The U.S. dollar has separated from the pack, rising to the highest levels in more than a year and building on gains again Wednesday, as investors use the greenback as a sanctuary from risks tied to the global tech selloff and calibrate the impact of expected Federal Reserve interest-rate hikes over the back half of the year.
The U.S. dollar index, which tracks its value against a basket of six major global currencies, hit the highest levels in more than a year on Wednesday at 101.63, a 0.2% gain during the session that takes its 2026 advance to around 3.3%. The index hit 101.69 on Tuesday, the highest since May 2025.
Those gains also came against a pullback in Treasury bond yields, which fell modestly in the defensive trading that followed Tuesday's brutal tech slump. There also was little change in Fed forecasts with futures indicating a 60% chance of a rate hike in September.
Charalampos Pissouros, senior market analyst at XM, thinks the dollar rally is extending beyond the Fed funds trade.
"Another source of fuel for the greenback may have been safe-haven flows after investors massively sold AI and semiconductor stocks due to concerns of extremely debt-funded spending and stretched valuations, especially amidst expectations of higher interest rates in the months to come," Pissouros said.
The fact that the greenback is holding gains despite an early Wednesday recovery for U.S. stocks, which saw a global tech selloff erase more than $1.3 trillion in value over the past two sessions, and the weakest levels for global crude prices since the U.S. war with Iran began in February, suggests the strength is likely to continue well into the third quarter.
"Whether this is a moderate correction in a stellar year for AI stocks or the start of a more prolonged equity downturn, the dollar should outperform while risk aversion holds," said Franceso Pesole, FX strategist at ING.
"U. S. and Europe's equity futures are stabilizing, suggesting consolidation may be more likely than another major leg higher," he added. "But for now, we remain very cautious about picking a top in this dollar move; we still don't think this is the start of a new bullish cycle, but near-term momentum remains solid."
Technical trading data could support further gains, as well, according LPL Financial's Adam Turnquist, who noted that speculative positions in the greenback have been trending near the highest levels of early last year, thanks in part to the hawkish signaling of new Fed Chairman Kevin Warsh.
"A sustained breakout above 100.64 would confirm an upside move and imply a minimum technical target near 105," he said. "On the downside, a pullback would put initial support at the 20-day moving average, currently near 99.75."
Downside risks could emerge from Japan, where the yen is trading at 40-year lows against the dollar, despite several rounds of intervention from the Ministry of Finance, valued at around $72 billion, and the highest Bank of Japan rate levels since the mid 1990s.
Japan's finance minister, Satsuki Katayama, held talks with U.S. Treasury Secretary Scott Bessent this week, she told reporters in Tokyo, adding that Japan will "respond appropriately to currency moves at any time."
A strong dollar has big implications for stocks, too, given that around a third of overall S&P 500 revenue, and a similar level of profits, are generated in overseas markets.
That figure starts to climb to around 50%, however, for the Magnificent Seven tech giants, including a near two-third reliance from Meta Platforms and a 53% tally for market leader Nvidia.
A firmer greenback lowers the value of overseas profits, once they're repatriated to the U.S., and persistent dollar strength could weigh on earnings forecasts that suggest a second-quarter growth rate of 23% and full-year advance of more than 25%.
Write to Martin Baccardax at martin.baccardax@barrons.com
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(END) Dow Jones Newswires
June 24, 2026 06:36 ET (10:36 GMT)
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