Dollar sees 'bullish break' on Fed rate-hike bets

The dollar staged its biggest two-day rally in nearly three months, driving it back toward the late-March peak, as traders piled into bets that the Federal Reserve will start raising interest rates as soon as late next month.

The advance has driven the Bloomberg Dollar Spot Index up some 1% as Wednesday's Fed meeting, the first under Chairman Kevin Warsh, buttressed speculation that the central bank will start tightening monetary policy to rein in the recent surge of inflation.

As bond traders positioned for the shift, driving short-term Treasury yields up sharply, global investors were given a renewed incentive to shift money into US assets. The euro dropped to the lowest since late March, the Canadian dollar hit the weakest levels since April 2025 and the yen slid to the lowest in nearly two years.


The signals from the Fed provided a renewed boost to the dollar, sending it back toward levels since after the outbreak of the US war on Iran pushed up oil prices and revived the currency's status as a financial-market haven.

"The Fed's hawkish policy update is threatening to trigger a bullish break out for the US dollar, more than offsetting the dampening impact from the US-Iran deal," said Lee Hardman, a strategist at MUFG Bank.

The US-Iran peace agreement is shifting attention back to the strength of the underlying US economy as oil prices retreat. And that has continued to remain relatively strong, in part due to the surge of spending on artificial intelligence.