Dollar hits 7-month high as traders price in Fed rate hikes

The dollar climbed to its highest level since last November as markets priced in the possibility of Federal Reserve interest rate hikes.

The Bloomberg Dollar Spot Index (BBDXY) surged 0.4% on Tuesday, closing at a seven-month high. The US Dollar Index (DXY), which tracks the greenback against six major currencies, stood at 101.443 as of 10 a.m. Wednesday Korea time, continuing to strengthen.

Traders are pricing in two quarter-point Fed rate hikes before early next year, with the central bank's monetary policy outlook widely cited as the driver of the dollar's advance.

"There is room for the dollar to go higher," said Jordan Rochester, a strategist at Mizuho International. "The dollar tends to strengthen ahead of Fed rate hike cycles, and markets are weighing the possibility that a hiking cycle begins in September."

Michael Ball, a macro strategist at Bloomberg Markets Live, said a genuine dollar breakout would require Fed Chair Kevin Warsh to actually raise interest rates and prove the hawkish stance was not merely an opening act.

The Dollar Index has risen 1.7% this year. A surge in global oil prices following a US-Israeli strike on Iran in late February boosted safe-haven demand for the dollar, lending additional support.