Dollar at Nearly 1-Month High

The dollar index rose to approach 99.3 on Friday, the strongest level in about a month, as concerns over war-driven inflation intensified. The situation in the Middle East remains fragile and far from resolved, with Trump describing the first sentence of Iran’s latest proposal as “unacceptable”. As a result, oil prices continued to climb, with the Strait of Hormuz still closed. Meanwhile, a summit between President Trump and Chinese President Xi ended without any major agreements, including any indication that Beijing would help resolve the conflict. Both the CPI and PPI reports released this week suggested that the energy shock is pushing US inflation higher. Traders are now fully pricing in one rate hike by the Fed in March next year, with more than a 50% chance that interest rates will rise before the end of 2026. The greenback strengthened across the board and the biggest gains were seen against the Aussie ad the pound.On the week, the dollar is up nearly 1%.

The dollar index climbed to around 99 on Friday and was on track to post a weekly gain of more than 1%, supported by mounting inflationary pressures that strengthened expectations for a Federal Reserve rate hike later this year. Data released earlier in the week showed US wholesale inflation accelerated at its fastest pace since 2022 in April, while consumer prices recorded their biggest increase since 2023 amid renewed price pressures stemming from the energy shock linked to the Iran conflict. Retail sales growth slowed as anticipated but continued to point to resilient consumer demand. Markets have now fully ruled out the possibility of a Fed rate cut this year, with some traders increasingly pricing in a potential rate hike by December. Meanwhile, investors remained focused on the second day of high-level talks between President Donald Trump and Chinese President Xi Jinping, after Xi warned that Taiwan could become a source of “clashes” between the world’s two largest economies.

The dollar index climbed to 98.6 on Thursday, reaching its highest level in two weeks as investors focused on a two day summit between US President Donald Trump and China’s Xi Jinping while also assessing fresh economic data. In the US, retail sales slowed as expected but continued to signal resilient consumer spending. Headline retail sales rose 0.5% in April, while core retail sales, which feed directly into GDP calculations, also increased 0.5%. Earlier this week, both CPI and PPI data pointed to renewed inflationary pressures linked to the energy shock caused by the outbreak of war in Iran. Markets now expect the Federal Reserve to keep interest rates unchanged for the rest of the year, although traders still price in roughly a 28% chance of a 25 basis point rate hike in December.