Dollar Stands Tall on Hawkish Fed Bets

The dollar index traded near 101.5 on Thursday, holding around its highest levels in more than a year as investors continued to price in Federal Reserve interest rate hikes later this year, while awaiting a key inflation report for further direction. Last week, the Fed signaled growing support for tighter monetary policy, with Chair Kevin Warsh reaffirming his commitment to restoring price stability. Those expectations have largely outweighed the impact of progress in US-Iran peace negotiations, which have pushed oil prices back to pre-conflict levels and helped ease inflation concerns. Market participants are now focused on the latest PCE price index report, the Fed’s preferred measure of inflation. Other closely watched releases include final first-quarter GDP figures, May personal income and preliminary durable goods orders data, as well as weekly jobless claims for the period ending June 20.

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.