The U.S. dollar continued to strengthen on Wednesday, reaching its highest level in 13 months against a basket of major currencies. The move was mainly driven by rising safe-haven demand after a sell-off in technology stocks, alongside growing expectations that the U.S. Federal Reserve may continue raising interest rates.

Tech Sell-Off Drives Safe-Haven Flows

Profit-taking in technology and semiconductor stocks dragged global equity markets lower. As risk sentiment weakened, investors moved toward the U.S. dollar and U.S. Treasury bonds, which are often seen as safe-haven assets during periods of market volatility.

This shift in sentiment helped support the greenback, especially as uncertainty spread across global financial markets.

Fed Rate-Hike Expectations Continue to Rise

In addition to safe-haven demand, increasingly hawkish comments from Fed officials also strengthened the U.S. dollar.

According to CME FedWatch, markets are currently pricing in around a 37% chance of a 25-basis-point Fed rate hike at the July meeting, up sharply from 8.5% a week earlier. The probability of a rate hike in September also rose to 70%, compared with 29.1% previously.

Higher rate expectations tend to support the U.S. dollar, as rising interest rates can make dollar-denominated assets more attractive to investors.

DXY Climbs to 101.44

The DXY index, which measures the strength of the U.S. dollar against a basket of major currencies including the yen and the euro, climbed to 101.44. This marked its highest level since May 13, 2025.

The move shows that the U.S. dollar remains one of the preferred safe-haven choices as market volatility increases.

Major Currencies Remain Under Pressure

Among other major currencies, the euro traded around USD 1.1375, near a one-year low.

The British pound edged lower to USD 1.3199 after a Bank of England official said that holding interest rates for an extended period was an appropriate response to inflationary pressure.

The Australian dollar held around USD 0.6918, while the New Zealand dollar fell to USD 0.5665, its lowest level in seven months.

Geopolitical Tensions Add More Support to the Dollar

Geopolitical risks also continued to support safe-haven demand for the U.S. dollar. The U.S. and Iran remained divided on several key issues, including the nuclear program and control of the Strait of Hormuz.

These disagreements raised doubts about the durability of the fragile peace agreement and kept investors cautious.

Japanese Yen Near Critical Weakness Level

The Japanese yen continued to weaken, trading around 161.57 JPY/USD after briefly falling to 161.93, near a two-year low.

If the pair breaks above 161.96, the yen could fall to its weakest level since 1986. Although Japanese officials have issued verbal warnings, pressure on the yen remains strong due to wide U.S.-Japan interest rate differentials and market doubts over Tokyo’s willingness to intervene.

Outlook

Overall, the U.S. dollar is being supported by three main factors: safe-haven demand after the tech stock sell-off, expectations that the Fed may continue raising interest rates, and geopolitical risks in the Middle East.

In the short term, the greenback may continue to maintain its strength if global risk sentiment does not improve or if markets further increase expectations for the Fed’s rate-hike path.

Source: Reuters