Market News
Dollar hits one-year high on Fed hike bets; Japan warns on yen - REUTERS
By Karen Brettell and Harry Robertson
NEW YORK, June 18 (Reuters) — The U.S. dollar index climbed to a one-year high on Thursday after the Federal Reserve adopted a more hawkish stance, prompting investors to increase bets on further interest-rate hikes this year.
The stronger dollar pushed the Japanese yen to its weakest level in two years, drawing renewed warnings from Japanese officials concerned about excessive currency volatility.
Fed Signals Higher Rates May Be Ahead
The Federal Reserve left its benchmark interest rate unchanged at 3.50% to 3.75>#/strong### on Wednesday, marking the first policy meeting under new Chair Kevin Warsh.
While rates remained on hold, updated economic projections revealed that nearly half of Fed policymakers now expect at least one rate increase before the end of the year as inflation concerns persist.
Warsh did not provide specific guidance on future policy moves, but the revised outlook was interpreted by markets as a clear hawkish signal.
According to LSEG data, futures markets are now pricing in a 68% probability of a rate hike by September.
Strong U.S. Data Supports Dollar
Expectations of tighter monetary policy have been reinforced by a series of stronger-than-expected economic reports.
The last three U.S. employment reports showed significantly larger job gains than economists had forecast, highlighting continued strength in the labour market.
Additional data released on Thursday showed that the number of Americans filing new claims for unemployment benefits declined last week, indicating that layoffs remain low and labour market conditions remain resilient.
"We've seen very spectacular data in the U.S. that's been surprising to the upside since late April," said Sarah Ying, Head of FX Strategy at CIBC Capital Markets.
"Then the Fed was as hawkish as market expectations could ever have been, so we've seen more dollar upside," she added.
Yen Under Pressure
The widening gap between U.S. and Japanese interest rates has continued to weigh on the yen.
The Japanese currency weakened to its lowest level in two years against the dollar, increasing speculation that Japanese authorities may intensify verbal intervention efforts or consider additional measures to support the currency.
Market participants remain alert to any signs of direct intervention from Tokyo should the yen's decline accelerate further.
Market Focus
Investors will now be closely watching upcoming U.S. economic data and comments from Federal Reserve officials for further clues on the timing of potential rate increases.
With economic growth remaining robust and inflation concerns lingering, markets increasingly believe the Fed may need to tighten policy further before year-end.
Key Market Indicators
- Federal Funds Rate: 3.50%–3.75%
- Probability of September Rate Hike: 68%
- Dollar Index: One-year high
- Japanese Yen: Weakest level in two years
- U.S. Labour Market: Continued strength with lower unemployment claims
The combination of resilient economic data and a more hawkish Federal Reserve has strengthened the dollar's position, reinforcing expectations that U.S. interest rates may remain higher for longer.
Reporting by Karen Brettell and Harry Robertson; Editing by Reuters.
