The US Dollar (USD) rallied strongly across global currency markets this week, reaching multi-week highs against several major peers, as a series of hotter-than-expected US inflation reports and robust economic data drove up US Treasury yields and fueled expectations for Federal Reserve (Fed) interest rate hikes later in the year [1][2][3][4][5]. The US Dollar Index (DXY) climbed to 99.20, marking a five-week high and its best weekly performance in two months, with a 1.30% gain over the last five days [3][4].
US Producer Price Index (PPI) inflation accelerated to the fastest pace since 2022 in April, while Consumer Price Index (CPI) rose the most since 2023, dampening hopes for Fed rate cuts and instead prompting markets to price in a 36.9% probability of a 25 basis point rate hike by December, up from 22.5% a week ago [2][3]. Additionally, US import prices rose 1.9% month-on-month and export prices surged 3.3% month-on-month in April, the fastest increases since early 2022, further boosting yields and the USD [5]. The two-year Treasury yield closed above 4.00%, and the 10-year yield reached 4.53%, the highest in almost a year [4][5].
Currency pairs reflected the USD's strength: USD/CHF advanced for a fifth consecutive day to a two-week high near 0.7865, testing key technical resistance levels [1]. The NZD/USD slumped to near 0.5860, with the New Zealand Dollar under pressure from both Fed rate hike bets and uncertainty over China-related trade developments [2]. The AUD/USD dropped 0.8% to around 0.7160, extending its correction below the 20-day EMA as the USD outperformed amid surging yields [4]. According to daily performance tables, the USD was the strongest G10 currency, outperforming the British Pound, New Zealand Dollar, and Australian Dollar [1][4][5].
Geopolitical factors also played a role, with persistent uncertainty over the US-Iran conflict and the closed Strait of Hormuz supporting the USD's safe-haven appeal [1][2][3]. US President Donald Trump's meetings with Chinese President Xi Jinping in Beijing yielded positive trade commentary, but no resolution on the Strait of Hormuz, maintaining market caution [2][3][4].
Analysts, including Rabobank's Molly Schwartz, highlighted that the combination of strong US data and rising yields has made the USD the best performing G10 currency on a one-day view, with the market now largely pricing out the possibility of Fed rate cuts in 2024 [5][4]. Technical indicators for USD/CHF and AUD/USD suggest overbought or bearish near-term conditions, but the broader setup remains supportive for further USD gains if resistance levels are breached [1][4].
CONCLUSION
Stronger-than-expected US inflation and resilient economic data have propelled the US Dollar to multi-week highs, as markets increasingly anticipate Fed rate hikes and dismiss the likelihood of cuts this year. The USD's outperformance has pressured major peers, with analysts and technical signals suggesting the potential for further gains if current trends persist. Geopolitical uncertainties and positive US-China trade signals add to the Greenback's appeal, reinforcing its dominant position in global FX markets.