The dollar rose on Friday, supported by higher US Treasury yields, and is heading for its biggest weekly gain in more than two months, as mounting inflationary pressures driven by rising energy prices reinforced bets that the Federal Reserve will raise interest rates later this year.
The dollar accelerated its gains as London traders entered the market, while US Treasury yields climbed to their highest levels in a year after investors raised expectations that the Federal Reserve may be forced to increase rates again this year.
Against the dollar, the euro fell to its lowest level in a month at $1.1632 and is heading for a weekly loss of around 1.3%.
The Japanese yen also remained weak near the 158-per-dollar level despite local data showing a sharp jump in wholesale inflation, which strengthened expectations that the Bank of Japan could raise interest rates as soon as June. In the latest trading, the yen slipped 0.1% to 158.47 per dollar.
Meanwhile, the British pound dropped to its weakest level in five weeks against the dollar and is heading for its biggest weekly loss since November 2024, as UK Prime Minister Keir Starmer faces growing pressure to remain in power following disastrous local election results for his party last week.
Markets fear that any potential new leader, such as Greater Manchester Mayor Andy Burnham or former Deputy Prime Minister Angela Rayner, could adopt more expansionary fiscal policies.
Sterling fell 0.4% in the latest trading to $1.3347 after earlier touching $1.3335, its lowest level since April 8.
Dollar rally accelerates
The US dollar’s rally accelerated throughout the week, driven by data showing the American economy remains resilient despite the ongoing Middle East conflict, while inflationary pressures continue to build within the United States.
Francesco Pesole, FX strategist at ING, said: “The dollar is now catching up with the strength of the economic data we’ve seen this week.”
He added: “There seems to be growing recognition that the US economy may be in a much better position during this energy crisis than many other economies around the world.”
Data released Thursday showed US retail sales continued to rise in April, while weekly jobless claims indicated the labor market remains stable.
Investors are now pricing in more than a 65% probability of a Federal Reserve rate hike by December, compared with less than 20% just a week ago, according to CME’s FedWatch tool.
The dollar index, which measures the US currency against a basket of major currencies, climbed to its highest level in more than a month at 99.203 points, rising around 1.35% this week, marking its strongest weekly performance since early March.
Trump-Xi summit
Meanwhile, markets showed little reaction to the two-day summit between US President Donald Trump and Chinese President Xi Jinping, which concluded Friday after Beijing warned Washington over mishandling the Taiwan issue and stressed that the war with Iran should never have started.
China’s onshore yuan retreated from its highest level against the dollar in more than three years due to broad dollar strength, trading at 6.8038 yuan per dollar in the latest session, while the offshore yuan fell 0.3% to 6.8066 per dollar.
Trump said his patience with Iran is “running out,” adding that both he and the Chinese president do not want Iran to possess nuclear weapons and “want to keep the straits open.”
Yu Su, chief China economist at the Economist Intelligence Unit, said: “Regarding Iran, it appears to have become a very important issue, particularly in relation to the Strait of Hormuz and the nuclear file, which are both key elements in US-Iran discussions.”
She added: “But there are limits to what China can actually do, because the Iranian regime is currently operating in survival mode and will prioritize its own interests and agenda above anything else.”
www.economies.com