The dollar experienced an uptick due to heightened U.S. Treasury yields on Thursday, as market participants speculated on the likelihood of a Federal Reserve rate increase this year. Concurrently, a stalemate between the U.S. and Iran regarding the conflict in the Middle East prompted increased safe-haven inflows. The international spotlight was directed towards a much-anticipated meeting between Donald Trump and Xi Jinping in Beijing on Thursday. The U.S. President seeks to achieve economic victories, uphold a delicate trade truce, and address complex matters including the U.S.-Israeli conflict concerning Iran. Ahead of the meeting, the offshore yuan remained at a more than three-year high, last recorded at 6.7860 per dollar, showing little change. Analysts anticipate that the onshore yuan will remain stable in the near term, which would “also help ease the path of discussions between the U.S. and China”.

However, pushback by the authorities, via fixings and intervention, suggests limited patience with rapid appreciation,” they added. Market participants have driven the currency upward in anticipation of the Trump-Xi meeting, expecting agreements between the two largest economies globally. In the broader market, the dollar maintained its position on Thursday, resulting in minimal movement for the euro at $1.1716, which is poised to experience a weekly decline of 0.57%, marking its most significant drop in two months. Sterling was last valued at $1.3527 and is on track for a weekly decline of approximately 0.8%, influenced in part by domestic political turmoil. In relation to a collection of currencies, the U.S. dollar was recently recorded at 98.46, reflecting an increase of 0.63% for the week to date. The currency declined by 0.04% against the yen, settling at 157.83, as market participants stayed vigilant for indications of potential intervention by Japanese authorities aimed at stabilizing the struggling currency.

The greenback has experienced support from indications of revitalized domestic inflationary pressures, as data released on Wednesday revealed that U.S. producer prices recorded their most significant rise in four years during April. That followed Tuesday’s figures, which indicated a robust rise in consumer prices last month, leading to the annual inflation rate climbing at its quickest rate in three years. The inflation data released this week is unlikely to be received favorably by FOMC officials, including the incoming ones. The U.S. Senate on Wednesday confirmed Warsh as the Chair of the Federal Reserve, positioning the 56-year-old attorney and financier to lead the U.S. central banking system. “We forecast that the FOMC will have to start a tightening cycle from December this year, and we forecast three hikes in the cycle for now,” said Kong.

Markets are currently assigning a 31.8% probability to the Fed raising rates in December, an increase from slightly more than 16% a week prior, as indicated by the CME FedWatch tool. The shift in rate expectations, coupled with concerns over a potential inflation spike, has driven U.S. Treasury yields upward, with longer-dated yields attaining their peak levels since mid-2025 overnight. The two-year yield was last at 3.9750%, maintaining proximity to Wednesday’s 1-1/2-month peak, while the benchmark 10-year yield was recorded at 4.4669%, having approached a one-year high in the preceding session.