Dollar Hovers at a One-Year High

The dollar index traded around 100.8 on Friday, holding near one-year highs as prospects of higher interest rates supported the currency following a hawkish Fed Reserve signal. The Fed left rates unchanged as expected but noted growing support for tighter policy later this year. Around half of FOMC members now project at least one rate hike in 2026. New Fed Chair Kevin Warsh declined to provide guidance on the next policy move but emphasised that inflation has remained above the 2% target for several years, reaffirming the Fed’s commitment to restoring price stability. Markets are currently pricing in roughly a 50% chance of a 25bp rate hike in September. Geopolitical concerns also resurfaced after US-Iran talks scheduled for Friday in Geneva were cancelled. Reports also suggested thinner traffic through the Strait of Hormuz, contributing to firmer oil prices. The dollar gained about 1.1% over the week.

The dollar index rose to around 101 on Friday, scaling its highest levels since May 2025 as investors piled on rate hike bets this year following hawkish signals from the Federal Reserve. On Wednesday, the Fed left rates unchanged as widely expected, but roughly half of FOMC members now anticipate at least one rate increase in 2026. The central bank also raised its inflation projections to account for the economic effects of the conflict in the Middle East. Chair Kevin Warsh declined to provide guidance on the next policy move but reaffirmed the Fed’s commitment to restoring price stability. Meanwhile, the US-Iran interim peace agreement took effect on Thursday, bringing an end to a prolonged conflict that triggered a historic disruption to global energy supplies. While the deal helped ease geopolitical risks and pushed oil prices lower, markets remained focused on the Fed’s policy outlook and the prospect of tighter monetary conditions.

The dollar index extended its gains for a second straight session, rising to 100.8 on Thursday and reaching its highest level since May 2025, as investors ramped up bets on Fed rate hikes later this year following a hawkish signal from the Federal Reserve. The Fed left rates unchanged as expected but signalled growing support for tighter policy later this year. Around half of FOMC members now project at least one rate increase in 2026, while the central bank also raised its inflation forecasts amid the economic impact of the conflict in the Middle East. Fed Chair Kevin Warsh declined to provide guidance on the next policy move but stressed that inflation has remained above the 2% target for several years, reaffirming the Fed’s commitment to restoring price stability. Markets are now fully pricing in a rate hike by October. The greenback strengthened broadly, with the largest gains seen against the British pound and Swiss franc after both the BoE and the SNB kept rates unchanged.