Market News
US rate-hike bets hold dollar near 13-month highs - REUTERS
By Tom Westbrook
SINGAPORE, June 25 (Reuters) — The U.S. dollar continued its powerful rally on Thursday, heading for its strongest monthly performance in almost a year as investors increased bets that resilient U.S. economic growth will keep interest rates elevated.
The greenback has surged against major currencies, supported by widening interest rate differentials, stronger Treasury yields and expectations that the Federal Reserve could raise rates again before the end of the year.
Markets are also awaiting key U.S. inflation data, which could provide further direction for monetary policy.
Dollar Breaks Key Technical Levels
The dollar has strengthened significantly against the euro this week, breaking below the $1.14 level and reaching $1.1325, its strongest level in 13 months, before easing slightly to around $1.1370 during Asian trading.
The U.S. Dollar Index (DXY), which tracks the currency against a basket of six major peers, climbed to 101.8 on Wednesday—its highest level in 13 months—before trading around 101.5 on Thursday.
Against the Japanese yen, the dollar rose to 161.73, leaving the yen within touching distance of its weakest level in more than 40 years.
Fed Expectations Continue to Support Dollar
Investors have sharply revised their interest-rate expectations following the Federal Reserve's latest policy meeting.
Before the outbreak of the U.S.–Iran conflict, markets had expected the Fed to begin cutting interest rates later this year.
Now, traders are increasingly pricing in the possibility of a rate hike as early as October, following hawkish signals from Federal Reserve officials.
"The Fed is sending hawkish signals," said Moh Siong Sim, currency strategist at OCBC.
"That has pushed up expectations of rate hikes by the end of this year."
Yield Advantage Widens
The dollar's rally has been reinforced by widening interest-rate differentials between the United States and other major economies.
Since the beginning of May:
- U.S. two-year Treasury yields have risen 27 basis points to 4.15>#/strong###.
- Germany's equivalent two-year government bond yield has fallen 7 basis points to 2.56>#/strong###.
The spread between 10-year U.S. Treasury yields and German government bonds has also widened by around 20 basis points, exceeding 150 basis points.
The growing yield advantage has increased the attractiveness of dollar-denominated assets.
Structural Strength Supports Dollar
Analysts also point to longer-term economic fundamentals supporting the U.S. currency.
According to Steve Englander, Head of Global G10 Currency Research at Standard Chartered:
"We believe the move in rates and the dollar reflects expectations of cyclical and structural U.S. economic outperformance."
He added that stronger productivity growth, partly driven by advances in artificial intelligence, is expected to support higher corporate earnings and attract additional foreign capital into U.S. markets.
Strong Dollar Pressures Commodities
The strengthening dollar has weighed heavily on commodity prices.
Gold briefly fell below $4,000 per ounce for the first time in more than seven months, as higher interest-rate expectations reduced the appeal of non-yielding assets.
Bitcoin also came under pressure, falling below $60,000 for the first time since 2024.
Other Major Currencies Weaken
The dollar's broad-based strength has pushed several major currencies to multi-month lows.
- British pound: Fell to a seven-month low of $1.314 before stabilising.
- Swiss franc: Weakened to 0.8139 per dollar, its lowest level in 11 months.
- Australian dollar: Traded around $0.69, down 1.8>#/strong### for the week despite improving employment data.
- New Zealand dollar: Fell to $0.5646, remaining near a seven-month low after declining 1.7>#/strong### during the week.
Risk-sensitive currencies such as the Australian and New Zealand dollars have also been affected by weakness in global equity markets.
Focus Turns to U.S. Inflation Data
Investors are now awaiting the release of key U.S. inflation figures, which could significantly influence expectations for future Federal Reserve policy.
A stronger-than-expected reading could reinforce expectations of additional rate hikes and extend the dollar's rally, while a softer inflation print may ease pressure on global financial markets.
