Dollar Gains as Fed Rate Hike Bets Rise Amid Strong U.S. Data

The U.S. dollar strengthened on Thursday as investors increased expectations that the Federal Reserve could raise interest rates again later this year following stronger-than-expected economic data. Fresh inflation figures and resilient retail sales reinforced confidence in the U.S. economy, helping the greenback climb against major global currencies.

The U.S. Dollar Index, which measures the currency against six major peers, advanced 0.3% to 98.82. Market sentiment shifted after recent consumer price index (CPI) and producer price index (PPI) reports showed inflation pressures remain elevated. April retail sales also increased 0.5%, matching analyst expectations, although growth slowed compared to March’s stronger gain. Economists noted that consumers continue spending despite higher fuel costs and inflation concerns, signaling ongoing economic resilience.

Rising oil prices linked to Middle East tensions have also influenced inflation expectations, reducing hopes for potential Federal Reserve rate cuts. Higher interest rates typically support the U.S. dollar by attracting global investors seeking stronger returns.

Attention also turned to President Donald Trump’s visit to China, where trade talks, artificial intelligence cooperation, and discussions surrounding Iran dominated headlines. Chinese President Xi Jinping reportedly expressed willingness to assist diplomatic efforts regarding the Middle East crisis, while investors monitored potential progress in U.S.-China trade relations. Reports suggesting the U.S. approved several Chinese firms to purchase Nvidia’s H200 AI chips further boosted market optimism. Boeing shares also benefited after Trump announced China agreed to purchase 200 aircraft from the American manufacturer.

In currency markets, the British pound weakened despite stronger UK GDP growth data, while the euro and Japanese yen also lost ground against the dollar. The Chinese yuan, however, remained near multi-year highs following positive sentiment surrounding the summit discussions.