The US dollar strengthens as investors react to market volatility and expectations of higher interest rates.
The US dollar climbed to a fresh 13-month high on Wednesday as investors shifted towards safer assets following a sell-off in technology stocks and rising expectations of further Federal Reserve rate hikes.
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A broad decline in technology and semiconductor shares pushed global markets lower. As a result, investors increased demand for traditional safe-haven assets, including the US dollar and government bonds.
Meanwhile, expectations of tighter US monetary policy continued to strengthen. Federal Reserve officials adopted a more hawkish tone as the US economy remained resilient.
According to market pricing, investors now see a 37 percent chance of a 25-basis-point rate increase at the July meeting. That figure stood at 8.5 percent a week earlier. Expectations for a September increase also rose to 70 percent from 29.1 percent, according to CME FedWatch.
The dollar index, which tracks the currency against major peers including the euro and Japanese yen, rose to 101.44. Consequently, the greenback reached its strongest level since May 2025.
Ray Attrill, head of foreign exchange strategy at National Australia Bank, said the US dollar remained investors’ preferred safe-haven asset.
However, he said much of the momentum may already be reflected in market pricing. He added that the dollar may need either a broader shift in risk sentiment or stronger expectations of rate hikes to extend gains significantly.
Meanwhile, the euro traded near a one-year low at $1.1375.
The British pound also weakened slightly to $1.3199. This followed comments from Bank of England policymaker Alan Taylor, who supported keeping interest rates unchanged for an extended period.
Elsewhere, the Australian dollar remained steady at $0.6918 ahead of inflation data due later in the day. At the same time, the New Zealand dollar slipped to $0.5665 and reached a seven-month low.
Safe-haven demand also received support from geopolitical concerns.
Although the United States and Iran continue diplomatic engagement, differences remain over nuclear issues and control of the Strait of Hormuz. Therefore, investors remain cautious about the durability of the current peace framework.
Meanwhile, the Japanese yen weakened further and traded at 161.57 per dollar. Earlier in the week, it briefly touched 161.93, its weakest level in nearly two years.
If the currency breaks above 161.96, it would reach its lowest level since 1986.
Recent verbal warnings from Japanese officials failed to ease pressure on the yen. Investors continue to focus on the wide interest rate gap between Japan and the United States.
Former Bank of Japan policymaker Sayuri Shirai warned that the yen could weaken to 165 per dollar if the Federal Reserve raises rates later this year.
In addition, a summary of views from the Bank of Japan’s June meeting showed that some policymakers support further rate increases to move borrowing costs closer to neutral levels.
