Why the US Dollar Is Baring Its Fangs Again
The US dollar is once again baring its fangs in global markets. The greenback is being heavily sought after by market participants, putting a number of world currencies under pressure, including the Indonesian rupiah. This strengthening is reflected in the movement of the US Dollar Index (DXY), which measures the greenback’s strength against six major currencies: the euro, Japanese yen, pound sterling, Canadian dollar, Swedish krona, and Swiss franc. According to Refinitiv, at the close of trading on Tuesday (23/6/2026), the DXY rose 0.38% to a level of 101.408, its strongest position in the last 13 months. This appreciation signals that dollar-denominated assets are once again a target for global investors.
A key factor behind the dollar’s resurgence is growing market expectation that the US Federal Reserve will raise interest rates again. Data from the CME FedWatch Tool shows the market now sees a 36.3% probability of a 25 basis point hike to 3.75%-4.00% at the FOMC meeting on 29 July 2026, a sharp increase from just 8.5% a week earlier. The likelihood of a rate increase is even higher for the September meeting, with the probability jumping to around 69.1% from 29.1% the previous week. These expectations are reinforced by solid US economic data, particularly from the labour market. According to Automatic Data Processing, Inc. (ADP), private sector employment rose by an average of 30,750 jobs per week over the last four weeks to 6 June 2026, consistent with strong employment figures in the prior two months. This resilience suggests inflationary pressures may be harder to tame quickly.
Cautionary signals from Federal Reserve officials are also bolstering market expectations. Chicago Fed President Austan Goolsbee stated his focus is on whether high inflation will persist or begin to ease, highlighting factors such as high tariffs and developments in the Middle East. With the labour market remaining relatively stable, investor attention is fixed on whether price pressures in the US can decline sustainably. Markets are now awaiting the release of the Personal Consumption Expenditure (PCE) data for May 2026, due on Thursday (25/6/2026). The core PCE index, the Fed’s preferred inflation gauge, rose 3.3% year-on-year in April 2026, up from 3.2% in March and still well above the central bank’s 2% target. As long as inflation risks remain elevated, the Fed has room to maintain a hawkish stance, prompting markets to price in further rate hikes rather than easing.
A sell-off in global equity markets, particularly in technology stocks, is adding to the dollar’s appeal. On Tuesday, the S&P 500 fell 1.44% and the tech-heavy Nasdaq Composite plunged 2.21%, driven by selling in semiconductor, memory chip, and artificial intelligence-related shares. This extended a profit-taking trend from the previous session. In contrast, the Dow Jones Industrial Average saw a more modest decline of 45.87 points, or 0.09%. Amid this stock market volatility, the US dollar is acting as a safe haven, attracting investors seeking liquidity and stability. Consequently, the greenback is receiving a dual boost: from higher interest rate expectations and from risk-off sentiment in equity markets.