The US dollar hits a year's highest level

Written by Ziad Abdel Fattah:

The US dollar continued its strong gains, hitting a one-year high on Thursday, after hawkish signals from the US Federal Reserve reinforced market expectations of interest rate hikes in the coming months, putting broad pressure on major currencies, most notably the Japanese yen.

Half of the council members favor raising interest rates.

At its last meeting, the Federal Reserve kept interest rates unchanged at a range between 3.50% and 3.75%, but updated projections from monetary policymakers showed that about half of the board members now expect another rate hike this year amid continuing inflation concerns.

Strong US economic data reinforced these expectations, as recent labor market reports showed better-than-expected performance, while recent data revealed a decline in weekly unemployment claims, reflecting the continued strength of the US labor market.

The dollar index, which measures the performance of the US currency against a basket of major currencies, rose 0.45% to 100.80 points, its highest level since May 2025, after recording its biggest daily gain in more than three months in the previous session.

Pressure on major currencies

In contrast, major currencies came under significant pressure, with the euro falling 0.31% to $1.1463 and the pound sterling dropping 0.62% to $1.3206, both hitting their lowest levels in more than two months.

The Japanese yen was among the hardest hit, falling to 161.45 yen against the dollar, its lowest level since July 2024, raising growing concerns among Japanese authorities about the stability of the currency.

The sharp decline in the yen prompted officials in Tokyo to renew their warnings about currency market movements, with Chief Cabinet Secretary Minoru Kihara confirming the government's readiness to take appropriate measures to support the currency if necessary.

Additional support for the dollar

Analysts believe that the Federal Reserve's tightening stance, coupled with strong US economic data, will provide additional support for the dollar in the coming period, especially with investors increasingly betting on interest rate hikes by next September.

In a related context, the Bank of England kept interest rates unchanged at 3.75%, a move that was in line with market expectations, amid continued anticipation of the course of global monetary policy during the second half of the year.