Dollar boosted by rate expectations, safe-haven flows as Trump, Xi meet
The dollar got a lift from elevated U.S. Treasury yields on Thursday as investors wagered the Federal Reserve would hike rates this year, while an impasse between the U.S. and Iran over the war in the Middle East drove more safe-haven flows.
The global focus was also on a highly anticipated meeting between Donald Trump and China's Xi Jinping in Beijing on Thursday, where the U.S. President is aiming to secure economic wins, maintain a fragile trade truce and navigate thorny issues such as the U.S.-Israeli war on Iran.
Ahead of the meeting, the offshore yuan held at a more than three-year high and was last little changed at 6.7860 per dollar.
Analysts at Barclays said they expect the onshore yuan to hold steady in the near term, which would "also help ease the path of discussions between the U.S. and China".
"However, pushback by the authorities, via fixings and intervention, suggests limited patience with rapid appreciation," they added.
Traders have pushed the currency higher ahead of the Trump-Xi meeting, anticipating deals between the world's two largest economies.
In the broader market, the dollar held steady on Thursday, leaving the euro little changed at $1.1716 and on track to lose 0.57% for the week, which would mark its largest decline in two months.
Sterling last bought $1.3527 and was headed for a weekly fall of roughly 0.8%, pressured in part by political turmoil at home.
Against a basket of currencies, the U.S. dollar was last at 98.46, up 0.63% for the week thus far. It fell 0.04% against the yen to 157.83, as traders remained on alert for any signs of intervention from Japanese authorities to prop up the ailing currency.
HOT INFLATION NUMBERS
The greenback has been buoyed by signs of renewed domestic inflationary pressures, with data on Wednesday showing that U.S. producer prices posted their biggest increase in four years in April.
That came on the heels of Tuesday's figures which showed another solid increase in consumer prices last month, resulting in the annual inflation rate advancing at its fastest pace in three years.
"The inflation data we received this week certainly won't be welcomed by FOMC officials, including incoming Fed Chair Kevin Warsh," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
The U.S. Senate on Wednesday approved Warsh as Fed Chair, putting the 56-year-old lawyer and financier at the helm of the U.S. central bank.
"We forecast that the FOMC will have to start a tightening cycle from December this year, and we forecast three hikes in the cycle for now," said Kong.
Markets are now pricing in a 31.8% chance that the Fed will raise rates in December, up from just over a 16% chance a week ago, according to the CME FedWatch tool.
The change in rate expectations and fears of a surge in inflation have sent U.S. Treasury yields higher, with longer-dated yields reaching their highest levels since mid-2025 overnight.
The two-year yield was last at 3.9750%, holding near Wednesday's 1-1/2-month top, while the benchmark 10-year yield stood at 4.4669%, having touched close to a one-year high in the previous session.
In other currencies, the Australian dollar flirted with a four-year peak and last bought $0.7255, underpinned by hawkish rate expectations at home.
The New Zealand dollar eased 0.04% to $0.5933.
