Dollar clings to 2-month peak as Fed rate-hike bets mount, yen slides

HONG KONG, The US dollar clung to a more than two-month high on Thursday as markets ramped up wagers on Federal Reserve rate hikes this year, heaping fresh pressure on the Japanese yen toward intervention territory.

The US central bank held rates steady in a 3.50%-3.75% range as new chair Kevin Warsh opened the new era with a sweeping policy review. Nearly half of policymakers, however, now expect a hike this year on mounting inflation concerns.

The Fed funds futures market has now priced in an 83% chance of Fed tightening in December, according to CME FedWatch, with a strong retail sales reading further adding to hawkish bets.

Fresh Gulf uncertainties continued to sap risk appetite after US President Donald Trump said he could resume attacks if Iran violates the ceasefire agreement, keeping oil prices elevated and the dollar supported. Iran’s leaders did not address the new threats.

The euro last traded a shade stronger at US$1.1511 and sterling strengthened to US$1.3318, after the currencies touched two-month lows earlier.

The risk-sensitive Australian dollar and the New Zealand dollar were both up roughly 0.2% to US$0.7025 and US$0.5780, respectively.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was little changed at 100.31.

It surged 0.85% to the strongest level since March 31 in the previous session, in its biggest single-day gain since March 2.

“The dollar is up, making some sizeable gains… this is going to take a little while to shrug off,” NAB’s senior markets strategist Gavin Friend said in a podcast. “It looks like we could be pushing into new territory here for the dollar.”

The Japanese yen weakened to as much as 160.760 after hitting its weakest since 2024 overnight, continuing to hover around the 160 level, widely seen as a line in the sand for potential official intervention.

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.