Global Risk-Off Lifts US Dollar
The US dollar strengthened again on Wednesday (June 24th), hitting a 13-month high against a basket of major global currencies. The US dollar index rose to around 101.69, its strongest level since May 2025. This strengthening occurred as investors sought refuge amid a selloff in technology stocks and growing expectations that the Federal Reserve would still raise interest rates.
Stock market volatility is one of the main drivers of demand for the dollar. The massive selloff in the technology and semiconductor sectors has caused investors to reduce positions in riskier assets. Under these conditions, the US dollar and US government bonds have again become the preferred choice as they are considered safer. Pressure in the stock market has also made investors increasingly cautious about the artificial intelligence (AI)-driven rally, which had previously surged too high.
From a monetary policy perspective, expectations for a Fed rate hike continue to rise. The market now estimates the chance of a rate hike in July has risen to around 36%, significantly higher than 9% the previous week. For the September meeting, the chance of a rate hike is already above 70%. These expectations emerged after several Fed officials issued hawkish signals, supported by the still-strong US economy and persistent inflationary pressures.
The strengthening dollar also put pressure on several major currencies. The pound sterling weakened slightly to around US$1.319 after Bank of England official Alan Taylor assessed that holding interest rates for longer was still an appropriate response to inflationary pressures. The Australian dollar also fell to around US$0.689, its lowest level since early April, as mixed inflation data made the direction of Australia's interest rate policy unclear.
The Japanese yen remains in the spotlight, unable to shake off significant pressure. USD/JPY is hovering around 161.69, approaching a level that could take the yen to its weakest level since 1986 if it breaks through 161.96. Verbal warnings from Japanese officials have not been helpful, while the government is preparing measures to manage its US$1.3 trillion foreign exchange reserves to counter potential yen intervention.
Although the Bank of Japan has begun to open up the possibility of additional interest rate hikes, pressure on the yen has not subsided due to the widening interest rate differential between Japan and the United States. A summary of the BoJ's June meeting showed that several board members supported further interest rate hikes to bring Japan's policy closer to neutral. However, as long as the dollar remains supported by hawkish Fed expectations and markets continue to seek safe havens, pressure on the yen and other currencies could continue. (arl)
Source: Newsmaker.id
