The US dollar remained firm on Thursday as investors reacted to stronger inflation data and rising Treasury yields, reinforcing expectations that the Federal Reserve could resume tightening monetary policy later this year.

The dollar index held near 98.48, placing the greenback on track for its strongest weekly performance in more than a month.

Currency markets increasingly shifted focus toward the possibility of future Federal Reserve rate hikes as inflationary pressures continued building across the US economy.

Inflation Data Reinforces Hawkish Outlook

Recent inflation reports significantly influenced market sentiment during the week.

US producer prices recorded their largest monthly increase in four years during April, following consumer inflation data earlier in the week that showed the fastest annual inflation pace in roughly three years.

The hotter inflation readings strengthened expectations that the Federal Reserve may need to maintain tighter monetary conditions for longer than previously anticipated.

Markets are now increasingly pricing in the possibility of at least one interest rate hike before the end of 2026.

Analysts noted that rising energy prices linked to ongoing Middle East disruptions have become a major contributor to renewed inflation pressure.

Treasury Yields Continue Climbing

Rising inflation expectations pushed US Treasury yields higher across the curve.

The benchmark 10-year Treasury yield climbed near 4.47%, approaching its highest levels in almost a year, while the two-year Treasury yield remained close to multi-week highs near 3.98%.

Higher bond yields continue supporting the dollar by improving returns on US-denominated assets relative to other major currencies.

Currency strategists said the rapid shift in interest-rate expectations has become one of the primary drivers behind recent dollar strength.

Trump-Xi Summit Dominates Global Attention

Global markets also remained focused on the two-day summit between President Donald Trump and Chinese President Xi Jinping.

The meeting is widely viewed as one of the most consequential diplomatic engagements between the world’s two largest economies in recent years.

Xi reportedly told Trump that trade negotiations were progressing, while also warning that tensions surrounding Taiwan could create serious risks for bilateral relations.

Investors are closely monitoring whether the summit can stabilize trade relations and reduce broader geopolitical uncertainty.

Chinese Yuan Hits Three-Year High

Ahead of the summit, China’s yuan strengthened to its highest level in more than three years against the US dollar.

The onshore yuan briefly reached approximately 6.7840 per dollar, while the offshore yuan touched similar levels.

Analysts said investors had been positioning for improved economic cooperation and possible trade agreements between Washington and Beijing.

However, some strategists cautioned that Chinese authorities may resist overly rapid appreciation in the currency through policy adjustments or intervention measures.

Other Major Currencies Face Pressure

The euro remained under pressure during the week, trading near $1.1714 and heading toward its largest weekly decline in roughly two months.

Sterling also weakened, partly due to ongoing political uncertainty in the United Kingdom.

Meanwhile, the Japanese yen stabilized after comments from Kazuyuki Masu suggested the Bank of Japan could move toward interest rate hikes if economic conditions remain stable.

The Australian dollar continued showing relative strength, supported by expectations of tighter domestic monetary policy and resilient commodity-linked demand.

Markets Reassess Federal Reserve Outlook

The combination of stronger inflation data, resilient labor markets, and elevated energy prices has caused investors to significantly reassess the Federal Reserve outlook.

According to market pricing, the probability of a Fed rate hike in December has risen sharply compared with expectations just one week earlier.

Analysts at several major financial institutions now believe the central bank may need to begin another tightening cycle before inflation pressures become more entrenched.

Attention is also increasingly turning toward incoming Federal Reserve Chair Kevin Warsh following his recent Senate confirmation.

Geopolitics and Inflation Remain Central Risks

Investors continue balancing optimism surrounding US-China diplomacy against persistent geopolitical and inflation risks.

The ongoing conflict involving Iran and the continued disruption in the Strait of Hormuz remain major concerns for global energy markets and inflation expectations.

As long as oil prices remain elevated and supply chains stay under pressure, financial markets are likely to remain highly sensitive to both geopolitical developments and central bank policy signals.