The U.S. dollar extended its gains on Wednesday, reaching a fresh 13-month high against a basket of major currencies.

Investors turned to the greenback for safety as a global technology stock sell-off increased market volatility. Rising expectations of further Federal Reserve interest-rate hikes also supported demand.

Technology Sell-Off Boosts Safe-Haven Demand

Global stock markets remained under pressure after sharp declines across the technology and semiconductor sectors.

The sell-off pushed investors toward traditional safe-haven assets, including the U.S. dollar and government bonds.

Although the weakness was concentrated mainly in technology stocks, concerns grew that selling pressure could spread to other parts of the market.

Fed Rate-Hike Expectations Rise Sharply

Expectations of tighter Federal Reserve policy continued to strengthen as U.S. economic conditions remained resilient.

Several Fed officials have adopted a more hawkish tone, increasing speculation that the central bank could raise interest rates again.

Markets now see a 36% probability of a rate hike at the Federal Reserve’s July meeting, according to CME FedWatch. That compares with only 8.5% one week earlier.

The probability of a September increase has risen above 70%, up from 29.1%.

Higher interest rates generally support the dollar because they make U.S. assets more attractive to international investors.

Dollar Index Reaches Highest Level Since May 2025

The U.S. Dollar Index climbed to 101.51, its strongest level since May 2025.

The index measures the dollar against a group of major currencies, including the euro and Japanese yen.

Ray Attrill, head of foreign-exchange strategy at National Australia Bank, said the dollar remained the preferred safe-haven currency.

However, he warned that much of the positive momentum may already be reflected in current prices.

According to Attrill, the dollar may need either a broader deterioration in market sentiment or even stronger rate-hike expectations to extend its rally significantly.

Euro Nears One-Year Low

The euro traded near $1.1363, close to its lowest level in one year.

The currency remained under pressure as the widening difference between U.S. and European interest-rate expectations strengthened demand for the dollar.

The British pound also weakened slightly to $1.3194.

Bank of England policymaker Alan Taylor said keeping interest rates unchanged for an extended period was the appropriate response to current inflation pressures.

Australian and New Zealand Dollars Remain Weak

The Australian dollar traded near $0.6918, close to an 11-week low.

Mixed Australian inflation data created uncertainty over whether the Reserve Bank of Australia would raise interest rates again.

The New Zealand dollar fell approximately 0.3% to $0.5654, reaching its lowest level in seven months.

Both currencies are sensitive to shifts in global risk sentiment. Therefore, continued market volatility and dollar strength could keep them under pressure.

U.S.-Iran Tensions Add to Dollar Demand

Geopolitical uncertainty also supported the dollar’s safe-haven appeal.

The United States and Iran appeared to remain divided over important parts of their proposed peace framework.

Disagreements included Iran’s nuclear activities and control of the Strait of Hormuz.

These unresolved issues raised doubts about the durability of the fragile agreement and encouraged investors to maintain defensive positions.

Japanese Yen Struggles Near Historic Lows

The Japanese yen traded near 161.55 per dollar as it struggled to recover against the stronger greenback.

A move above 161.96 would leave the yen at its weakest level since 1986.

Repeated warnings from Japanese officials have done little to reduce selling pressure.

The government is also preparing measures to improve the management of its $1.3 trillion in foreign-exchange reserves, which could be used to support future yen intervention.

Yen Could Fall to 165 if Fed Raises Rates

Former Bank of Japan policymaker Sayuri Shirai warned that the yen could weaken to 165 per dollar if the Federal Reserve raises interest rates this year.

A wider interest-rate gap between the United States and Japan would make dollar-denominated assets more attractive and increase pressure on the yen.

However, some Bank of Japan policymakers have called for additional domestic rate increases.

A summary of opinions from the central bank’s June meeting showed that several board members supported moving Japan’s policy rate closer to a neutral level.

Further Bank of Japan tightening could eventually provide support for the yen, although the dollar’s current momentum remains strong.