Dollar heads for first monthly gain since September on expectations of US rate hikes

By Rae Wee and Alun John

SINGAPORE/LONDON, Feb 28 (Reuters) – The U.S. dollar resumed its rally on Tuesday, after falling against the pound and the euro the day before, and was heading for its first monthly gain since September.

* The greenback’s rise has accelerated in recent weeks as encouraging economic data suggests the US Federal Reserve may need to raise interest rates more than initially expected.

* The dollar index, which measures the performance of the greenback against a basket of six currencies, was flat at 104.64 but still on track for a 2.6% rise in February, its first monthly rise since September. .

* Investors now expect the Federal Reserve funds rate to be just above 5.4% in September, down from 4.70 earlier in the month.

* US Treasury yields also rose, with the two-year yield returning to 3.5-month highs.

* The dollar was particularly strong against the Japanese yen on Tuesday, rising 0.44% to 136.84 yen, its highest level in more than two months.

* In addition, the yen is at its lowest level for two months against the euro and the pound sterling.

* Elsewhere, the pound benefited from the previous session’s gains against the dollar and rose 0.2% to $1.2082.

* On Monday, the pound rose 1% after the United Kingdom and the European Union announced a new post-Brexit trade deal for Northern Ireland, known as the Windsor Framework.

* The euro was flat at $1.0611, after rising 0.6% in the previous session.

* The euro pared some of the earlier losses after the release of French inflation data beat expectations and sent euro zone short-term yields to their highest level in at least a decade.

(Reporting by Rae Wee in Singapore and Alun John in London; Editing in Spanish by Ricardo Figueroa)