more than two-month high on Thursday after a hawkish hold triggered rate-hike bets despite ‌an Iran-U.S. deal, while the yen weakness drew new warnings from Japanese officials.

The U.S. central bank held rates steady in a 3.50%-3.75% range as new chair Kevin Warsh opened the new era with a sweeping policy review. Nearly half of policymakers, ​however, now expect a hike this year on mounting inflation concerns.

The Fed funds futures market has now ​priced in an 85% chance of central bank tightening in December, according to CME FedWatch, ⁠with a strong retail sales reading further adding to hawkish bets.

The dollar index was little changed at 100.24.

It soared 0.85% to the strongest level since March 31 in the previous session, its biggest single-day jump in over three months.

The dollar is up making some sizable gains. This is ​going to take a little while to shrug off, NAB’s senior markets strategist Gavin Friend said in ​a podcast. It looks like we could be pushing into new territory here for the dollar.

Oil prices dropped on Thursday after Iran and U.S. signed an interim agreement that would end the Iran war, reopen the Strait of Hormuz and waive U.S. sanctions on Iran’s oil, weakening the former’s currency.

The risk-sensitive Australian dollar was up 0.3% at $0.70365, and the New Zealand dollar traded at $0.5794, up nearly 0.5%.

The euro last traded a shade stronger at $1.1518 after hitting its two-month lows earlier.

Markets are examining whether the Strait of Hormuz can be reopened ​for free passage, said ​Kimmy Tong, global market ⁠and FX strategist at Everbright Securities International.

Until that is confirmed, sentiment favouring a stronger dollar should continue to dominate considering the Fed’s tightening bias, she added.