Geostrategic Media Political Commentary, Analysis, Security, Defense
- Euro/dollar falls to lowest level since March 16, sterling also weakens against greenback
The dollar index climbed to a 13-month high on Friday, supported by hawkish messages from the US Federal Reserve and renewed uncertainty over efforts to end the conflict in the Middle East.
The index rose to 101.12 as the tentative peace atmosphere in the region came under strain after Israel targeted Lebanon and Iran withdrew from negotiations, while signals from the Fed that it could return to a more hawkish policy stance also strengthened the US currency against its major peers.
The Fed kept its policy rate unchanged earlier this week in line with expectations, while its shortened policy statement placed emphasis on price stability. The bank also raised its year-end federal funds rate projection to 3.8% from 3.4%.
Fed Chair Kevin Warsh said after the decision that inflation remained well above the bank’s 2% target and stressed the Fed’s determination to restore price stability.
Following these developments, money markets strengthened their pricing for one rate hike by the end of the year. Current pricing suggests an 89% probability that the Fed will raise interest rates by 25 basis points at its September meeting.
US inflation data released last week also pointed to a renewed acceleration in price pressures. The Consumer Price Index rose 0.5% month-on-month and 4.2% year-on-year in May, in line with market expectations. The annual increase marked the strongest rise since April 2023.
The euro/dollar parity fell to 1.1418, its lowest level since March 16, under pressure from the stronger dollar. The pair later stabilized around 1.1460.
The sterling/dollar parity also dropped to 1.3163, its weakest level since March 31, before recovering to 1.3229, up 0.2% from its previous close.
The dollar/yen parity, which tested 161.81 on Thursday, its highest level since July 10, 2024, was trading at 161.29, down 0.1% on the day.
