By Jiaxing Li
HONG KONG, June 18 (Reuters) – The U.S. dollar clung to a more than two-month high on Thursday after a hawkish hold triggered rate-hike bets despite a U.S.-Iran deal, while the yen weakness drew fresh verbal warnings from Japanese officials.
The U.S. central bank held rates steady in a 3.50%-3.75% range as new chair Kevin Warsh opened the new era with a sweeping policy review. Nearly half of policymakers, however, now expect a hike this year on mounting inflation concerns.
The Fed funds futures market has now priced in an 85% chance of Fed tightening in December, according to CME FedWatch, with a strong retail sales reading further adding to hawkish bets.
The euro last traded a shade stronger at $1.1518 and sterling strengthened to $1.3313, after touching their two-month lows earlier.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was little changed at 100.24.
It surged 0.85% to the strongest level since March 31 in the previous session, its biggest single-day jump in over three months.
“The dollar is up making some sizable gains… this is going to take a little while to shrug off,” NAB’s senior markets strategist Gavin Friend said in a podcast. “It looks like we could be pushing into new territory here for the dollar.”
Oil prices eased on Thursday after the U.S. and Iran signed an interim agreement that would end the Iran war, reopen the Strait of Hormuz and waive U.S. sanctions on Tehran’s oil, taking some strength off the greenback.
The risk-sensitive Australian dollar was up 0.3% at $0.70365, and the New Zealand dollar traded at $0.5794, up nearly 0.5%.
“Markets are examining whether the Strait of Hormuz can be reopened for free passage,” said Kimmy Tong, global market and FX strategist at Everbright Securities International.
“Until that is confirmed, sentiment favouring a stronger dollar should continue to dominate” considering the Fed’s tightening bias, she added.
The Japanese yen weakened to as much as 160.760 after hitting its weakest since 2024 overnight, wiping out gains made after Tokyo’s intervention on April 30.
The renewed slide prompted a fresh response from the government, with officials reiterating their readiness to support the currency.
“We are ready to respond appropriately to currency moves as needed at any time,” Chief Cabinet Secretary Minoru Kihara told a press conference on Thursday, when asked about the yen’s decline.
Elsewhere, the Bank of England looks on course to keep interest rates unchanged at 3.75% later on Thursday as it assesses what a tentative truce in the Iran war means for inflation.
(Reporting by Jiaxing Li; Editing by Jacqueline Wong)
