The greenback’s gains this year have been fueled by a combination of higher central bank interest rates, haven buying, and recession concerns. Thursday’s climb was driven primarily by rising short-term yields following higher-than-expected inflation data, as investors boost bets on an aggressive rate hike by the Federal Reserve later this month.

Fed’s Bostic Says ‘Everything Is In Play’ After Inflation Jumps

“Post-CPI we’re seeing the broadening and increased persistence in US inflation, resulting in markets upping the ante with regards to the implied path of US interest rates,” said Simon Harvey, head of FX analysis at Monex Europe.

“That’s adding a lot of pressure on global risk across currencies, equities, rates, you name it. Everything is under pressure at the moment, and in this environment it’s very difficult for FX markets to look outside the dollar.”

Forget the Wall Street Debate. It Already Feels Like a Recession

The ICE US Dollar Index, a separate gauge that compares the greenback to developed currencies only and has a greater weighting for the euro, exceeded its pandemic peak earlier this year and is currently near its strongest level in two decades.

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