The Dollar Hits a Two-Month High as Fed Hike Odds Jump to 85%

The US dollar climbed to its highest level since April on June 4, with the dollar index near 99.5, as markets moved to price an 85% chance of a Fed rate hike by year-end. A week ago those odds sat at 60%. The repricing happened fast.

This fits the macro read we have carried for months. The dollar put in a macro bottom early this year and has been working higher, and a tightening Fed is the fuel. Strong labor data and sticky inflation pushed the market from cuts coming to a hike might be next. When the Fed is cutting, capital drifts to riskier corners. When it is hiking, the dollar pulls money home and the cost of everything climbs with it. That shift changes the weather for every risk asset.

The dollar index traded around 99.4 to 99.54, the highest since April. The 10-year yield held near 4.48%, the 30-year near 4.99%. Stronger-than-expected jobs data did the heavy lifting, with traders now eyeing a possible hike as early as October. Middle East tensions kept oil elevated, adding an inflation tailwind that makes the Fed's job harder. Long-dated Treasuries stayed under pressure as yields firmed. Rate-cut bets for the year have quietly disappeared.

A firmer dollar and higher yields pressed on risk. The Nasdaq was the only major US index to close red, money rotated into Health Care, Financials and Real Estate, and Bitcoin slid back under $64,000. Gold held above $4,500, the one chart that keeps shrugging off the dollar. Each part of the tape pointed the same way. The split tells you what stage of the cycle this is.

Watch DXY resistance near $100.50. A clean break there opens the door to a longer dollar run, and that keeps the squeeze on equities and crypto. The October meeting is now the one to mark. If the data stays hot, the market will keep pulling hike odds forward. A strong dollar also lands hardest on Europe and emerging markets, through weaker currencies and higher funding costs, so the ripples go well beyond US screens. A soft jobs or inflation print is the only thing that cools this, and there is no sign of it yet.

A stronger dollar sets the tide for everything else. As long as it keeps rising, counter-trend rallies are about all risk assets can offer. The path of least resistance stays up for the dollar, and down for most of what trades against it.