The US Dollar (USD) surged to its highest level in over a year on Tuesday, driven by rising expectations of further monetary tightening by the Federal Reserve (Fed) and robust US economic data [1][2][3]. The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, climbed to 101.34–101.35, marking a new yearly high and its highest level since May 2025 according to [3] and more than a year per [2][1]. This strength in the USD weighed heavily on other major currencies, with the British Pound (GBP), Canadian Dollar (CAD), and Euro (EUR) all experiencing notable declines.
The GBP/USD pair fell over 0.40% to 1.3195, after reaching a daily high of 1.3257, amid heightened UK political uncertainty following the resignation of Prime Minister Keir Starmer and the anticipated succession by Andy Burnham [1]. Investor caution was reflected in subdued UK Gilts’ yields, with concerns that the incoming government may pursue further spending, potentially straining fiscal policy [1]. Meanwhile, Bank of England MPC member Alan Taylor stated it is appropriate to keep rates unchanged, noting the Bank Rate is 75 basis points above his estimate of neutral [1].
The USD/CAD pair extended its four-day winning streak, trading around 1.4190, its highest level since April 7 [2]. The Canadian Dollar was pressured by both the strong USD and weaker oil prices, the latter impacted by a US waiver allowing Iranian oil exports to continue [2]. Canadian inflation surprised to the upside, with May CPI accelerating to 3.2% year-on-year from 2.8%, above forecasts of 3% [2]. However, concerns about slowing economic growth and warnings from Bank of Canada Governor Tiff Macklem about global imbalances and financial stability risks kept the CAD under pressure [2]. Scotiabank analysts maintained a bearish outlook for the CAD, suggesting that a sustained move above 1.41 in USD/CAD could lead to further gains toward 1.43 and 1.45 [2].
The Euro also weakened, with EUR/USD dropping below the 1.1400 support level to around 1.1380, down 0.40% on the day [3]. The pair’s decline was attributed to the Fed’s hawkish stance and strong US PMI data, with the S&P Global Manufacturing PMI rising to 55.7 from 55.1 and the Services PMI increasing to 51.3 from 50.7, both beating expectations [1][2][3]. Traders now see a 70%–86% probability of a Fed rate hike by September, according to the CME FedWatch Tool [1][2][3]. ECB officials commented on the Eurozone’s resilience but warned that inflation is expected to remain above target into the first half of 2027 [3].
Market participants are now focused on upcoming US data releases, including the Personal Consumption Expenditures (PCE) Price Index and the final estimate of first-quarter Gross Domestic Product (GDP), which could provide further direction for the USD and global currency markets [2][3].
CONCLUSION
The US Dollar's rally to one-year highs, fueled by strong economic data and rising Fed rate hike expectations, has put significant downward pressure on the British Pound, Canadian Dollar, and Euro. With upcoming US inflation and GDP data in focus, markets remain attentive to further signals on the Fed's policy path. The prevailing sentiment is bullish for the USD, with analysts and policymakers highlighting persistent inflation risks and global imbalances.