The U.S. dollar held firm near a more than two-month high on Thursday as investors ramped up expectations for Federal Reserve interest rate increases, putting mounting pressure on the Japanese yen and pushing it closer to levels that could prompt official intervention.
The Federal Reserve kept its benchmark interest rate steady within a 3.50% to 3.75% range as new chair Kevin Warsh launched a wide-ranging policy review to open his tenure. Despite the hold, nearly half of all Fed policymakers now anticipate at least one rate increase before the year is out, driven by growing concerns over inflation.
According to CME FedWatch data, futures markets are now pricing in an 83% probability of Fed tightening by December. A stronger-than-expected retail sales report added further fuel to those hawkish expectations.
Ongoing uncertainty in the Gulf region continued to weigh on investor risk appetite. U.S. President Donald Trump warned he could resume military strikes if Iran breaks the terms of a ceasefire agreement, a statement that kept oil prices elevated and lent additional support to the dollar. Iran’s leadership offered no public response to the new threats.
The euro edged slightly higher to $1.1511, while the British pound climbed to $1.3318 — both currencies having touched two-month lows earlier in the session. The Australian dollar and New Zealand dollar each gained roughly 0.2%, trading at $0.7025 and $0.5780, respectively.
The dollar index, which tracks the greenback against a group of major currencies including the yen and euro, was little changed at 100.31. The index had surged 0.85% in the prior session — its biggest single-day jump since March 2 — reaching its strongest level since March 31.
“The dollar is up making some sizable gains… this is going to take a little while to shrug off,” said Gavin Friend, senior markets strategist at NAB, speaking on a podcast. “It looks like we could be pushing into new territory here for the dollar.”
The Japanese yen slipped as far as 160.760 against the dollar after hitting its weakest point since 2024 overnight. The currency has been hovering around the 160 level, a threshold widely viewed by markets as a potential trigger for official government intervention.
Meanwhile, the Bank of England appeared on track to hold its own interest rates steady at 3.75% later Thursday as it evaluates what a fragile ceasefire in the Iran conflict means for inflation in the United Kingdom.
