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The U.S. dollar strengthened on Thursday as rising Treasury yields fueled expectations that the Federal Reserve could raise interest rates later this year. Investors also closely monitored the high-profile summit between U.S. President Donald Trump and Chinese President Xi Jinping, with global markets reacting to developments in U.S.-China trade relations.
During the two-day meeting, Xi acknowledged progress in trade negotiations but warned that disagreements over Taiwan could negatively impact ties between the world’s two largest economies. Trump described the gathering as potentially the “biggest summit ever,” adding to market anticipation surrounding possible economic agreements.
China’s yuan remained near its strongest levels in more than three years, with the onshore yuan holding close to 6.7840 per dollar and the offshore yuan touching 6.7817. Analysts at Barclays noted that a stable yuan could support smoother discussions between Washington and Beijing, although Chinese authorities may resist rapid currency appreciation through intervention measures.
In the broader forex market, the euro traded near $1.1714 and remained on track for its biggest weekly drop in two months. The British pound hovered around $1.3524 as political uncertainty in the United Kingdom pressured sterling.
The U.S. Dollar Index climbed to 98.48, gaining over 0.6% for the week. Meanwhile, the Japanese yen found support after Bank of Japan board member Kazuyuki Masu suggested that interest rates should rise if economic conditions remain stable.
Recent U.S. inflation data has significantly boosted the dollar. Producer prices posted their sharpest increase in four years in April, while consumer inflation accelerated to its fastest annual pace in three years. The data strengthened market expectations for tighter monetary policy under incoming Fed Chair Kevin Warsh.
According to CME FedWatch data, markets now see a 31.8% probability of a Fed rate hike in December, nearly double last week’s expectations. Rising inflation concerns also pushed Treasury yields higher, with the 10-year yield nearing one-year highs.
Elsewhere, the Australian dollar remained strong near a four-year peak due to hawkish domestic rate expectations, while the New Zealand dollar edged slightly lower.
