Thanks to the rise in US Treasury yields, the Bloomberg Dollar Index has reached its highest level in two years as investors assess the future direction of the economy and inflation under the Trump administration. The euro fell to its lowest level in a year.

The Bloomberg Dollar Index rose 0.6% at one point, reaching its highest level since November 2022.

"Everyone seems to believe in the US dollar now," wrote Brad Bechtel, global FX head at Jefferies in New York, stating that for the index to continue rising steadily beyond a two-year range, further clarification of policies may be needed after Trump assumes office.

Traders are focusing on the US CPI for October set to be announced on Wednesday; Bloomberg's consensus expectation is a 0.3% month-on-month increase in core CPI.

Traders note that since Trump's victory, hedge funds have been continuously buying call options on currency pairs such as the US dollar against the euro and offshore Chinese yuan.

The three-month risk reversal indicator for the Bloomberg Dollar Index has risen, nearing the most optimistic level since June.

The euro/dollar once fell 0.6% to an intraday low of 1.0595, the weakest since November 2023.

DTCC: Options expiring on Tuesday at 1.0600 (1.11 billion euros) and 1.0625 (1.11 billion euros) in scale.

"We have always expected the euro/dollar to touch 1.05 by the end of the year, if tariffs and fiscal stimulus combine, along with Europe's difficulty in coordinating fiscal policies, it is possible for it to fall all the way to parity next year," said Tim Baker, a forex strategist at Deutsche Bank in New York.

USD/JPY rose 0.7% to 154.75, approaching the psychological barrier of 155.

Japanese Prime Minister Shigeru Matsu promised $65 billion in new funds to support the development of chips and artificial intelligence, following closely the global trend in high-tech investments.

British pound leads G-10 currencies lower as traders weigh wage growth and unemployment data; GBP/USD once fell by 1.2% to an intraday low of 1.2719.

USD/CAD rose by 0.2% to 1.3946; the 2-year US-Canadian bond yield spread remains above 115 basis points, nearing the highest level since at least 1997, according to Bloomberg data.

If the currency pair breaks through the 1.3977 touched in October 2022, it will be the highest level in over four years.

Note: Some of the above information comes from forex traders familiar with the trading situation but unwilling to be named for public comment.