Dollar Holds Near One-Week High After Strong U.S. Inflation Data
The U.S. dollar remained close to a one-week high on Wednesday as investor sentiment weakened following stronger-than-expected U.S. inflation data, which pushed Treasury yields higher. Oil prices also stayed elevated amid renewed uncertainty surrounding the Middle East conflict.
The euro traded at $1.1735, while the British pound stood at $1.3533, with both currencies slipping around 0.05% against the U.S. dollar.
Meanwhile, the Australian dollar weakened 0.1% to $0.72335, while the New Zealand dollar declined 0.2% to $0.5939.
U.S. Inflation Boosts Treasury Yields and Dollar
The U.S. Dollar Index, which measures the greenback against a basket of six major currencies, held steady at 98.325, remaining near its strongest level in a week.
Ray Attrill, head of FX strategy at National Australia Bank, said weaker risk appetite, combined with rising Treasury yields after the latest inflation data, helped support the dollar.
Data released on Tuesday showed that the U.S. consumer price index rose 3.8% in April compared with a year earlier, marking the largest annual increase since May 2023. Rising oil prices linked to the U.S.-Israeli conflict with Iran contributed significantly to the increase.
Fed Rate Hike Expectations Increase
U.S. Treasury yields remained near seven-week highs, with the benchmark 10-year yield trading around 4.4629% and the two-year yield near 3.9896%.
Markets have largely ruled out the possibility of a Federal Reserve interest rate cut this year. According to CME’s FedWatch Tool, expectations for a 25-basis-point rate hike at the Fed’s December meeting increased to 35%.
Higher inflation and rising yields have continued to strengthen demand for the U.S. dollar across global currency markets.
Middle East Tensions Keep Oil Prices Elevated
Oil prices remained high, with Brent crude futures trading near $107 per barrel as geopolitical risks continued to weigh on markets.
Hopes for a peace agreement in the Middle East weakened after U.S. President Donald Trump stated that a ceasefire with Iran was “on life support” following Tehran’s rejection of a U.S.-backed proposal to end the conflict.
Trump also said on Tuesday that he does not believe Beijing’s assistance will be necessary to end the war ahead of his upcoming meeting with Chinese President Xi Jinping later this week.
Yen Stable as Intervention Speculation Grows
The Japanese yen traded mostly unchanged at 157.715 per dollar after strengthening sharply on Tuesday, fueling speculation that Japanese authorities may have conducted a “rate check,” often seen as a precursor to currency intervention.
U.S. Treasury Secretary Scott Bessent stated that both the United States and Japan view excessive currency market volatility as undesirable. His comments were interpreted as supportive of Tokyo’s recent efforts to stabilize the yen.
Meanwhile, China’s yuan traded near 6.79 per dollar, close to its strongest level since February 2023.
