Dollar perched at two-month high as hot PMI fuels inflation fears, rate hike bets

Inflation risks were also amplified by a nearly 4% jump in oil prices on Wednesday after Iran's president vowed never to surrender, with markets also weighing U.S. President Donald Trump's diesel export ban. Brent oil futures were off 0.8% at $102.2 a barrel.

Traders now see a nearly 70% chance of another increase when the U.S. central bank next meets in October, according to CME Group's FedWatch Tool, up from the 50% probability a week ago.

At 157.8 per dollar, the yen rebounded from its three-week low after Japanese Finance Minister Satsuki Katayama said that the principles underpinning the coordinated Japan-U.S. currency intervention in July remain intact, signalling Tokyo is prepared to act jointly again if needed.

The remarks helped snap the yen's four-day slide, though sentiment remained fragile after last week's Bank of Japan rate hike to a 31-year high failed to convince investors that a faster tightening cycle is in store.