Dollar Tops Year-High on Warsh-Led Fed Rate Bets
Get the Finance newsletter
Daily finance — markets, central banks, M&A, the prints that move money. Free.
- ICE dollar index rose 0.7% to around 100.80, on pace for its highest end-of-day close since May 16, 2025, when it finished at 101.09
- Federal Reserve's first meeting under Chair Kevin Warsh drove rate-hike expectations higher, with fed funds futures pricing an 86.4% chance of a hike this year — up from 80.5% a day earlier and 57.1% a week ago
- Jeff Klingelhofer of Aristotle Pacific Capital attributed the rally to widening rate differentials between the U.S. and the rest of the world, plus investors reassessing concerns about the U.S. fiscal outlook
- Matthew Ryan of Ebury wrote that the bar for further dollar gains is "quite high," citing the U.S.-Iran preliminary peace deal signed Wednesday that could continue pushing oil prices — recently trading in lockstep with Treasury yields — lower
- Tyler Richey of Sevens Report noted the breakout is being confirmed by momentum indicators on both daily and weekly timeframes, making this rally look more durable than other recent dollar advances that quickly faded
- A stronger dollar poses a headwind for the stock market, hurting overseas earnings of large U.S. multinationals and tightening financial conditions for companies and countries that borrow in dollars
- U.S. stocks ended Thursday higher despite the dollar's surge, with the Dow up 0.1%, S&P 500 up 1.1%, and Nasdaq Composite up 1.9%
Why it matters: With fed funds futures now pricing an 86.4% chance of a rate hike, markets are rapidly repricing Fed policy under Warsh — a stronger dollar directly pressures U.S. multinationals' overseas earnings and tightens conditions for emerging markets borrowing in dollars, while the U.S.-Iran deal introduces a deflationary counterweight that could limit the greenback's runway.
