The U.S. dollar maintained its two-and-a-half-month high on Tuesday, fueled by expectations of a cautious Federal Reserve approach to rate cuts and rising Treasury yields. This has placed continued pressure on the yen, euro, and sterling, as recent data signals resilience in the U.S. economy.

While four Federal Reserve policymakers voiced support for further rate cuts, there’s division over how quickly or deeply those cuts should be made, adding suspense ahead of the upcoming Fed policy meeting on Nov. 6-7. Markets are currently pricing in an 89% chance of a 25 basis point cut in November, versus a 50% chance a month ago when traders were more inclined toward a larger 50 bps cut.

Election uncertainty and strong economic growth could prompt the Fed to reassess its strategy into 2024. Goldman Sachs analysts suggest that while 25 bp cuts in both November and December seem likely, the pace of cuts in the new year remains unclear. Traders are on edge, watching how economic data and political events will shape the Fed’s next moves.