Dollar Sees ‘Bullish Break’ as Fed Rate-Hike Bets Fuel Rally
The dollar staged its biggest two-day rally in three months, driving it back toward a 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 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 seen 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 Ltd .
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, while inflation recently accelerated to a three-year high of roughly twice the Fed’s 2% target.
After Warsh used his maiden press conference at the Fed to drive home the central-bank’s inflation fighting mandate, futures traders started pricing in that the Fed is likely to raise rates by a quarter-percentage point at its September meeting, with some chance seen of a move as soon as next month’s meeting. That’s pushing US yields further above those in many other countries , giving investors an incentive to buy dollar-denominated assets.
The Fed meeting “was unambiguously hawkish and thus unambiguously dollar positive,” said Alex Cohen , a foreign-exchange strategist at Bank of America Corp.
Ugo Lancioni, senior portfolio manager at Neuberger , which oversees $576 billion, said that while the firm remains bearish on the greenback in the medium-term, given its expensive valuation, “the strength of US macro data, inflationary pressures related to the energy shock and the investment cycle in AI continue to support the dollar.”
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 next reading of speculative positioning is scheduled to be released on Monday.
The Fed meeting has “revitalized” dollar bulls, said Jane Foley , the head of currency strategy at Rabobank.
