Strong economic data bolstered expectations for another large rate hike next month. The latest CME Group data shows the odds for a 75 basis point hike in October are now at 66 percent. A 50 basis point hike was considered more likely earlier in the week.

Multiple Fed officials spoke yesterday and reiterated the need for further rate increases. Governor Barr said that rate increases would continue until inflation is more in line with the Fed’s 2 percent target. The other members of the Fed who spoke yesterday all gave similar remarks and said that the recent economic data justified the need for continued rate hikes to combat inflation.

The dollar has stronger nearby drivers of demand than the euro. The European Central Bank (ECB) hiked rates last month, but has signaled no strong preference to raise rates again. Bets against the euro could pay off if energy prices keep falling and further easing measures are put in place.

Sterling is more balanced. The Bank of England (BoE) held rates steady at 3.75% last week, but revised its outlook to more hawkish. The BoE and other hawkish central banks give the British currency some protection against falling energy prices. Barclays and UBS expect an interest rate hike by the BoE in November.

Ongoing Middle East diplomacy will also influence inflation. Falling energy prices should ease inflation across the U.S., Europe and Britain, which could impact rates set by the three central banks.

Overall, we have a DXY bullish bias, bearish EUR and GBP bias.