The dollar is at a one-year peak and the yen is approaching a 40-year low economy

Today, Tuesday, the dollar rose to its highest level in more than a year, supported by growing expectations of raising US interest rates, while the Japanese yen approached its lowest levels in 4 decades before recovering slightly, amid growing fears of turmoil in currency markets.

The dollar index – which measures the performance of the US currency against a basket of major currencies – rose to 101.25 points, its highest level since May 2025, as investors await the Federal Reserve’s move towards a more stringent monetary policy.

Federal Reserve funds futures indicate a probability of more than 85% to raise interest rates by a quarter of a percentage point by September, while both Bank of America Global Research and Deutsche Bank have revised their previous expectations of keeping monetary policy unchanged, to now expect an interest rate increase during the current year, based on the strength of the American economy.

“Right now, the dollar is reflecting expectations of higher interest rates and making gains accordingly,” said Tommy von Bromsen, a foreign exchange analyst at Handelsbanken in Stockholm.

He added: “The dollar is also supported by the failure to reach a complete solution to the conflict in the Middle East. There is still a great deal of uncertainty that supports the dollar.”

The yen is approaching its weakest level in 40 years

The euro fell to $1.1395, its lowest level since August 2025, after European Central Bank President Christine Lagarde reduced concerns about the secondary effects of inflation, indicating a balanced approach to monetary policy after raising interest earlier this month.

The British pound also fell by 0.2% to $1.3223, after gains recorded in the previous session following the resignation of British Prime Minister Keir Starmer.

In commodity-related currencies, the Australian dollar fell 0.7% to $0.6951, its lowest level since early April, while the New Zealand dollar fell 0.4% to $0.5689.

As for the Japanese yen, it traded at 161.41 yen to the dollar after briefly touching the level of 161.93 yen, the lowest in two years, approaching its weakest level since 1986.

Reuters quoted a source as saying that Japanese Finance Minister Satsuki Katayama held an online meeting with US Treasury Secretary Scott Besent, in light of growing fears of sharp fluctuations in the exchange markets.

The source explained that the meeting focused on dealing with the weakness of the yen, which has reached record levels, including the possibility of intervention in the currency market.