- The U.S. dollar reached a one-year high as expectations of Fed rate hikes boosted demand for the currency.
- Renewed U.S.-Iran tensions increased safe-haven buying, helping push the dollar to its highest level since 2025.
- Bitcoin and Ethereum fell as a stronger dollar and higher rate expectations weighed on risk assets.
The U.S. dollar climbed to its highest level in a year on Tuesday as investors increased expectations for more interest rate hikes from the Federal Reserve. The DXY index reached 101.2, marking its strongest point since May 2025.
The dollar gained further support from renewed tensions between the United States and Iran, which pushed investors toward safer assets. The stronger greenback also pressured financial markets, including stocks and cryptocurrencies, as traders adjusted to the possibility of tighter monetary policy.
Several Federal Reserve officials have recently signaled support for additional rate increases. As a result, markets now see a 58.5% chance of at least two rate hikes this year, while nine policymakers reportedly expect at least one increase.
Analysts at Bank of America and Deutsche Bank have also changed their outlook, dropping earlier expectations of steady rates and now expecting rate increases before the end of the year.
Fed Expectations Lift the Dollar
The dollar rose to a 13-month high on Tuesday, with the dollar index climbing to 101.25, according to Reuters data.
The move was driven mainly by expectations that the Federal Reserve will keep interest rates higher for longer. That view has supported demand for the dollar, even as oil prices eased and conditions in the Gulf showed signs of stabilising. Ongoing tensions in the Middle East also added to safe-haven demand.
Related: House Committee Schedules July Hearings on Fed Policy and Crypto Rules
Tommy von Bromsen, foreign exchange strategist at Handelsbanken, said the currency was benefiting from rising rate expectations. “Right now, the dollar is pricing in higher rates and is gaining on that,” he said, adding that unresolved tensions in the Middle East were also helping support the currency.
In the rates market, Fed funds futures show more than an 85% chance of a 25-basis-point hike by September. Stronger-than-expected economic data has reinforced those expectations, keeping markets tilted toward tighter policy.
Yen Weakness and Crypto Selloff Deepen
The Japanese yen stayed near its weakest level in nearly four decades, trading around 161.41 per dollar after briefly slipping to 161.93. The move kept pressure on currency markets and raised expectations that Japanese authorities could step in to slow further declines.
At the same time, risk assets also came under pressure. Cryptocurrencies fell alongside technology stocks as investor sentiment weakened. Bitcoin dropped to around $62,300 after falling 2.5% since midnight UTC. Ethereum also declined more than 4%, trading near $1,650.
Other altcoins followed the same direction. Liquidations climbed to about $717 million, reflecting increased forced selling during the downturn.
On the other hand, U.S. stock markets faced sharp selling pressure. Posting on X, crypto analyst Ash Crypto noted that around $1.2 trillion in market value was wiped out from U.S. equities at the open as the U.S. Dollar Index (DXY) reached a 13-month high.
Related: US Inflation Expectations Fall as Markets Track Progress in Iran Talks
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