Dollar Hits One-Month High as Hawkish Fed Outlook Boosts Greenback

The U.S. dollar climbed to its strongest level since mid-May 2025 on Thursday after the Federal Reserve signaled a more hawkish monetary policy outlook, reinforcing expectations that interest rates could rise again before the end of the year.

The U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, advanced 0.7% to 100.83. Investor sentiment remained focused on the Federal Reserve’s latest policy decision, where officials unanimously kept the federal funds rate unchanged at 3.50%–3.75%.

While rates were left on hold, markets reacted strongly to the Fed’s updated Summary of Economic Projections (SEP). The latest dot plot indicated a federal funds rate of 3.8% by the end of 2026, higher than the 3.4% projected in March. Notably, nine of the eighteen Federal Open Market Committee (FOMC) participants now expect at least one quarter-point rate increase this year, marking a significant shift from earlier expectations for rate cuts. Higher interest rates generally support the U.S. dollar by increasing returns on dollar-denominated assets.

The meeting also marked the first policy decision under new Federal Reserve Chair Kevin Warsh. During his inaugural press conference, Warsh announced reviews of the Fed’s communications strategy, balance sheet management, economic data usage, AI’s impact on productivity and employment, and the central bank’s inflation framework. However, he emphasized that the Fed’s 2% inflation target remains unchanged.

Meanwhile, the Bank of England held its benchmark interest rate steady at 3.75%, citing ongoing inflation concerns despite easing energy market pressures. Following the decision, the British pound fell 0.6% against the dollar to $1.3203.

In Asia, the Japanese yen weakened further, pushing USD/JPY above the closely watched 160 level. Japanese officials reiterated their readiness to intervene if currency volatility intensifies.

Geopolitical developments also supported market sentiment after the United States and Iran signed an interim memorandum of understanding aimed at reducing regional tensions. The agreement includes a 60-day negotiation period, commitments regarding Iran’s nuclear program, and the reopening of the Strait of Hormuz without additional transit charges.

Despite improved risk appetite following the diplomatic breakthrough, the Fed’s unexpectedly hawkish stance remained the dominant market driver, helping propel the U.S. dollar higher against major global currencies.