The dollar rose on Friday, supported by higher US Treasury yields, and is heading for its biggest weekly gain in more than two months, as mounting inflationary pressures driven by rising energy prices reinforced bets that the Federal Reserve will raise interest rates later this year.

The dollar accelerated its gains as London traders entered the market, while US Treasury yields climbed to their highest levels in a year after investors raised expectations that the Federal Reserve may be forced to increase rates again this year.

Against the dollar, the euro fell to its lowest level in a month at $1.1632 and is heading for a weekly loss of around 1.3%.

The Japanese yen also remained weak near the 158-per-dollar level despite local data showing a sharp jump in wholesale inflation, which strengthened expectations that the Bank of Japan could raise interest rates as soon as June. In the latest trading, the yen slipped 0.1% to 158.47 per dollar.

Meanwhile, the British pound dropped to its weakest level in five weeks against the dollar and is heading for its biggest weekly loss since November 2024, as UK Prime Minister Keir Starmer faces growing pressure to remain in power following disastrous local election results for his party last week.

Markets fear that any potential new leader, such as Greater Manchester Mayor Andy Burnham or former Deputy Prime Minister Angela Rayner, could adopt more expansionary fiscal policies.

Sterling fell 0.4% in the latest trading to $1.3347 after earlier touching $1.3335, its lowest level since April 8.

Dollar rally accelerates

The US dollar’s rally accelerated throughout the week, driven by data showing the American economy remains resilient despite the ongoing Middle East conflict, while inflationary pressures continue to build within the United States.

Francesco Pesole, FX strategist at ING, said: “The dollar is now catching up with the strength of the economic data we’ve seen this week.”

He added: “There seems to be growing recognition that the US economy may be in a much better position during this energy crisis than many other economies around the world.”

Data released Thursday showed US retail sales continued to rise in April, while weekly jobless claims indicated the labor market remains stable.

Investors are now pricing in more than a 65% probability of a Federal Reserve rate hike by December, compared with less than 20% just a week ago, according to CME’s FedWatch tool.

The dollar index, which measures the US currency against a basket of major currencies, climbed to its highest level in more than a month at 99.203 points, rising around 1.35% this week, marking its strongest weekly performance since early March.

Trump-Xi summit

Meanwhile, markets showed little reaction to the two-day summit between US President Donald Trump and Chinese President Xi Jinping, which concluded Friday after Beijing warned Washington over mishandling the Taiwan issue and stressed that the war with Iran should never have started.

China’s onshore yuan retreated from its highest level against the dollar in more than three years due to broad dollar strength, trading at 6.8038 yuan per dollar in the latest session, while the offshore yuan fell 0.3% to 6.8066 per dollar.

Trump said his patience with Iran is “running out,” adding that both he and the Chinese president do not want Iran to possess nuclear weapons and “want to keep the straits open.”

Yu Su, chief China economist at the Economist Intelligence Unit, said: “Regarding Iran, it appears to have become a very important issue, particularly in relation to the Strait of Hormuz and the nuclear file, which are both key elements in US-Iran discussions.”

She added: “But there are limits to what China can actually do, because the Iranian regime is currently operating in survival mode and will prioritize its own interests and agenda above anything else.”

Gold prices fell more than 2% in European trading on Friday, deepening losses for the fourth consecutive session and hitting their lowest level in a week, heading for the biggest weekly decline since March, pressured by rising dollar and oil prices across global markets, alongside mounting fears of persistent inflation in the United States.

Escalating inflationary pressures on Federal Reserve policymakers have reinforced expectations for at least one additional US interest rate hike this year, pending further economic data and Fed commentary.

Price Overview

• Gold prices today: Gold prices dropped 2.3% to $4,546.15 per ounce, the lowest level in a week, from an opening level of $4,652.09, while recording an intraday high of $4,665.35.

• At Thursday’s settlement, gold prices lost 0.8%, marking the third consecutive daily decline, as yields on US 10-year Treasury bonds climbed to their highest level in a year.

Weekly Performance

So far this week, which officially ends with today’s settlement, gold prices are down more than 3.5%, heading toward a third weekly loss within a month and the largest weekly decline since March.

US Dollar

The dollar index rose more than 0.4% on Friday, extending gains for the fifth straight session and reaching its highest level in five weeks, reflecting continued broad strength in the US currency against a basket of global currencies.

As is well known, a stronger US dollar makes dollar-denominated gold bullion less attractive for holders of other currencies.

The dollar also received additional support from rising US Treasury yields, as investors increased bets that the Federal Reserve will raise interest rates at least once more this year.

Global Oil Prices

Global oil prices rose more than 5% this week due to stalled talks between the United States and Iran and growing fears of renewed conflict, keeping the vital Strait of Hormuz largely closed.

US Interest Rates

• Data released this week in the United States showed consumer prices in April rising at the fastest pace in three years, while producer prices recorded their sharpest increase in four years, highlighting renewed inflationary pressures on Federal Reserve policymakers.

• According to the CME Group’s FedWatch tool, markets are currently pricing in a 45% probability of a Federal Reserve rate hike in December, up from just over 16% a week ago.

• This week, markets also increased pricing for keeping US interest rates unchanged in June from 93% to 99%, while pricing for a 25 basis point rate cut dropped from 7% to 1%.

• To reassess these expectations, investors continue to closely monitor additional US economic data and comments from Federal Reserve officials.

Gold Outlook

KCM Trade chief market analyst Tim Waterer said gold is currently under pressure from all sides, as rising oil prices have pushed inflation back into focus, driving yields and the dollar higher, leaving the yellow metal a victim of renewed market skepticism over rate cuts.

