The US dollar continued its rise on Wednesday, reaching a 13-month high against a basket of major currencies, as investors turned to safe-haven assets, fleeing a wide sell-off in technology stocks, amid increasing bets on US interest rate hikes.
The sharp decline in technology and semiconductor stocks put pressure on global markets, as investors sought to take profits after a long rally, boosting demand for the dollar and US Treasury bonds as prominent safe havens.
At the same time, market expectations for tightening US monetary policy increased, with Federal Reserve officials adopting a more hawkish tone amid the continued strength of the US economy.
According to the FedWatch tool data, the odds of a 25 basis point rate hike at the July meeting rose to 37 percent compared to 8.5 percent just a week ago, while the odds for a hike in September jumped to 70 percent from 29.1 percent a week ago.
The dollar index, which measures the performance of the US currency against a basket of major currencies including the euro and the Japanese yen, rose to 101.44, its highest level since May 13, 2025.
Ray Atrell, head of foreign exchange strategy at National Australia Bank, stated, "The US dollar remains the preferred safe haven for investors."
He added that current momentum favors the dollar, but noted that achieving bigger gains would require either a broader correction in risk appetite beyond the technology sector or a further rise in market expectations regarding US monetary policy tightening.
The euro approached its lowest levels for the year, settling at $1.1375, while the British pound fell slightly to $1.3199 after comments from Alan Taylor, a member of the Bank of England's monetary policy committee, who argued that keeping interest rates high for longer was the most appropriate response to current inflationary pressures.
Meanwhile, the Australian dollar, seen as a risk-sensitive currency, stabilized at $0.6918 ahead of the release of Australian consumer price index data, while the New Zealand dollar fell by 0.05 percent to $0.5665, marking its lowest level in seven months.
The US currency also received additional support from ongoing disputes between the United States and Iran over several key issues as part of the understanding between the two countries, including the nuclear file and control of the Strait of Hormuz, raising doubts about the durability of the fragile peace agreement between the parties.
In contrast, the Japanese yen stabilized at 161.57 yen per dollar, after temporarily falling to 161.93 during Monday's trading, its lowest level in two years.
Surpassing the 161.96 level would mean that the yen would record its weakest level since 1986, given the continued wide gap between interest rates in the United States and Japan.
Repeated verbal warnings from Japanese officials have not succeeded in stopping the currency's decline, amid skepticism in the markets about Tokyo's readiness for direct intervention to support the yen.
Sayuri Shirai, a former board member of the Bank of Japan, stated that the yen could fall to 165 per dollar if the Federal Reserve proceeds to raise interest rates this year.
At the same time, a summary of views from the Bank of Japan's monetary policy meeting in June showed that some board members called for a gradual increase in interest rates to reach levels they see as more neutral for the Japanese economy.