Dollar Climbs to One-Year High Amid Fed Outlook as Japan Issues Yen Warning
The U.S. dollar rose to its highest in more than a year on Thursday after a hawkish hold from the Federal Reserve triggered bets on rate hikes, while yen weakness drew verbal warnings from Japanese officials.
The U.S. central bank held rates steady in a 3.50% to 3.75% range as new chair Kevin Warsh opened his era in charge with a sweeping policy review. Nearly half of policymakers now expect a hike this year as inflation concerns mount.
The Fed funds futures market is fully pricing in a rate hike by October, according to LSEG data, with a strong retail sales reading further adding to hawkish bets.
The euro fell 0.3% to $1.146, while sterling was down 0.54% at $1.322 , both at their lowest in more than two months.
The dollar index , which measures the greenback against a basket of currencies including the yen, euro and sterling, rose 0.36% to 100.71, the highest since May 2025.
It surged 0.85% the previous session, its biggest single-day jump in over three months.
“The Fed’s hawkish policy update is threatening to trigger a bullish break out for the U.S. dollar,” said Lee Hardman, senior currency analyst at MUFG.
“The U.S. dollar has derived support from the sharp adjustment higher for short-term U.S. rates … more than offsetting the dampening impact from the U.S.-Iran deal announcement over the weekend,” he said.
Oil prices eased on Thursday after the U.S. and Iran signed an interim agreement that would end the Iran war, reopen the Strait of Hormuz and waive U.S. sanctions on Iranian oil, sapping some strength from the safe-haven greenback.
Yet the fall in oil prices did little to stop the dollar rising on rate hike bets.
“Markets are examining whether the Strait of Hormuz can be reopened for free passage,” said Kimmy Tong, global market and FX strategist at Everbright Securities International.
“Until that is confirmed, sentiment favouring a stronger dollar should continue to dominate” considering the Fed’s tightening bias, she said.
The risk-sensitive Australian dollar was last down 0.1%.
The Japanese yen weakened to as low as 160.90 per dollar, its lowest since July 2024, wiping out gains made after Tokyo’s intervention on April 30.
The renewed slide prompted a fresh response from the government, with officials reiterating their readiness to support the currency.
“We are ready to respond appropriately to currency moves as needed at any time,” Chief Cabinet Secretary Minoru Kihara told a press conference on Thursday when asked about the yen’s decline.
Elsewhere, the Bank of England looks on course to keep interest rates unchanged at 3.75% later on Thursday as it assesses what a tentative truce in the Iran war means for inflation.
Reporting by Jiaxing Li in Hong Kong; Additional reporting by Harry Robertson in London; Editing by Jacqueline Wong, Kevin Buckland and Joe Bavier
This article was first reported by Reuters
