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

A stronger-than-expected purchasing managers' report overnight fanned new price concerns and a poorly received auction of five-year U.S. Treasury notes triggered a fresh round of bond selling, with five-year yields US5YT=RR crossing 5% for the first time since 2007.

The backdrop of rising inflationary risks and a strong economy means the Federal Reserve is likely to deliver more rate hikes, Governor Michael Barr said on Wednesday in comments viewed by markets as "forward guidance", pushing traders to pile into bets on a second straight policy tightening next month.

"Given the relative strength of US growth and increasingly aggressive Fed rate-hike pricing, the US dollar continues to stand firm in its attraction to own," said Chris Weston, head of research at Pepperstone.

Signs the US economy may be overheating are now firmly in focus, and policymakers may need to tighten further if inflation continues to surprise on the upside, he said.