The US Dollar has demonstrated notable strength, driven by a combination of hawkish signals from the Federal Reserve and increased safe-haven demand amid recent AI-related equity weakness [1][2]. OCBC analysts revised their year-end forecasts, now expecting EUR/USD at 1.11 (previously 1.18) and USD/JPY at 163 (previously 155), reflecting a shift from a rangebound to a modestly stronger US Dollar outlook. They also project a 2–3% upside for the US Dollar Index (DXY), barring significant surprises in oil prices or US economic growth [1].
The US Dollar Index (DXY) has extended its winning streak for a third consecutive day, reaching a fresh 13-month high of 101.60 during European trading hours [2]. This rally is underpinned by rising expectations of further Federal Reserve tightening, with the CME FedWatch tool showing that traders now price in an 85.5% chance of a Fed rate hike in December, up from 61% before the latest FOMC meeting [2]. Fed Chair Kevin Warsh reiterated his commitment to restoring price stability, reinforcing the hawkish tone [2].
US economic data has further supported the Greenback. The S&P Global Composite PMI rose to 52.2 in June from 51.5 in May, indicating robust business expansion. The manufacturing PMI jumped to 55.7 from 55.1, surpassing forecasts of 54.8, while the Services PMI increased to 51.3 from 50.7, beating the consensus estimate of 51.0 [2]. The US Dollar was strongest against the New Zealand Dollar in daily trading, with a 0.47% gain, and also posted gains against other major currencies including the Euro, Pound, and Yen [2].
On the USD/JPY front, the pair remains near recent highs but is capped below the July 2024 peak of 161.95 as intervention risks rise [3]. A call between Japan’s Finance Minister and the US Treasury has sparked speculation about potential joint intervention to support the Yen, with both parties agreeing to take 'bold steps' on currencies if needed [3]. The Bank of Japan’s June policy meeting minutes indicated support for further rate hikes, with some members potentially proposing another hike as soon as September or October. However, despite these signals, Yen strength has not materialized [3].
CONCLUSION
The US Dollar's rally is being fueled by hawkish Fed expectations, strong US economic data, and safe-haven flows, prompting upward revisions to year-end forecasts. Meanwhile, the Japanese Yen remains under pressure despite intervention risks and hints of further BoJ tightening. Market participants are closely watching for policy actions and upcoming US inflation data to gauge the next moves in major currency pairs.