Dollar hits 13-month high as investors bet on Fed hike
The dollar climbed to a 13-month high as traders priced in Fed hikes, while AI-fueled capital flows kept pulling foreign money into U.S. assets.
The dollar climbed to a 13-month high on June 24, pushing the dollar index to 101.80, its strongest level since May 12, 2025, as traders priced in at least one Federal Reserve rate hike later this year. The euro slipped to about $1.1355, sterling fell to about $1.316, and the yen hovered near 161.9 per dollar, close to a 40-year low.
A selloff in technology stocks added support for the greenback, while investors also sought safety amid uncertainty around a tentative U.S.-Iran peace deal and a recent drop in global equities. Foreign money continued to flow toward American assets because of the AI boom and because a weaker dollar in 2025 made U.S. stocks and bonds more attractive to overseas buyers. CME FedWatch implied about a 32% chance of a 25-basis-point hike at the Fed’s July meeting and about a 66% chance by September. Traders who had expected cuts earlier in the year were instead pricing in one hike as soon as October and roughly a 50-50 chance of a second increase by year-end. The next test came from the May core personal consumption expenditures price index, which economists expected to show 3.4% annual growth, well above the Fed’s 2% target.
It gives U.S. travelers more buying power abroad and can help restrain import prices, easing some inflation pressure. But it squeezes exporters and manufacturers that sell overseas, because their goods become more expensive in foreign markets and foreign earnings translate into fewer dollars. Wall Street banks project the largest AI companies will spend more than $700 billion on capital projects in 2026, and Federal Reserve Bank of St. Louis researchers estimated AI added nearly a full percentage point to real growth through the first three quarters of 2025.
In 2025, inflows into the United States rose to $232.2 billion, up 49.5% from 2024, as international companies rushed to capitalize on AI and other opportunities. The White House highlighted that surge as proof of confidence in U.S. manufacturing, technology and infrastructure.
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