Key facts
- The U.S. dollar reached a 13-month high against a basket of major currencies.
- Global stock markets experienced a broad selloff, particularly in technology and semiconductor sectors.
- Expectations for Federal Reserve rate hikes have increased significantly.
- The euro and British pound weakened against the dollar.
- The Japanese yen is under pressure, nearing historic lows.
The U.S. dollar surged to a 13-month high against a basket of major currencies, fueled by a selloff in technology stocks and increasing expectations of further Federal Reserve rate hikes. Global equity markets experienced a broad decline, prompting investors to seek refuge in safe-haven assets like the dollar and bonds.
Market volatility intensified as technology and semiconductor sectors led the downturn in global shares. Concurrently, the prospect of U.S. interest rate increases grew, with Fed officials adopting a hawkish stance amid a strong economy. CME FedWatch data indicated a significant rise in market pricing for a July rate hike, with probabilities exceeding 70% for a September increase.
The dollar index, which tracks the greenback against currencies including the euro and yen, reached 101.51, its highest point since May 2025. Ray Attrill, head of FX strategy at National Australia Bank, noted the dollar's current momentum as a preferred safe haven but suggested that much of this is already priced in, awaiting broader risk sentiment correction or further rate hike expectations.
The euro weakened to approximately $1.1363, nearing a one-year low, while the British pound saw a slight decline to $1.3194 following comments from Bank of England policymaker Alan Taylor advocating for an extended pause on interest rates. The risk-sensitive Australian dollar held steady at $0.6918, an 11-week low, amid mixed inflation data, and the New Zealand dollar fell to a seven-month low of $0.5654.
Geopolitical tensions, particularly between the U.S. and Iran regarding nuclear matters and the Strait of Hormuz, also contributed to safe-haven demand. The Japanese yen continued to weaken, trading at 161.55 against the dollar, with a break above 161.96 potentially marking its weakest level since 1986. Despite verbal warnings from Japanese officials, the currency remains under pressure, prompting plans for managing foreign exchange reserves for potential intervention. Former Bank of Japan policymaker Sayuri Shirai suggested the yen could fall to 165 per dollar if the Fed raises rates further.