The US dollar records its strongest single-day performance in two weeks as producer price index and oil price trends reinforce Federal Reserve policy expectations.

After the US producer price report showed rising inflation pressures and oil prices climbed, the US dollar strengthened sharply, with both factors jointly boosting market expectations for a Federal Reserve rate hike this year. The Bloomberg Dollar Spot Index rose as much as 0.4% on Thursday, marking its biggest intraday gain since August 28. Data released Thursday by the US Bureau of Labor Statistics showed that the core Producer Price Index, excluding food and energy, rose 0.2% last month; July's data was revised to a 0.3% increase. Overall PPI rose 5.4% year-on-year, the biggest gain in three months, driven by rising energy prices, with no sign of energy prices easing. Due to continued escalating conflict between the US and Iran, Brent crude oil surged to $105 per barrel on Thursday. US Treasury yields rose, with global yields moving up in tandem. Mark McCormick, Chief FX Strategist at Bank of Montreal, stated that higher oil prices suggest that "inflationary pressures will remain in the coming months." He noted that the market underestimates the level of inflation and its impact on rates, dollar strength, and investor risk appetite. "The mainstream market view this summer was for a soft landing of the economy, with risk appetite remaining upbeat. Once Federal Reserve-related statements lead to deteriorating market sentiment, the dollar will strengthen further and financial conditions are very likely to tighten into the autumn."