Dollar Continues to Strengthen

The dollar index extended its gains to above 101.7 on Wednesday, reaching its highest level since March 2025 and putting it on track for its longest winning streak in more than a month. The greenback continued to draw support from expectations that the Fed will keep monetary policy restrictive, with traders currently assigning a roughly 68% probability of an interest-rate increase in September, up from 29% a week earlier. Recent volatility in equity markets also boosted demand for safe-haven assets. The dollar advanced against most major currencies, including the euro, the pound, and the Swiss franc, as investors priced in a more hawkish Federal Reserve than other major central banks, supported by resilient economic activity and inflation that is expected to remain well above its target. The dollar has gained 3.5% so far this year.

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.