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Investing.com -- The U.S. dollar on Wednesday firmed and remained at an over one-year high, as sputtering risk sentiment due to under-pressure technology stocks offset a slight easing in rate hike bets.

The dollar remained an asset of choice as Wall Street largely failed to rebound from a steep sell-off in technology stocks. Still, sliding oil prices to levels just before and after the start of the Iran war led to traders paring back their expectations for Federal Reserve policy tightening and snapping up government bonds, which in turn put pressure on U.S. Treasury yields.

At 16:40 ET (20:40 GMT), the U.S. dollar index, which tracks the greenback against a basket of six major peers, was up 0.2% to 101.58, its highest level since mid-May 2025.

Yields slide but Fed unlikely to change hawkish stance

The Fed last week struck a much more hawkish tone than expected, as its updated set of economic projections showed at least half of the central bank's policymakers anticipating interest rate hikes this year to combat the inflationary shock caused by surging oil prices due to the Middle East conflict.

Currency market participants responded by driving up their own expectations of Fed rate hikes. The U.S. dollar index has gained every day this week as higher rate environments generally tend to strengthen the greenback. U.S. Treasury yields also jumped since the Fed's hawkish turn, as bonds were dumped.

However, inflationary concerns have tumbled recently as oil prices have slid following the reopening of the Strait of Hormuz and improving shipping activity through the vital waterway. Brent crude futures expiring in September, the global oil benchmark, on Wednesday hit their lowest level since February 27, just a day before the U.S. and Israel launched their joint assault on Iran.

Investors reacted by trimming their rate hike expectations, according to the CME FedWatch tool. Treasury yields also slid as the bond sell-off stopped, with the longer-end, benchmark U.S. 10-year yield last down 9 basis points to 4.396% and the shorter-end, more rate-sensitive 2-year yield down 5 basis points to 4.146%.

"A recovery in commercial traffic along the Strait of Hormuz is sparking a Treasury rally as inflation concerns are being quelled by crude oil plunging below $70 a barrel," José Torres, senior economist at Interactive Brokers, said.

"The relief in price-pressure expectations has a duration, driving today's robust fixed-income performance as yields descend in a bull-flattening motion, with longer tenors leading," he added.