U.S. Dollar Index Hits 101.8, Its Highest Level in 13 Months, on Fed Rate Hike Expectations

According to multiple financial institutions, the U.S. dollar index surged to 101.8 on June 24, breaking the 101 level and marking its highest point in 13 months. The index remained above 101 on Friday (June 26). The euro declined 2.6% for the month and hit a one-year low, while the yen approached 162 against the dollar, with global capital visibly rotating back to U.S. dollar assets.

Fed interest rate hike expectations are the primary driver of the dollar's strength. The Federal Reserve held rates at 3.50%–3.75% in June, but the latest dot plot shows nearly half of officials support a rate hike within the year. CME FedWatch data indicates a December hike probability of 86.1%, with Bank of America expecting three hikes and Deutsche Bank two hikes in 2026. Two-year Treasury yields climbed above 4.16%. In contrast, the European Central Bank faces only a 20% probability of two hikes this year due to weak growth and easing import inflation, while the Bank of Japan raised rates to 1% but delayed quantitative tightening. Strategists anticipate the dollar index to remain elevated amid range-bound trading in the near term.