The US dollar surged to a more than one-month high of 99.203 against a basket of currencies, posting its largest weekly gain in more than two months as traders ramped up bets on Federal Reserve rate hikes. According to The Hindu BusinessLine, the dollar's rally gathered pace as US Treasury yields hit one-year peaks, with the greenback climbing alongside rising inflationary pressures from higher energy prices. 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.
Gold prices fell 0.7% to $4,620.67 an ounce on Friday, marking the fourth straight session of declines as the US dollar's strength continues to pressure precious metals. According to Investing.com, US Gold Futures slipped 1.3% to $4,624.87 an ounce, with the precious metal down roughly 2% for the week. The dollar's rally has made bullion more expensive for overseas buyers, reducing gold's appeal as a traditional hedge against inflation and geopolitical uncertainty. Gold, which typically gains during periods of uncertainty, tends to lose appeal when interest rates rise because it does not yield interest, making it less attractive to investors seeking returns.
Markets have dramatically increased expectations for Federal Reserve rate hikes, with investors now pricing in close to a 50% chance that the Fed could raise rates in December, compared with less than 20% a week ago according to the CME FedWatch tool. This represents a significant shift in market sentiment as inflationary pressures from rising energy costs and shipping disruptions have reinforced expectations for monetary policy tightening. The latest data showed US retail sales increased further in April while weekly initial jobless claims figures pointed to stability in the labour market, reinforcing concerns that inflationary pressures remain elevated. US consumer prices rose at the fastest pace in three years while producer prices recorded their strongest increase in four years, highlighting renewed inflationary pressures facing Federal Reserve policymakers.
The second day of the high-stakes summit between US President Donald Trump and Chinese counterpart Xi Jinping concluded on Friday, with markets hardly reacting to the closely watched talks. According to The Hindu BusinessLine, 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, with the onshore yuan at 6.7953 per dollar and its offshore counterpart dipping 0.14% to 6.7961. Xi's apparent interest in buying American oil to reduce China's dependence on Middle East supplies has provided cautious optimism around US-China relations.
The Australian and New Zealand dollars also fell heavily, with the Aussie down 0.8% to $0.7162 and the kiwi sliding 0.82% to $0.5863. 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. The dollar's strength reflects growing confidence that the Fed will maintain its current policy stance amid mounting inflation concerns, with Japanese authorities believed to have intervened several times in recent weeks to limit dollar strength but growing expectations for US rate hikes continue to pressure regional currencies.
