FX.co ★ Dollar Holds Firm on Rate Hike Expectations

The dollar index hovered around 101.4 on Wednesday, trading at its highest level in more than a year, as expectations for additional Federal Reserve interest rate hikes this year remained firm and a technology-led selloff on Wall Street boosted demand for the safe-haven currency. At its latest policy meeting, Fed officials left rates unchanged but signaled growing support for further tightening, while new Fed Chair Kevin Warsh reiterated his commitment to restoring price stability. Markets are now pricing in roughly a 70% probability of a rate hike in September, a sharp increase from 29.1% just a week earlier. Investors are also focused on this week’s PCE inflation report—the Fed’s preferred inflation gauge—for further insight into the monetary policy outlook. Meanwhile, progress in US-Iran peace negotiations has increased traffic through the Strait of Hormuz, easing strains in global energy markets and helping to reduce inflationary pressures.