Market News
Dollar Holds Two-Month High as Fed Hawkishness Fuels Rate-Hike Bets, Yen Weakens - REUTERS
By Jiaxing Li
HONG KONG, June 18 (Reuters) — The U.S. dollar remained near a more than two-month high on Thursday after the Federal Reserve's hawkish policy stance boosted expectations of another interest-rate increase later this year, while renewed weakness in the Japanese yen prompted fresh warnings from Japanese authorities.
The dollar's strength persisted despite easing geopolitical tensions following a U.S.–Iran agreement, as investors focused instead on the Federal Reserve's updated outlook and growing concerns over inflation.
Fed Signals Possible Tightening Ahead
On Wednesday, the Federal Reserve kept its benchmark interest rate unchanged within the 3.50%–3.75% range, marking the first policy meeting under new Chair Kevin Warsh.
While rates were left on hold, nearly half of Fed policymakers now expect at least one rate hike before the end of the year, citing persistent inflationary pressures.
Market expectations have shifted sharply in response. According to CME FedWatch data, traders now assign an 85% probability to a rate increase in December.
A stronger-than-expected U.S. retail sales report further reinforced expectations that the Fed may need to maintain a tighter monetary policy stance for longer.
Dollar Maintains Broad Strength
The dollar index, which measures the U.S. currency against a basket of major peers, was little changed at 100.24 after surging 0.85>#/strong### in the previous session.
The gain marked the index's strongest level since March 31 and its largest one-day rise in more than three months.
The euro edged slightly higher to $1.1518, while the British pound strengthened to $1.3313, recovering modestly after both currencies touched two-month lows earlier in the week.
"The dollar is making some sizeable gains, and this is going to take a little while to shrug off," said Gavin Friend, Senior Markets Strategist at NAB.
"It looks like we could be pushing into new territory here for the dollar," he added.
Yen Under Pressure
The Japanese yen remained under pressure as widening interest-rate differentials continued to favour the U.S. dollar.
The renewed weakness has drawn fresh verbal intervention warnings from Japanese officials, who have become increasingly concerned about excessive currency volatility.
Market participants are closely watching for any signs that Japanese authorities could step in to support the currency should depreciation accelerate further.
Risk Sentiment Improves
Meanwhile, a preliminary agreement between the United States and Iran helped reduce concerns over energy supply disruptions, contributing to lower oil prices and supporting broader market risk appetite.
However, the impact of easing geopolitical tensions was overshadowed by the Fed's unexpectedly hawkish tone, which remained the primary driver of currency market movements.
