The US dollar extended its gains on Wednesday to reach its highest level in 13 months against a basket of major currencies, as investors moved into safe-haven assets amid a selloff in technology stocks and prepared for the possibility of further interest rate hikes by the Federal Reserve.

Volatility persisted in equity markets following a broad selloff across the technology and semiconductor sectors, boosting demand for both the US dollar and government bonds as safe-haven assets.

At the same time, expectations for higher US interest rates continued to rise as Federal Reserve officials adopted a more hawkish tone amid ongoing strength in the US economy.

Tensions surrounding the framework agreement between the United States and Iran also supported demand for safe-haven assets after disagreements emerged between the two sides over several key issues.

The US Dollar Index, which measures the performance of the greenback against a basket of major currencies, rose to 101.69 points, its highest level since May 2025, before stabilizing with gains of 0.2% during trading.

Dollar remains the preferred safe haven

Ray Attrill, Head of FX Strategy at National Australia Bank, said that "the US dollar remains the preferred safe-haven currency."

He added that current momentum continues to favor the greenback, although "much of these moves has already been priced into the market."

According to the CME FedWatch Tool, markets are currently pricing in a 36% probability of a Federal Reserve rate hike at the July meeting, compared with just 9% a week ago.

For the September meeting, the probability of a rate hike has climbed to more than 70%, up from 29% previously.

The euro fell 0.3% to $1.1340, its lowest level in more than a year, as dollar strength continued to dominate currency markets.

Lee Hardman, Senior Currency Analyst at MUFG, said the decline in EUR/USD reflected "the recent divergence in market expectations for European Central Bank and Federal Reserve policy."

He explained that US interest rate markets have started pricing in several potential rate hikes by the Federal Reserve, while eurozone markets have become less convinced about the need for further tightening by the European Central Bank.

Yen weakness persists amid intervention pressure

Sterling edged lower against the dollar to $1.319 after Bank of England Monetary Policy Committee member Alan Taylor said that "keeping interest rates unchanged for an extended period" is the appropriate response to inflationary pressures.

The Australian dollar, which is highly sensitive to risk sentiment, also fell 0.3% to $0.689, its lowest level since early April, as mixed inflation data increased uncertainty about future rate hikes.

Meanwhile, the Japanese yen remained under pressure, trading at ¥161.69 per dollar and struggling to regain strength as the US currency continued to advance.

A move above ¥161.96 would push the yen to its weakest level since 1986.

Repeated verbal warnings from Japanese officials this week have failed to ease pressure on the currency, while the Japanese government has begun preparing plans to manage its $1.3 trillion in foreign exchange reserves more effectively in order to support potential intervention efforts.

Former Bank of Japan board member Sayuri Shirai said the yen could weaken to ¥165 per dollar if the Federal Reserve raises interest rates this year.

At the same time, the summary of opinions from the Bank of Japan's June policy meeting showed that some members called for additional rate hikes to move the central bank's policy rate toward levels considered more neutral for the economy.

Gold prices fell in the European market on Wednesday, deepening their losses for the second consecutive day and recording their lowest levels in two weeks, on track to retest the historic psychological barrier of $4,000 per ounce, under pressure from the broad rise in the US dollar.

Amid elevated pricing for the likelihood of US interest rate hikes this year, especially following the Federal Reserve's latest hawkish meeting under Kevin Warsh, markets are awaiting the release of the US Personal Consumption Expenditures report for May on Thursday.

The Price

• Gold prices today: Gold prices fell by 1.5% to $4,050.49 per ounce, the lowest level since June 11, from an opening level of $4,110.75, and recorded a session high of $4,115.16.

• At Tuesday's settlement, gold prices lost 1.95%, marking their fourth loss in the last five trading days, due to pressure from the stronger dollar supported by aggressive Federal Reserve expectations.

US dollar

The US Dollar Index rose 0.3% on Wednesday, extending gains for a third consecutive session and hitting a 13-month high of 101.69 points, reflecting the continued rise of the US currency against a basket of major and secondary currencies.

As we know, a stronger US dollar makes dollar-denominated gold bullion less attractive to buyers holding other currencies.

The US dollar is rising thanks to demand for the currency as the best available investment, amid a steady stream of strong US economic data that supports the Federal Reserve's inclination toward higher interest rates, and as an alternative investment amid the heavy selloff in global technology stocks.

US interest rates

• Chicago Federal Reserve President Austan Goolsbee said that with the labor market remaining stable, policymakers are focused on determining whether elevated inflation will persist or ease as the impact of higher tariffs fades and if a solution is reached to the Middle East conflict.

• According to the CME FedWatch Tool, the probability of the Federal Reserve leaving interest rates unchanged at the July meeting currently stands at 64%, while the probability of a 25-basis-point rate hike stands at 36%.

• The probability of the Federal Reserve leaving rates unchanged at the December meeting currently stands at 14%, while the probability of a 25-basis-point rate hike stands at 86%.

• To reprice those expectations, investors are closely monitoring additional US economic data, along with comments from Federal Reserve officials.

• The US Personal Consumption Expenditures report will be released on Thursday. It is the Federal Reserve's preferred inflation gauge and is expected to provide further clues about the path of monetary policy this year.

