The US Dollar climbed on Tuesday to its strongest level in over a year, as markets increasingly bet on a more hawkish Federal Reserve, even as oil prices edged down amid easing tensions in the Gulf.
Fed funds futures are now assigning more than an 80% probability of a rate hike by September. In response to stronger-than-expected economic data, BofA Global Research and Deutsche Bank have both revised their outlooks, abandoning expectations of steady policy and instead forecasting at least one Fed rate increase this year.
The Dollar index, which tracks the greenback against a basket that includes the Yen and Euro, edged higher to 101.13, its strongest level since May 2025.
Meanwhile, the Euro slipped to $1.1414, its weakest since March, after European Central Bank President Christine Lagarde downplayed concerns about second-round inflation effects.
The British Pound was at $1.3234, dipping slightly on Tuesday after gains in the previous session triggered by Prime Minister Keir Starmer’s resignation.
Health Minister Wes Streeting, seen as a potential leadership contender, endorsed Andy Burnham as Starmer’s successor, signalling support for a managed and orderly transition of leadership.
Elsewhere, the Japanese Yen last traded at 161.48 after briefly sliding to a two-year low of 161.93 late Monday, as broad strength in the US Dollar continued to weigh on the currency.
A move beyond 161.96 per Dollar would push the Yen to its weakest level since 1986.
Japanese Finance Minister Satsuki Katayama held an online meeting late on Monday with US Treasury Secretary Scott Bessent, according to a source cited by Reuters news agency, amid rising concern over sharp currency volatility.
The discussion reportedly focused on possible policy responses to the Yen’s prolonged weakness, including the option of currency intervention.
Japanese authorities continued to keep markets uncertain about any imminent action, with the absence of clear guidance suggesting a more deliberately ambiguous communication strategy.