The U.S. dollar was supported on Thursday as U.S. Treasury yields remained elevated and investors increased their expectations that the Federal Reserve could raise interest rates later this year. At the same time, ongoing tensions between the U.S. and Iran in the Middle East continued to fuel demand for safe-haven assets, helping the greenback maintain its strength.

Market attention was also focused on the meeting between U.S. President Donald Trump and Chinese President Xi Jinping in Beijing, where both sides were expected to discuss trade, economic issues, and sensitive geopolitical matters.

The Dollar Is Supported by Yields and Fed Rate-Hike Expectations

The U.S. Dollar Index stood at 98.46, up around 0.63% for the week. The move was driven by investors adjusting their monetary policy expectations after a series of hotter-than-expected U.S. inflation reports.

Recent data showed that U.S. producer prices posted their biggest increase in four years in April, following an earlier consumer price report that also showed a solid rise. This has led markets to believe that the Fed may need to return to a tightening cycle if inflationary pressure remains persistent.

According to the CME FedWatch tool, markets are now pricing in a 31.8% chance of a Fed rate hike in December, up sharply from just over 16% one week earlier.

Higher U.S. Treasury Yields Put Pressure on Other Major Currencies

Rising expectations of higher interest rates pushed U.S. Treasury yields higher. The two-year yield stood near a one-and-a-half-month high at 3.9750%, while the benchmark 10-year yield reached 4.4669%, after touching close to a one-year high in the previous session.

Higher yields typically make the U.S. dollar more attractive, as investors tend to seek USD-denominated assets that offer stronger returns. This is one reason why the euro and the British pound came under pressure this week.

Major Currency Movements

The euro was little changed at $1.1716, but was on track to lose around 0.57% for the week, which would mark its largest weekly decline in two months.

The British pound traded around $1.3527 and was heading for a weekly decline of roughly 0.8%, partly pressured by domestic political turmoil.

The dollar edged slightly lower against the Japanese yen to 157.83 yen, as investors continued to watch for any signs of intervention by Japanese authorities to support the weakening currency.

Meanwhile, the offshore yuan held near a more than three-year high at around 6.7860 yuan per dollar, as markets hoped the Trump-Xi meeting could bring progress in U.S.-China economic relations.

Middle East Tensions and the U.S.-China Meeting Drive Safe-Haven Demand

Beyond interest-rate expectations, the dollar was also supported by safe-haven flows. The deadlock between the U.S. and Iran over the war in the Middle East kept risk sentiment cautious across markets.

At the same time, the meeting between Trump and Xi in Beijing was closely watched. Investors hoped the world’s two largest economies could reach some form of agreement to maintain a fragile trade truce and ease economic tensions.

Conclusion

The U.S. dollar is currently being supported by three main factors: expectations that the Fed could raise interest rates, elevated U.S. Treasury yields, and safe-haven demand amid geopolitical risks.

However, the next move will depend heavily on upcoming inflation data, policy signals from the Fed, and the outcome of the U.S.-China meeting.

In the short term, if U.S. inflation remains hot and yields stay elevated, the dollar could continue to hold an advantage over many major currencies.

Source: Reuters

Disclaimer: This content is for market research and informational purposes only and does not constitute investment advice.