US dollar strengthens as Treasury yields hit multi-week high

The dollar rose alongside higher U.S. Treasury yields on Friday and was on track for its biggest weekly gain in more than two months, as rising inflationary pressures linked to higher energy prices boosted expectations of a Federal Reserve rate hike this year, News.Az reports, citing Reuters.

The dollar’s advance accelerated as trading in London began, moving in tandem with U.S. Treasury yields that reached one-year highs as market participants increased bets that the Federal Reserve would need to raise interest rates within the year.

Against the U.S. currency, the euro dropped to a one-month low of $1.1635 and was set for a weekly decline of more than 1.2%.

The Japanese yen remained weak, trading on the softer side of 158 per dollar, despite domestic data indicating a surge in wholesale inflation, which has strengthened expectations that the Bank of Japan could raise interest rates as early as June. The yen was last down 0.16% at 158.60 per dollar.

The Australian and New Zealand dollars also weakened significantly, with the Australian dollar falling 0.8% to $0.7162, while the New Zealand dollar slipped 0.82% to $0.5863.

The U.S. dollar’s rally has gained momentum throughout the week, supported by evidence that, despite rising domestic inflation, the U.S. economy remains resilient even amid the ongoing Middle East conflict.

Data released on Thursday showed that U.S. retail sales rose further in April, while weekly initial jobless claims suggested stability in the labor market.

Investors are now pricing in nearly a 50% probability that the Federal Reserve could raise interest rates in December, compared with less than a 20% chance a week earlier, 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 major currencies, the dollar climbed to a more than one-month high of 99.203, bringing its weekly gain to 1.35%, the strongest since early March.

Markets showed limited reaction to a closely watched two-day summit between U.S. President Donald Trump and Chinese President Xi Jinping that concluded on Friday. During the meeting, Beijing warned Washington over Taiwan policy and stated that the war with Iran should never have started.

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

China’s onshore yuan weakened after touching its strongest level against the dollar in more than three years, falling due to broad dollar strength to 6.7953 per dollar. Its offshore counterpart slipped 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 its previous session’s 0.9% decline following the resignation of British Health Minister Wes Streeting, which deepened a political crisis in the United Kingdom.

News.Az 

By Nijat Babayev