The U.S. dollar soared to its highest level in more than a year on expectations of a Fed rate hike

On Thursday, June 18, the U.S. dollar rose to its highest level in more than a year after the Federal Reserve’s decision to keep interest rates unchanged, coupled with a “hawkish” tone, sparked market expectations of a rate hike, Reuters reports. Amid growing concerns about inflation, nearly half of the Committee members now expect interest rates to rise this year.

The dollar index, which measures the value of the U.S. dollar against a basket of six major currencies, including the yen, the euro, and the British pound, rose 0.36% to 100.71 points during trading on June 18, reaching its highest level since May 2025, Reuters reports. During the previous session, the index jumped 0.85%, marking its largest one-day gain in more than three months.

Meanwhile, the single European currency fell 0.3% against the U.S. dollar to $1.146, while the British pound lost 0.54%, dropping to $1.322. Both currencies hit their lowest levels in more than two months, the agency notes.

Oil prices fell on Thursday, June 18, after the U.S. and Iran signed an interim peace agreement. However, the drop in oil prices did little to prevent the U.S. dollar from strengthening amid expectations of interest rate hikes, the agency notes.

“The Fed’s ‘hawkish’ policy shift [under new Chair Kevin Warshe] threatens to trigger a ‘bullish’ breakout for the U.S. dollar,” noted MUFG Senior Currency Analyst Lee Hardman. The dollar rose as investors sharply revised their forecasts for short-term U.S. interest rates upward. According to him, this factor completely outweighed the negative impact of the news about the agreement between Washington and Tehran, he added.

“Markets are assessing whether the Strait of Hormuz can truly be opened to allow free passage of ships,” said Kimmy Tong, a global markets strategist at Everbright Securities International, according to Reuters. Until this is confirmed, sentiment in favor of a stronger dollar is likely to continue to dominate — “given the Fed’s inclination toward tightening monetary policy,” she added.

Société Générale still considers a weakening of the U.S. dollar unlikely, said the bank’s chief U.S. economist, Jan Grün, according to SeekingAlpha. In his view, the resilience of the U.S. economy should support the dollar and, over time, ensure a favorable interest rate differential between the U.S. and other countries.

The Fed rate futures market is pricing in a 69% probability of a rate hike by September, according to LSEG data. These expectations are further supported by stronger forecasts for U.S. economic growth: the last three jobs reports showed much higher monthly job gains than economists had predicted, according to Reuters. Following its June 16–17 meeting, the Fed unanimously kept the federal funds rate unchanged at 3.5–3.75%.

This article was AI-translated and verified by a human editor