US Dollar Strengthens Ahead of Trump-Xi Meeting, Market Trims Interest Rate Cut Expectations
The US Dollar Index (DXY) held firm around 98.50 in Asian trading on Thursday, as market participants awaited the outcome of the meeting between US President Donald Trump and Chinese President Xi Jinping in Beijing. The DXY measures the dollar's performance against six major currencies.
The dollar's strength reflects growing confidence that the Federal Reserve will not cut interest rates this year. According to the CME FedWatch Tool, the odds of interest rates remaining at current levels or at least one hike this year are 66.8% and 32.2%, respectively.
Market expectations shifted after US inflation returned to pressure. Tuesday's data showed headline consumer inflation (CPI) rose 3.8% year-on-year in April, up from 3.3% in March, as price pressures were said to be influenced by rising energy prices.
Inflationary pressures were also evident on the producer side. Wednesday's data showed the headline Producer Price Index (PPI) for April jumped to 6% year-on-year, well above the 4.9% forecast and higher than the previous reading of 4.3%.
The combination of higher CPI and PPI data typically encourages the market to believe the Fed needs to maintain a tighter policy stance for longer. When interest rate expectations remain high, the appeal of dollar-denominated assets tends to strengthen, supporting the DXY, while market participants reduce positions previously banking on a rate cut scenario.
In addition to domestic factors, market attention is focused on the Trump-Xi agenda, which is expected to include the Iran war, Taiwan, artificial intelligence, tariffs, and rare earths, all of which could impact global risk appetite. On the data front, investors are also awaiting the release of US Retail Sales for April at 12:30 GMT, which has the potential to influence the dollar's direction by signaling the strength of consumption and its implications for Fed policy. (asd)
Source: Newsmaker.id