Peter Grant, vice president and senior metals strategist at Zaner Metals, said inflation remains elevated, reinforcing expectations that interest rates will stay higher for longer, which continues to pressure gold this week.

SPDR Gold Trust

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Tuesday, leaving total holdings steady at 1,039.99 metric tons, the highest level since April 28.

The euro declined in European trading on Friday against a basket of global currencies, extending its losses for a fifth consecutive session against the US dollar and hitting its weakest level in five weeks. The single currency is now on track for its biggest weekly loss since March, as investors continue favoring the US dollar as the best available investment, particularly amid growing expectations that the Federal Reserve could raise interest rates this year in an effort to contain mounting inflationary pressures in the United States.

This week also saw markets increase pricing for a potential European rate hike in June, while traders continue waiting for additional economic data from the eurozone to reassess those expectations.

Price overview

• EUR/USD today: The euro fell 0.2% against the dollar to $1.1646, its lowest level since April 8, after opening at $1.1669 and touching an intraday high of $1.1673.

• The euro ended Thursday down 0.35% against the dollar, marking its fourth consecutive daily loss following another sharp rise in US Treasury yields.

Weekly performance

Over the course of this week’s trading, which officially concludes with Friday’s settlement, the single European currency has fallen around 1.2% against the US dollar so far. The euro is now on track for its first weekly loss in the past three weeks and its biggest weekly decline since March.

US dollar

The US dollar index rose 0.25% on Friday, extending gains for a fifth straight session and hitting its highest level in five weeks, reflecting continued broad strength in the US currency against a basket of global currencies.

The dollar received additional support from rising US Treasury yields as investors increased bets that the Federal Reserve will raise interest rates at least once this year.

US data released this week showed consumer prices in April rose at the fastest pace in three years, while producer prices recorded their biggest increase in four years, highlighting renewed inflationary pressure on Federal Reserve policymakers.

According to the CME FedWatch Tool, markets are currently pricing in a 45% probability of a Federal Reserve rate hike in December, compared with just over 16% a week ago.

European interest rates

• With global oil prices rising this week, money markets increased pricing for a 25-basis-point European Central Bank rate hike in June from 45% to 50%.

• Investors are now awaiting additional eurozone data on inflation, unemployment, and wages in order to reassess those expectations further.

The Japanese yen fell in Asian trading on Friday against a basket of major and minor currencies, extending its losses for a fifth straight session against the US dollar and hitting its weakest level in two weeks. The currency is now on track for its biggest weekly loss since March, as investors continue favoring the US dollar as the best available investment, particularly amid growing expectations that the Federal Reserve could raise interest rates this year to contain mounting inflationary pressures in the United States.

Government data released Friday in Japan showed producer prices rose in April at the fastest pace in three years, driven by higher oil and fuel costs resulting from the war with Iran. The figures reinforced expectations that the Bank of Japan could raise interest rates as soon as its June meeting.

Price overview

• USD/JPY today: The dollar rose 0.15% against the yen to ¥158.59, the highest level since April 30, after opening at ¥158.36 and touching an intraday low of ¥158.26.

• The yen ended Thursday down 0.3% against the dollar, marking its fourth consecutive daily loss due to rising US Treasury yields.

Weekly performance

Over the course of this week’s trading, which officially concludes with Friday’s settlement, the Japanese yen has declined 1.25% against the US dollar so far. It is on track for its first weekly loss in the past three weeks and its biggest weekly decline since March.

Japanese authorities

Japanese Finance Minister Satsuki Katayama confirmed following this week’s meeting with US Treasury Secretary Scott Bessent that both sides are “fully aligned” regarding currency market movements.

The US side also reaffirmed that coordination remains strong to address any “excessive and undesirable” volatility in the foreign exchange market, effectively giving Japan an implicit green light for further intervention if needed.

Katayama had previously issued strong warnings against “speculative and excessive” currency moves and hinted at “decisive action” while urging markets to remain on high alert.

US dollar

The US dollar index rose 0.25% on Friday, extending gains for a fifth straight session and hitting its highest level in five weeks, reflecting broad-based strength in the US currency against a basket of global currencies.

The dollar received additional support from rising US Treasury yields as investors increased bets that the Federal Reserve will raise interest rates at least once this year.

US data released this week showed consumer prices in April rose at the fastest pace in three years, while producer prices recorded their biggest increase in four years, highlighting renewed inflationary pressure on Federal Reserve policymakers.

According to the CME FedWatch Tool, markets are now pricing in a 45% probability of a Federal Reserve rate hike in December, up sharply from just over 16% a week ago.

Japan producer prices

Data released Friday in Tokyo showed Japan’s producer price index rose 4.9% year-over-year in April, marking the fastest annual increase since May 2023 and exceeding market expectations for a 3.0% rise. The figure accelerated sharply from a 2.9% increase recorded in March.

The data followed calls from a Bank of Japan policymaker to raise interest rates “as soon as possible” due to higher fuel costs linked to the Middle East war and the resulting increase in price pressures.

Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said: “Today’s inflation data was stronger than expected, so markets have largely priced in a Japanese rate hike in June.”

Japanese interest rates

• Following the latest data, markets raised the probability of a quarter-point Bank of Japan rate hike at the June meeting from 60% to 75%.

• Investors are now awaiting additional data on inflation, unemployment, and wages in Japan to further reassess those expectations.

• The Bank of Japan’s Summary of Opinions released this week showed a clear shift toward tighter monetary policy and preparation for an earlier rate hike, driven by rising inflation risks linked to the Middle East crisis and the Iranian war.