The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, climbed to a two-week high on Thursday, trading around 98.83 according to one source and 98.78 according to another, as traders increased expectations that the Federal Reserve (Fed) could keep interest rates elevated for longer following robust US economic data [1][2]. The index extended gains for a third consecutive day, reflecting renewed demand for the US Dollar [1][2].
US Retail Sales rose 0.5% month-over-month in April, matching market expectations but slowing from the 1.6% increase recorded in March. The Retail Sales Control Group, which directly feeds into GDP calculations, also rose 0.5% after increasing 0.8% in the previous month [1][2]. Earlier in the week, stronger-than-expected US Consumer Price Index (CPI) and Producer Price Index (PPI) data indicated that inflation accelerated sharply in April, largely driven by higher energy prices, pushing inflation further away from the Fed’s 2% target [1][2].
These data points have led traders to increase bets that the Fed could raise interest rates by year-end. The CME FedWatch Tool showed a roughly 42% probability of a hike at the December meeting, up from around 33% a day earlier [1][2]. This shift in expectations has pushed US Treasury yields higher and boosted demand for the US Dollar, with the Greenback showing particular strength against the British Pound, up 0.74% on the day [2].
Geopolitical uncertainty, including ongoing tensions in the Middle East and deadlocked US-Iran peace talks, has further supported the US Dollar through safe-haven flows [1][2]. Investors are also monitoring the summit in Beijing between US President Donald Trump and Chinese President Xi Jinping, where both leaders discussed trade, investment, and the Iran conflict. Trump stated that Xi offered to help on Iran and supports reopening the Strait of Hormuz, a key route for global oil shipments [1][2].
Kansas City Fed President Jeff Schmid commented that the US economy is 'less vulnerable' to global oil disruptions than in the past, though high oil prices still impact household spending and business costs. Schmid also noted the US economy's 'remarkable resilience' and sound fundamentals [1]. Technical analysis shows the DXY holding above its 200-day Simple Moving Average (SMA) at 98.53, with resistance at the 50-day SMA near 98.99 and further barriers at 99.50 and 100.50 [1].
CONCLUSION
Stronger US economic data and rising inflation have intensified expectations of a more hawkish Federal Reserve, driving the US Dollar Index to a two-week high and boosting demand for the Greenback. Geopolitical tensions and safe-haven flows have further supported the US Dollar, while technical indicators suggest bullish momentum remains, though resistance levels are in focus. The market is now closely watching Fed policy signals and geopolitical developments for further direction.