LONDON - The dollar rode U.S. Treasury yields higher on Friday and was set for its biggest weekly gain in more ‌than two months, as mounting inflationary pressures from higher energy prices fuelled bets on a Federal Reserve rate hike this year.

The dollar's climb gathered pace as traders in London ​came online, rising alongside U.S. Treasury yields that hit one-year peaks, as traders ramped up bets that the Fed would need to raise rates this year.

Against the dollar, the ​euro fell ​to a one-month low of $1.1632 and was set to lose 1.3% for the week.

The yen was on the weaker side of 158 per dollar despite domestic data pointing to a spike in wholesale inflation, bolstering the case for the Bank of Japan to raise interest ⁠rates as soon as June. It was last 0.1% lower at 158.47 per dollar.

Sterling touched its weakest in five weeks against the dollar and was on course for its biggest weekly fall since November 2024 as Prime Minister Keir Starmer battled to hold on to power after disastrous local election results last week.

Markets are concerned that a new leader, such as Greater Manchester Mayor Andy Burnham or former deputy PM Angela Rayner, may prefer looser fiscal policy.

The ​pound was last down ‌0.4% at $1.3347, after earlier falling ⁠to $1.3335, its lowest since ⁠April 8.

 

DOLLAR RALLY GATHERS PACE

The U.S. dollar's rally has been gathering pace all week on evidence that while domestic inflation is mounting, the U.S. economy remains resilient ​despite the ongoing Middle East conflict.

"The dollar is catching up with the strong data we've seen this week," said ‌ING FX strategist Francesco Pesole.

"It feels like there's a realisation that the U.S. story in an ⁠energy crisis may just end up being much better than many other places in the world."

Data on Thursday showed U.S. retail sales increased further in April while weekly initial jobless claims figures pointed to stability in the labour market.

Investors are now pricing in a more than 65% chance that the Fed could raise rates by December, compared with less than a 20% chance a week ago, according to the CME FedWatch tool.

Against a basket of currencies, the dollar rose to a more than one-month high of 99.203, taking its gains for the week thus far to 1.35%, the largest since early March.

 

TRUMP-XI SUMMIT Markets, meanwhile, hardly reacted to a closely watched two-day summit between U.S. President Donald Trump and his Chinese counterpart Xi Jinping that concluded on Friday, as Beijing warned Washington about mishandling Taiwan and said its war with Iran should never have started.

The onshore yuan retreated ‌from its highest level against the dollar in more than three years due to broad greenback ⁠strength and was last at 6.8038 per dollar. Its offshore counterpart dipped 0.3% to 6.8066.

Trump said ​his patience with Iran was running out, and that he and Xi do not want Iran to have nuclear weapons and "want the straits open".

"Regarding Iran, it does appear to have become an important topic, particularly around the Strait of Hormuz and the nuclear issue, both of which are key elements in the U.S.-Iran talks," said Yue ​Su, principal economist ‌for China at EIU.

"However, there are limits to what China can realistically do, as the Iranian regime is ⁠operating in survival mode and will prioritise its own interests and ​agenda above all else."