US rate-hike bets hold dollar near 13-month highs

By Tom Westbrook

SINGAPORE, June 25 (Reuters) - A surging dollar has swept past chart resistance and is heading toward its sharpest monthly gain in almost a year on Thursday, as traders bet on a strong U.S. economy propping up short-term interest rates and waited on key inflation data.

The dollar has broken the $1.14 level against the euro this week and hit its strongest point in 13 months at $1.1325 on Wednesday, before steadying in Asia at around $1.1370.

At 161.73 yen, it is within a whisker of its highest level in just over four decades against the struggling Japanese currency.

Dollar strength has pushed gold briefly below $4,000 an ounce for the first time in more than seven months and sent bitcoin under $60,000 for the first time since 2024.

The dollar index, which measures the currency against a basket of six major peers, touched a 13-month peak of 101.8 on Wednesday and traded around 101.5 on Thursday.

"The Fed is sending hawkish signals," said OCBC strategist Moh Siong Sim. "That has pushed up expectations of rate hikes by the end of this year."

Traders who before the U.S.-Israeli war on Iran had expected U.S. cuts are now pricing a U.S. hike as soon as October.?????

Since the start of May, 2-year U.S. Treasury yields, which track short-term rate expectations, are up 27 basis points (bp) to 4.15% against a 7-bp fall in Europe's benchmark German 2-year yields to 2.56%. [US/]

At the 10-year tenor, the gap in favour of U.S. yields widened 20 bps in the same period to top 150 bps.

"We believe the move in rates and the dollar reflects expectations of cyclical and structural U.S. economic outperformance," said Steve Englander, head of global G10 currency research at Standard Chartered in New York.

"Strong productivity growth, partly AI-driven, should support higher earnings and lead to dollar-positive capital inflows," he said.

U.S. INFLATION MEASURE AWAITED

The dollar reached a seven-month high against sterling on Wednesday at $1.314 and an 11-month top of 0.8139 Swiss francs; it traded just shy of those peaks on Thursday.

Shaky equity markets have made for added punishment for the risk-sensitive Antipodeans and there was little respite for the Aussie and kiwi on Thursday, despite steadier stocks.

The Aussie, down 1.8% for the week so far, was under pressure at $0.69, as May jobs data showed an expected improvement but came with a downward revision for April. [AUD/]

The New Zealand dollar, down 1.7% this week, sat at $0.5646, just above Wednesday's seven-month trough of $0.5631.

Later on Thursday, the Fed's preferred inflation yardstick, core personal consumption expenditures, is due for May. A rise is expected, though the outlook, since oil prices have tumbled back to pre-war levels, is for inflation to cool. Overnight, long-dated U.S. Treasuries rallied sharply, lowering yields.

"Further USD gains will require further (widening) in rate differentials, but in the short term the corporates need dollars and will keep needing dollars for a few more days," said Brent Donnelly, president at analytics firm Spectra Markets.

"My view is that this is creating a USD-positive feedback loop where (speculators) are adding and technicals are breaking, and that feedback loop will probably burn itself out soon."

Further gains could also spur Japan to make good on its threats to intervene to support the yen, which traders think will come into play at levels around 162 per dollar or beyond.

"Given the accumulation of yen shorts, we would expect the impact to be significant if intervention were to be carried out," said Hirofumi Suzuki, SMBC currency strategist in Tokyo.

(Reporting by Tom Westbrook. Additional reporting by Rocky Swift in Tokyo; Editing by Jacqueline Wong and Thomas Derpinghaus)