US Dollar Soars to Year-Long High, Fed Leads
The US dollar strengthened to its highest level in more than a year on Tuesday (June 23rd), as investors grew confident that the Federal Reserve still has a chance to raise interest rates before the end of the year. The US dollar index rose to around 101.37, supported by persistently high US government bond yields and a shift in market expectations regarding the direction of interest rates. This condition strengthened the greenback against a number of major global currencies.
The dollar's strengthening occurred after the Fed's meeting last week under new Chairman Kevin Warsh was interpreted by the market as a hawkish signal. Although the Fed maintained interest rates in the 3.50% to 3.75% range, investors saw the likelihood of additional tightening increasing. According to CME FedWatch, the probability of a 25 basis point interest rate hike in July rose to 34.2% from 8.5% a week earlier. For September, the probability of a rate hike jumped to 69.5% from 29.1% the previous week.
The dollar's strength put pressure on other major currencies. The euro fell to its lowest level since August 2025 after European Central Bank President Christine Lagarde downplayed the risk of further inflationary impacts. Meanwhile, recent data showed that eurozone private sector activity contracted for the third consecutive month in June. This situation has led the market to see an increasingly clear divergence in policy direction between the more hawkish Fed and the more cautious ECB.
The pound sterling also weakened in volatile trading after the resignation of British Prime Minister Keir Starmer added to political uncertainty in the UK. Investors are monitoring whether the leadership change will affect government spending plans, tax policy, and economic growth prospects. Concerns are growing that any overly aggressive fiscal policy changes could add pressure to the already sluggish UK economy.
The Japanese yen remains in the spotlight, hovering near its weakest level since 1986. USD/JPY is trading around 161.43 after touching 161.93 in the previous session. A break above 161.96 would put the yen at risk of weakening to its worst level in nearly 40 years. This situation has made the market wary of potential Japanese intervention, especially since Japanese Finance Minister Satsuki Katayama has discussed the weakening yen and currency volatility with US Treasury Secretary Scott Bessent.
Going forward, the dollar's direction will be largely determined by US economic data. Investors are awaiting Personal Consumption Expenditures (PCE) inflation data, the June PMI, and the revised first-quarter economic growth. If the data shows inflation remains high and the economy remains strong, the dollar's rally could potentially continue. However, if the data weakens, the market could further trim expectations for interest rate hikes and limit the greenback's strength.
Source: Newsmaker.id
