he dollar held firm on Thursday, supported by higher U.S. Treasury yields, as investors began to price in the prospect of Federal Reserve rate hikes this year, while the global focus was on a two-day summit between U.S. President Donald Trump and China's Xi Jinping. Xi told Trump that trade talks were making progress but warned that disagreement over Taiwan could send relations down a dangerous path, framing a high-stakes meeting Trump called possibly the "biggest summit ever". The Reuters Iran Briefing newsletter keeps you informed with the latest developments and analysis of the Iran war. .
As the summit got under way, China's onshore yuan traded around three-year highs. In offshore trading, the currency strengthened for an eighth straight day against the dollar to 6.7845. In the broader market, the dollar held steady on Thursday, leaving the euro little changed at $1.1717, set for a 0.6% loss this week, which would mark its largest decline in two months. Against a basket of currencies, the U.S. dollar was last at 98.48, up more than 0.6% for the week so far and heading for its strongest weekly performance since the start of the Iran war. It reversed early gains against the yen to trade a touch lower at 157.87 , as the Japanese currency drew support from comments by Bank of Japan board member Kazuyuki Masu, who said the central bank should move to raise interest rates promptly if there are no clear signs of an economic slowdown. Japanese authorities are believed to have intervened several times in the past couple of weeks to temper the dollar's strength, but with traders now pricing in the prospect of the Fed raising rates this year, the yen is flagging. The U.S. currency has now recovered 50% of the losses incurred since officials stepped in to prop up the yen.
The dollar rally has been gathering pace all week, on the back of evidence that domestic inflation is mounting. The latest data point on Wednesday showed U.S. producer prices posted their biggest increase in four years in April, on the heels of Tuesday's report that showed consumer inflation ran at its fastest pace in three years.
"The inflation data we received this week certainly won't be welcomed by FOMC officials, including incoming Fed Chair Kevin Warsh," said Carol Kong, a currency strategist at Commonwealth Bank of Australia. The U.S. Senate on Wednesday approved Warsh as Fed Chair, putting the 56-year-old lawyer and financier at the helm of the U.S. central bank. "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 now pricing in a 31.8% chance that the Fed will raise rates in December, up from just over a 16% chance a week ago, according to the CME FedWatch tool.
The change in rate expectations and fears of a surge in inflation have sent long-dated U.S. Treasury yields to their highest since mid-2025. Thirty-year bond yields were last down 1.5 basis points on the day at 5.029%. The pound held steady against both the dollar and the euro , after data showed UK growth expanded unexpectedly in March, albeit by a modest 0.3%, which suggested the British economy may have been slightly more resilient as the war in Iran escalated.
