U.S. Dollar Heads for Strong Weekly Gain as Fed Rate Hike Expectations Increase

The U.S. dollar extended gains for a fifth consecutive session on Friday, positioning itself for its strongest weekly performance in more than two months.

Investor sentiment shifted toward the dollar after a series of stronger-than-expected U.S. economic reports increased expectations that the Federal Reserve could maintain a more hawkish stance on interest rates.

The U.S. Dollar Index (DXY) rose 0.3% to 99.11, bringing total weekly gains to approximately 1.3%.

Strong Economic Data Fuels Federal Reserve Rate Hike Expectations

Recent economic indicators reinforced confidence in the resilience of the U.S. economy.

New data showed:

• U.S. retail sales increased 0.5% in April, matching analyst forecasts
• Weekly jobless claims remained relatively low, signaling continued labor market strength
• Import prices climbed 1.9%, driven by the largest increase in fuel costs in four years

Earlier this week, both consumer inflation and producer inflation readings also exceeded expectations.

As a result, markets have largely abandoned hopes for Federal Reserve interest rate cuts in 2026.

According to CME FedWatch data, expectations for a 25-basis-point Fed rate hike in December rose to around 40%, compared with 22% last week.

Meanwhile, the benchmark 10-year U.S. Treasury yield climbed above 4.5%, reaching its highest level in nearly one year.

Trump-Xi Summit Remains in Focus for Global Markets

Investors also monitored developments from the latest summit between President Donald Trump and Chinese President Xi Jinping in Beijing.

Chinese reports indicated both leaders concluded a second round of discussions and reached an important consensus on expanding cooperation while managing disagreements.

However, markets remained cautious because no major trade agreements were announced following the meetings.

Earlier in the summit, Xi reportedly acknowledged progress in trade discussions but warned that disputes surrounding Taiwan could push relations between the two countries into a more dangerous phase.

Iran Tensions Continue Supporting Safe-Haven Demand

Geopolitical concerns also influenced market sentiment after President Donald Trump maintained a tougher tone toward Iran.

In recent comments, Trump suggested patience with Iran was fading and urged the country to agree to a deal.

The continued uncertainty surrounding Iran has increased concerns over energy markets, inflation, and broader global stability.

These developments have supported demand for the U.S. dollar and other defensive assets.

Indian Rupee Falls to Record Low Against U.S. Dollar

In Asia, the Indian rupee weakened further, with the USD/INR exchange rate reaching a record high near 95.96.

The currency pair was on track for a 1.4% weekly increase, reflecting ongoing pressure on the rupee.

Several factors contributed to the decline:

• Rising crude oil prices
• Foreign capital outflows
• Concerns over India’s expanding import costs

India remains particularly vulnerable to higher energy prices due to its heavy reliance on crude oil imports.

Disruptions in the Strait of Hormuz have further increased pressure on the country’s economy.

Analysts at MUFG stated they remain cautious on the rupee, expecting continued underperformance relative to major developed-market and Asian currencies.

Japanese Yen and Chinese Yuan Remain Under Watch

The Japanese yen weakened, with the USD/JPY pair heading for roughly a 1.2% weekly gain, increasing speculation about potential intervention by Japanese authorities.

Meanwhile, the Chinese yuan posted modest losses, with USD/CNY rising 0.3% after seven consecutive sessions of declines.

The yuan received some support from optimism surrounding ongoing U.S.-China discussions.

Markets Await Further Signals on Fed Policy and Global Risks

Currency markets remain highly sensitive to incoming inflation data, central bank expectations, and geopolitical developments.

With Federal Reserve tightening bets increasing and global uncertainty persisting, the U.S. dollar continues attracting support as investors reassess risk exposure.