DXY Nears 1-Year High At 101.13; USD/JPY Holds At 40-Year Lows, Overbought But Bullish Structure Intact

The US dollar retained strength near its 12-month peak on Tuesday, as traders ramped up bets on additional Federal Reserve rate hikes before year-end.

The Dollar Index hovered around 101, just shy of last week’s one-year high of 101.13, underpinned by a sharp Treasury yield rally as markets aggressively repriced Fed policy paths. CME FedWatch data shows futures now price a 51% chance of a September rate increase.

The greenback’s upward traction originates from hawkish signals out of last week’s FOMC meeting, where most policymakers projected at least one 2026 rate hike. Officials lean toward further tightening due to sticky inflation risks, amplified by Middle East conflict-driven energy price volatility.

Major counterparties faced broad selling pressure:

· GBP/USD slipped 0.1% amid choppy trading after UK Prime Minister Keir Starmer resigned, stirring fresh domestic political uncertainty.

· EUR/USD lingered near a three-month low at $1.1423, following ECB President Christine Lagarde’s downplaying of second-round inflation risks.

Markets clung to cautious optimism surrounding US-Iran peace talks. A substantive diplomatic breakthrough would ease geopolitical risk premiums and calm volatile global energy markets, indirectly softening the inflation impulse supporting Fed hawkishness.

All market focus shifts to key US economic prints due over the next two sessions to shape rate expectations:

1. June US PMI figures – released late Tuesday

2. Revised Q1 US GDP and May PCE Price Index (the Fed’s preferred inflation gauge) – Wednesday

USD/JPY Fundamental & Technical Analysis

The Japanese yen stayed under heavy pressure, with USD/JPY consolidating around 161.50 / 161.60 in Tuesday’s Asian session, halting Monday’s mild pullback from multi-decade highs. A break above 161.96 would mark the yen’s weakest level since 1986, leaving traders constantly wary of large-scale Japanese official intervention.

Japanese Finance Minister Satsuki Katayama held currency stability talks with US Treasury Secretary Scott Bessent on Monday amid alarm over unchecked yen depreciation and extreme FX swings. Tokyo deployed tens of billions of US dollars in late April–early May to shore up the yen, yet intervention only delivered temporary relief. The wide US-Japan rate gap and Japan’s strained fiscal outlook keep the market structurally bullish on USD/JPY, even after the Bank of Japan delivered a rate hike last week and signalled extra tightening ahead.

Technical Setup

Last week’s decisive breakout above the prior intervention zone of 160.50–160.60, paired with a steady bounce off the 200-day EMA at 156.32, maintains the pair’s core bullish bias.

· The 14-period RSI sits near 72, venturing firmly into overbought territory.

· MACD holds positive above the zero line, confirming sustained upside momentum that now looks stretched.

The technical signal suggests underlying bull power remains solid, yet overextended conditions raise odds of prolonged consolidation or short-term pullbacks before fresh highs can form.

Key Support Zones

1. Immediate structural pivot: 160.50–160.60 (old intervention range) Any dips above this band qualify as corrective moves within the broader uptrend.

2. Secondary trend support: 156.32 (200-day EMA) A sharp reversal lower would need to test this level to disrupt the long-run bull structure.