Dollar holds near two-month high as Fed rate-hike bets rise, yen nears intervention level

The US dollar remained near a more than two-month high on Thursday as investors increased bets on a Federal Reserve interest-rate hike this year, pushing the Japanese yen closer to levels associated with possible official intervention.

The dollar index, which measures the US currency against a basket of major currencies including the euro and yen, was little changed at 100.31.

It had risen 0.85% in the previous session to its highest level since March 31, recording its largest one-day gain since March 2.

The Federal Reserve kept its benchmark interest rate unchanged in the 3.50% to 3.75% range at Kevin Warsh’s first meeting as chair, while also launching a broader review of its policy framework.

However, nearly half of Federal Reserve policymakers now expect an interest-rate increase this year amid concerns over inflation.

Federal funds futures were pricing in an 83% probability of a rate increase in December, according to CME FedWatch. Strong US retail sales data added to expectations that monetary policy could remain tighter for longer.

The dollar also received support from continued uncertainty in the Gulf after US President Donald Trump said attacks could resume if Iran violated the ceasefire agreement.

The comments kept oil prices elevated and weakened investors’ appetite for risk. Iran’s leadership did not immediately respond to the warning.

The Japanese yen weakened as far as 160.760 against the dollar after touching its lowest level since 2024 overnight.

The currency remained close to 160 per dollar, a level widely viewed by markets as a potential trigger for intervention by Japanese authorities.

The euro edged higher to $1.1511, while sterling strengthened to $1.3318 after both currencies earlier touched two-month lows.

The Australian dollar and New Zealand dollar, which tend to respond to changes in global risk sentiment, each gained around 0.2%.

The Australian dollar traded at $0.7025, while the New Zealand dollar stood at $0.5780.

NAB senior markets strategist Gavin Friend said the dollar’s recent gains could take time to reverse and that the currency might move into stronger territory.

Elsewhere, the Bank of England was expected to leave interest rates unchanged at 3.75% later on Thursday as it assessed the inflationary implications of the tentative truce in the Iran conflict.