Dollar firm as markets brace for another big Fed rate hike

The dollar remained firm below a two-decade high versus major peers on Tuesday, as investors braced for the Federal Reserve to continue its aggressive interest-rate-hiking campaign to rein in overheated inflation, Reuters reported.
The dollar index, which measures the greenback against six counterparts, was little changed at 109.53, stable for the moment after pulling back from as high as 110.79 earlier this month, a level not seen since June 2002.
The two-year U.S. Treasury yield, which is extremely sensitive to policy expectations, rose as high as 3.970% overnight for the first time since November 2007. The 10-year yield reached a high of 3.518%, a level not seen since April 2011.
Investors have fully priced another 75 basis point bump by the Federal Open Market Committee for Wednesday, and lay 19% odds for a super-sized full percentage point increase.
While still elevated, those bets have come down from around 38% on Wednesday, when they were shocked higher by a surprise acceleration in U.S. consumer prices for August.
The dollar eased 0.15% to 142.96 yen, continuing a week-long consolidation following two attempts at 145 this month that took it as high as 144.99 on Sept. 7 for the first time in 24 years. The dollar-yen currency pair tends to track the long-term yield spread between U.S. and Japanese government bonds.
The Bank of Japan decides policy on Thursday, and is widely expected to keep its ultra-easy stimulus settings unchanged. They include pinning the 10-year yield near zero.