On Wednesday, the U.S. dollar reached a peak not seen in over two and a half months, as investors shifted their expectations towards a more gradual reduction in interest rates. Meanwhile, the yen continued to face downward pressure due to the strengthening dollar and rising U.S. Treasury yields, which pushed it to a three-month low. The greenback has been on an upward trajectory for three consecutive weeks, as the anticipation for aggressive rate hikes from the Federal Reserve has waned following a series of positive economic indicators. According to the CME FedWatch tool, the market now has a 91% probability of a moderate quarter-basis-point rate cut in November, a significant change from the previous month when investors were divided over a potential 50 basis points cut.

The less dovish outlook for the Federal Reserve has been a boon for Treasury yields. The yield on the benchmark 10-year note reached its highest level since July 26, hitting 4.222% on Tuesday. Despite a relatively quiet economic data calendar on Wednesday, the release of the Fed's Beige Book summary of economic conditions stands out as a key event. Senior market analyst Matt Simpson at City Index expects the October report to echo the previous one, indicating a pattern of decelerating economic growth with some isolated areas of strength. However, given that recent data has exceeded forecasts, there is a possibility of an upside surprise in the report.

Despite the positive economic data, the U.S. dollar index and yields only saw marginal gains on Tuesday, suggesting that investors should exercise caution, especially if the two-year yield falls back below 4%. The dollar index, which compares the U.S. currency with six others, was last reported up 0.11% at 104.18, after reaching its highest point since August 2 at 104.19. The index has seen an increase of over 3% so far this month.

With the presidential election still weeks away, investors are assessing the risks associated with a potential Republican sweep, which is widely seen as the most bullish scenario for the greenback. In the latest Reuters/Ipsos poll, Democratic U.S. Vice President Kamala Harris holds a slight lead over Republican former President Donald Trump, with 46% to 43%. However, markets seem to be pricing in a Trump victory, but there is still ample time for a repricing, according to Simpson. He added that if markets begin to price in a Harris win, there might be a slight pullback in the dollar and yields, as her policies are considered less inflationary.

The increase in U.S. Treasury yields has continued to put pressure on the yen, which fell to a three-month low of 151.72 against the greenback. Japan is scheduled to hold a general election on October 27, and recent opinion polls suggest that the ruling Liberal Democratic Party, along with its coalition partner Komeito, could lose its majority. The risk of a minority coalition government has raised concerns about potential political instability, which could complicate the Bank of Japan's efforts to reduce reliance on monetary stimulus.

Elsewhere, the euro was last trading at $1.0794, after falling to its lowest point since August 2 at $1.0792. European Central Bank policymakers have been highlighting the risk of inflation falling below the bank's 2% target. Sterling was at $1.2976, following a drop to its lowest since August 19 at $1.2945 in the previous session.

In the cryptocurrency market, bitcoin experienced a 0.33% decrease, trading at $67,254.00.