Dollar Rises as Fed Outlook Mulled

The dollar index hovered around 101.4 on Wednesday, trading at its highest level in more than a year as expectations for Federal Reserve rate hikes this year remained strong, while a technology-led selloff on Wall Street boosted demand for the safe-haven currency. At its latest policy meeting, Fed officials left interest rates unchanged but signaled increasing support for further tightening, while new Fed Chair Kevin Warsh reiterated his commitment to restoring price stability. Markets are now pricing in roughly a 70% probability of a rate increase in September, up sharply from 29.1% a week earlier. Investors are also looking ahead to this week’s PCE inflation report, the Fed’s preferred inflation gauge, for additional clues on the outlook for monetary policy. Meanwhile, progress in US-Iran peace negotiations has increased traffic through the Strait of Hormuz, easing strains in global energy markets and helping to reduce inflationary pressures.

The dollar index rose for a fourth consecutive session to 101.3 on Tuesday, its highest level since April last year, extending gains as investors continued to price in the prospect of Fed rate hikes this year. The greenback also drew support from a flight to safety triggered by a sell-off in technology stocks. A hawkish message from the Fed last week has led markets to increase bets on monetary tightening, with traders now assigning a roughly 68% probability to a rate hike in September, up from 29% a week ago. Additional support came from stronger-than-expected flash S&P Global PMI data, which pointed to resilient economic activity in June. Investors will now turn their attention to this week's PCE inflation report, the Fed's preferred measure of inflation, for further clues on the path of interest rates. Among major currencies, the dollar posted its strongest gains against the Australian dollar and the euro.

The dollar index traded around 101 on Tuesday, hovering near its highest level since May 2025 as investors assessed signs of progress in US-Iran peace talks while continuing to gauge the outlook for Federal Reserve interest rate hikes this year. In a key development, Washington granted Tehran a 60-day license to sell oil on international markets, boosting expectations of a faster recovery in global supply. Meanwhile, markets remain positioned for Fed rate hikes following the central bank’s hawkish stance last week and upward revisions to its inflation projections. Both Deutsche Bank and BofA Global Research have updated their forecasts to include a rate increase in September. Investors are now focused on this week’s PCE report, which contains the Fed’s preferred inflation measure and could offer fresh clues on underlying price pressures.