Dollar rides rising US yields to largest weekly gain in two months

SINGAPORE: The dollar rode U.S. Treasury yields higher on Friday and was set for its biggest weekly gain in more than two months, as mounting inflationary pressures from higher energy prices fuelled bets on a Federal Reserve rate hike this year.

The dollar’s climb gathered pace as traders in London came online, rising alongside U.S. Treasury yields that hit one-year peaks, as traders ramped up bets that the Fed would need to raise rates this year.

Against the greenback, the euro fell to a one-month low of $1.1635 and was set to lose more than 1.2% for the week.

The yen struggled on the weaker side of 158 per dollar despite domestic data pointing to a spike in wholesale inflation, bolstering the case for the Bank of Japan to raise interest rates as soon as June.

It was last 0.16% lower at 158.60 per dollar.

The Australian and New Zealand dollars also fell heavily, with the Aussie down 0.8% to $0.7162, while the kiwi slid 0.82% to $0.5863.

The U.S. dollar’s rally has been gathering pace all week on evidence that while domestic inflation is mounting, the U.S. economy remains resilient despite the ongoing Middle East conflict.

Data on Thursday showed U.S. retail sales increased further in April while weekly initial jobless claims figures pointed to stability in the labour market.

Investors are now pricing in close to a 50% chance that the Fed could raise rates in December, compared with less than a 20% chance a week ago, according to the CME FedWatch tool.

“While we are still cognisant of the softer domestic demand conditions that are being weighed down by rising energy costs, our U.S. CPI forecasts have been revised higher in 2026 again with risks still biased towards the upside,” said Alvin Liew, senior economist at UOB.

Against a basket of currencies, the dollar rose to a more than one-month high of 99.203, taking its gains for the week thus far to 1.35%, the largest since early March.

Trump-Xi summit

Markets, meanwhile, hardly reacted to a closely watched two-day summit between U.S. President Donald Trump and his Chinese counterpart Xi Jinping that concluded on Friday, as Beijing warned Washington about mishandling Taiwan and said its war with Iran should never have started.

Trump said his patience with Iran was running out, and that he and Xi do not want Iran to have nuclear weapons and “want the straits open”.

The onshore yuan retreated from its highest level against the dollar in more than three years due to broad greenback strength and was last at 6.7953 per dollar. Its offshore counterpart dipped 0.14% to 6.7961.

“Regarding Iran, it does appear to have become an important topic, particularly around the Strait of Hormuz and the nuclear issue, both of which are key elements in the U.S.-Iran talks,” said Yue Su, principal economist for China at EIU.

“However, there are limits to what China can realistically do, as the Iranian regime is operating in survival mode and will prioritise its own interests and agenda above all else.”

Elsewhere, sterling touched a one-month low and was last down 0.4% at $1.3348, extending the previous session’s 0.9% fall following the resignation of British Health Minister Wes Streeting, deepening a UK political crisis.