Dollar Index Hits Two-Month High on Rising Fed Rate Hike Bets
1h ago|3 min readQuick Read
Fazen Markets Editorial Desk
Collective editorial team · methodology
dxyusdfederal-reserve
Fazen Markets Editorial Desk
Collective editorial team · methodology
Trades XAUUSD 24/5 on autopilot. Verified Myfxbook performance. Free forever.
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The majority of retail investor accounts lose money when trading CFDs. Vortex HFT is informational software — not investment advice. Past performance does not guarantee future results.
The US Dollar Index (DXY) advanced to a two-month peak of 105.48 on June 8, 2026, according to data from Investing.com. The greenback's ascent was propelled by a recalibration of interest rate expectations following a significantly stronger-than-anticipated US employment report. This move represents a 2.1% gain for the dollar index from its May low, pressuring major currency pairs like the euro and yen.
A historically strong US Nonfarm Payrolls report on June 5 triggered the dollar's rally. The economy added 392,000 jobs in May, substantially exceeding the consensus forecast of 180,000. This marks the largest positive surprise in payrolls data since September 2023. The tight labor market data contradicts narratives of an imminent economic slowdown, compelling traders to reassess the Federal Reserve's policy path.
The current macro backdrop features a 10-year Treasury yield holding at 4.31%. Fed Funds futures, which had previously priced in a dovish pivot, rapidly shifted to price a 65% probability of a 25 basis point rate hike at the July FOMC meeting. This repricing of Fed expectations is the primary catalyst for the dollar's strength, as higher rates typically increase the currency's yield appeal for international investors.
The Dollar Index's rise to 105.48 represents its highest level since April 10, when it traded at 105.62. The index has gained 1.8% week-to-date, its strongest five-day performance in eleven weeks. Against major peers, the dollar's move was pronounced. EUR/USD broke below the 1.0700 handle to trade at 1.0675, a decline of 1.4% for the week.
USD/JPY surged to 158.90, approaching the 159.00 level that prompted previous Bank of Japan intervention episodes. Emerging market currencies faced sharper pressure, with the USD/MXN pair rising 2.3% to 18.75. The Bloomberg Dollar Spot Index, a broader measure of dollar strength, confirmed the trend by rising 1.6% to 1250, its highest level in eight weeks.
| Currency Pair | June 7 Level | Weekly Change | YTD Performance |
|---|---|---|---|
| EUR/USD | 1.0675 | -1.4% | -5.2% |
| USD/JPY | 158.90 | +2.1% | +12.8% |
| GBP/USD | 1.2490 | -1.1% | -3.7% |
A stronger dollar creates immediate winners and losers across global asset classes. US multinational corporations with significant overseas revenue, such as Coca-Cola (KO) and Procter & Gamble (PG), face headwinds as foreign earnings translate back into fewer dollars. Conversely, US importers and commodity-sensitive sectors benefit from increased purchasing power.
Emerging markets face amplified pressure from dollar strength, as dollar-denominated debt servicing costs rise. The iShares MSCI Emerging Markets ETF (EEM) declined 1.8% in sync with the dollar's rally. One counter-argument suggests that if Fed hikes ultimately trigger a US recession, the dollar could weaken as safe-haven flows reverse. Current positioning data from the CFTC shows leveraged funds increased net long dollar positions to $12.4 billion, the highest level since March.
All focus shifts to the June 12 FOMC meeting and the subsequent dot plot release. The median Fed official projection for year-end 2026 Fed Funds will be critical for determining if this dollar move has longevity. The May Consumer Price Index report on June 10 provides the next major data catalyst for rate expectations.
Technical levels are equally important for near-term direction. The Dollar Index faces immediate resistance at the April high of 105.62. A sustained break above this level could open a path toward the 106.00 handle. Support rests at the 104.80 level, which represented the June opening price. The 50-day moving average at 104.20 provides a stronger support floor.
A strengthening US dollar typically exerts downward pressure on dollar-denominated commodities like gold, oil, and copper. Since these commodities are priced in dollars, a more expensive currency makes them costlier for holders of other currencies, reducing international demand. Gold prices (XAU/USD) have already declined 1.2% to $2,315 per ounce following the dollar's rally, continuing their inverse correlation with the greenback.
Companies that generate substantial revenue outside the United States face earnings headwinds when the dollar appreciates. For every 1% rise in the dollar index, S&P 500 companies with high international sales exposure can experience a 0.5-1.0% negative impact on earnings per share. This particularly affects technology and consumer staples sectors, which derive approximately 40% of revenue from overseas markets.
The current dollar rally resembles the 2018 episode when the DXY gained 8.5% between April and August as the Fed continued hiking rates amid strong economic data. However, the 2023 dollar rally proved short-lived as recession fears eventually dominated, suggesting that sustained dollar strength requires both rate differentials and relative economic outperformance versus other major economies.
The dollar's surge reflects a fundamental repricing of Fed policy expectations following strong economic data.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
Vortex HFT is our free MT4/MT5 Expert Advisor. Verified Myfxbook performance. No subscription. No fees. Trades 24/5.
Trade forex with tight spreads from 0.0 pips
Open AccountSponsored
Open a demo account in 30 seconds. No deposit required.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.