FX.co ★ Dollar Holds Firm on Fed Rate Hike Bets

The dollar index hovered around 98.5 on Thursday and has risen sharply this week, as accelerating US inflation linked to the Iran conflict strengthened expectations that the Federal Reserve will keep interest rates elevated for longer, or even raise them further. Data released Wednesday showed US wholesale inflation in April posting its fastest increase since 2022, following Tuesday’s report that consumer inflation climbed to 3.8% last month, the highest rate since May 2023. Markets have now fully priced out the possibility of a Fed rate cut this year and are increasingly assigning a higher probability to a rate hike before year-end. Meanwhile, the US Senate on Wednesday narrowly confirmed Kevin Warsh as Fed chair, and investors are evaluating whether he will preserve the central bank’s independence. Elsewhere, President Donald Trump is set to meet Chinese President Xi Jinping, with talks expected to focus on trade relations rather than the ongoing Iran conflict.