Gold outlook

Financial markets strategist Ilya Spivak said: "What we are seeing now is the evolution of the pressure that gold has faced as a result of the war's aftermath. The inflation dynamic that leads to higher interest rates is now clearly being reflected in markets through falling bond prices, rising yields, a stronger US dollar, and lower gold prices."

Spivak added: "If markets remain primarily focused on inflation and the $4,000 level is broken to the downside, prices could move toward $3,800. At that point, discussions may begin about the possibility of testing $3,500 as the next target."

SPDR Fund

Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, declined by 4.57 metric tons on Tuesday, bringing total holdings down to 1,017.63 metric tons, the lowest level in one week.

The euro fell in European trading on Wednesday against a basket of global currencies, extending its losses for a third consecutive session against the US dollar and hitting its lowest level in a year, as investors continued to favor the greenback as the most attractive currency and alternative investment in the foreign exchange market.

With global oil prices declining, inflationary pressures on European Central Bank policymakers are easing, reducing the likelihood of another ECB interest rate hike later this year.

The Price

• Euro exchange rate today: The euro fell about 0.2% against the dollar to $1.1361, its lowest level since June 2025, from an opening level of $1.1381. The session high was recorded at $1.1384.

• The euro ended Tuesday down 0.4% against the dollar, marking a second consecutive daily decline following the release of strong US economic data.

US dollar

The US Dollar Index rose more than 0.1% on Wednesday, extending gains for a third straight session and reaching a 13-month high of 101.51 points, reflecting continued strength in the US currency against a basket of global peers.

The advance is being driven by demand for the dollar as the most attractive available investment amid a steady stream of strong US economic data, which supports the Federal Reserve's inclination toward higher interest rates.

The dollar is also benefiting as an alternative safe-haven investment amid the ongoing selloff in global technology stocks.

Global oil prices

Global oil prices fell nearly 1% on Wednesday, deepening losses for a third consecutive session and touching their lowest levels in three months amid expectations of smoother crude flows through the Strait of Hormuz.

Lower oil prices help reduce concerns about accelerating inflation, reinforcing the case for the European Central Bank to leave monetary policy settings unchanged for an extended period this year.

European interest rates

• Reports suggest that the European Central Bank is considering pausing monetary policy normalization in July if energy prices remain at current levels.

• Money market pricing for a 25-basis-point ECB rate hike in July remains stable at around 30%.

• To reassess those expectations, investors are awaiting additional eurozone economic data, particularly inflation, unemployment, and wage figures.

The Japanese yen edged higher in Asian trading on Wednesday against a basket of major and minor currencies, attempting to recover from a two-year low against the US dollar amid modest bargain-buying activity at lower levels.

So far, the latest round of verbal warnings from Japanese officials has done little to ease pressure on the currency, as wide interest rate differentials between the United States and Japan persist, while markets remain uncertain about Tokyo's willingness to intervene.

The Price

• Japanese yen exchange rate today: The dollar fell around 0.1% against the yen to ¥161.45, from an opening level of ¥161.57. The session high was recorded at ¥161.63.

• The yen ended Tuesday little changed against the dollar after hitting a two-year low of ¥161.93 on Monday, close to its 40-year low of ¥161.95.

US dollar

The US Dollar Index rose more than 0.1% on Wednesday, extending gains for a third consecutive session and reaching a 13-month high of 101.51 points, reflecting continued strength in the US currency against a basket of global peers.

The advance has been driven by demand for the dollar as the most attractive available investment, supported by a series of strong US economic data releases that reinforce the Federal Reserve's inclination toward higher interest rates.

The dollar is also benefiting as an alternative safe-haven investment amid the ongoing selloff in global technology stocks.

Japanese authorities

Japanese authorities continue to closely monitor currency market movements as the yen approaches its weakest levels in 40 years after breaking above the key ¥160-per-dollar threshold, a level widely viewed as a potential trigger for renewed intervention.

Japanese Finance Minister Satsuki Katayama held an online meeting with US Treasury Secretary Scott Bessent late Monday amid growing concerns about sharp currency fluctuations.

According to Reuters sources, the discussions focused on policy options for addressing the yen's historic weakness, including the possibility of foreign exchange market intervention.

Katayama reiterated on Monday that government authorities are fully prepared to take decisive action and intervene directly in currency markets at any time to protect the yen from speculative moves.

Views and analysis

• Matt Simpson, Senior Market Analyst at StoneX, said Japan's Ministry of Finance may be increasingly concerned about the dollar-yen exchange rate climbing to its highest level of 2024.

• Simpson added that authorities may also feel unable to do much about it, as intervention against a hawkish Federal Reserve and strong US economic data could prove costly and ineffective.

• Former Bank of Japan board member Sayuri Shirai said the yen could weaken to ¥165 per dollar if the Federal Reserve raises interest rates this year.

Japanese interest rates

• The summary of opinions from the Bank of Japan's June monetary policy meeting, released on Wednesday, showed that some board members called for further monetary tightening to move the central bank's policy rate toward levels considered neutral for the economy.

• Market pricing for a quarter-point rate hike at the Bank of Japan's July meeting remains below 25%.

• Investors are awaiting additional data on inflation, unemployment, and wage growth in Japan to reassess those expectations.