Dollar hits one-year high on Fed rate hike bets as yen strengthens after flirting with four-decade low

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The U.S. dollar rose to its highest level in more than a year on Tuesday as traders positioned for a more hawkish Federal Reserve, while the yen strengthened after flirting with a four-decade low. The dollar index inched up to 101.25, its highest since May 2025, with Fed funds futures pricing in over an 85% chance of a quarter-point rate hike by September. The yen last traded at 161.41 after briefly weakening to a two-year low of 161.93 late on Monday, with a break above 161.96 per dollar taking it to its weakest since 1986. The euro fell to $1.1395, its lowest since August 2025, after ECB President Christine Lagarde played down second-round inflation worries, while the British pound slipped 0.2% to $1.3223 following the resignation of Prime Minister Keir Starmer. The risk-sensitive Australian dollar slid 0.7% to $0.6951, its weakest since early April, and the New Zealand dollar was down 0.4% at $0.5689.

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