Dollar Steamrolls Peers as Fed Opens Door for 2026 Rate Hike
The dollar capped its best day in more than three months as traders rushed to buy the US currency after Federal Reserve officials signaled growing support for interest-rate hikes this year.
The rose 0.7% on Wednesday, its best performance since early March. The pound slumped the most since September, while the euro’s loss was its steepest since March. The yen touched its cheapest level since July 2024, weakening further past the closely watched 160-per-dollar mark.
Fed policymakers led by new Chairman Kevin Warsh held borrowing costs steady, as widely expected, but published economic projections indicating that nine governors — half of those who submitted forecasts — now foresee at least one quarter-point hike this year.
The Fed “signaled a dramatic hawkish shift in its reaction function at Kevin Warsh’s first meeting as chair,” said Karl Schamotta , chief market strategist at . “The dollar is steamrolling all of its major rivals.”
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Money markets are pricing in around 40 basis points of monetary easing by December, compared to some 20 basis points earlier in the day. Meanwhile, the policy-sensitive two-year Treasury yield rose about 13 basis points to 4.18%, earlier touching the highest since February 2025.
With Wednesday’s gains, the dollar is up nearly 1% on the year after dropping roughly 8% in 2025. Hedge funds, asset managers and other speculators held $27.8 billion worth of bullish dollar positions as of June 9, the most since February 2025, Commodity Futures Trading Commission data compiled by Bloomberg show.
“The risks to the dollar are now skewed to the upside,” said Calvin Tse , head of US strategy and economics at BNP Paribas SA . “The risks now are that the Fed ends up being even more hawkish than the market expects.”
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The Fed meeting Wednesday and its changing approach to communications under Warsh may unleash currency turbulence that has been relatively subdued in recent weeks, said Kevin Ford , a currency strategist at Convera.
A JPMorgan measure of global currency volatility is around a six-year low.
