PCE Key to the Dollar's Next Rally
The US dollar strengthened to its highest level in more than a year on Tuesday (June 23rd), as speculation mounted that the Federal Reserve would raise interest rates again before the end of the year. The US dollar index rose to around 101.24, supported by still-high US government bond yields and a shift in market expectations regarding the direction of monetary policy. This made the greenback increasingly attractive compared to other major currencies.
The dollar strengthened after the Fed's meeting last week showed a more hawkish stance. Although the US central bank maintained interest rates in the 3.50%–3.75% range, the latest projections show greater support for at least one rate hike before the end of the year. Reuters noted that markets are now pricing in a strong chance of a rate hike, with speculation of a Fed hike pushing the dollar to its highest level since May 2025.
Pressure was also seen on the euro. The single European currency weakened after European Central Bank President Christine Lagarde allayed concerns about second-round inflation effects. Meanwhile, the latest data showed that eurozone private sector activity continued to contract for the third consecutive month, with the composite PMI coming in at 49.5 in June. The combination of a weak economy and a more cautious ECB stance further pressured the euro against the dollar.
The pound sterling also weakened in volatile trading after the resignation of British Prime Minister Keir Starmer added to political uncertainty in the UK. Meanwhile, the risk-sensitive Australian dollar fell to its lowest level since April. The weakening of several major currencies suggests that the market is seeking refuge in the US dollar, especially as the direction of global interest rates becomes increasingly uncertain.
The Japanese yen is in the spotlight, moving back near its weakest level in nearly 40 years. USD/JPY is hovering around 161.43 after previously touching 161.93. If it passes 161.96, the yen risks falling to its weakest level since 1986. This situation has made market participants wary of potential intervention from Japanese authorities, especially as Japanese Finance Minister Satsuki Katayama has discussed with US Treasury Secretary Scott Bessent the weakening yen and currency volatility.
Going forward, the market will focus on a series of US economic data, particularly the Personal Consumption Expenditures (PCE) price index, the Fed's favorite inflation indicator. The June PMI data and revised first-quarter economic growth will also be of interest. If the data shows the US economy remains strong and inflation remains high, the dollar's rally could continue. However, if the data starts to weaken, the market could further cut interest rate hike expectations and curb the greenback's strengthening. (arl)
Source: Newsmaker.id
