Dollar Rises as Inflation Data Lifts Fed Hike Bets

The U.S. dollar rose on Thursday, May 14, supported by higher Treasury yields as traders increased bets the Federal Reserve will raise interest rates later this year. The move followed stronger U.S. inflation readings and came alongside demand for safe-haven assets tied to geopolitical tensions. The dollar index was up 0.63% for the week at 98.46.

Markets repriced rate expectations after U.S. producer prices recorded their largest increase in four years in April, following a solid rise in consumer prices. The inflation data pushed the annual inflation rate to its fastest pace in three years, according to the figures cited in the report. Markets were pricing in a 31.8% chance of a Fed rate hike in December, up from 16% a week earlier.

The shift in expectations helped lift U.S. yields, with longer-dated Treasury yields touching their highest levels since mid-2025. The two-year yield was at 3.9750%, while the 10-year yield stood at 4.4669%.

Safe-haven demand and Middle East tensions

Geopolitical risk also supported the dollar, with investors seeking safety after an impasse between the United States and Iran over the Middle East conflict. The repoSources said safe-haven flows increased as the standoff persisted.

In Asia, attention was also on a meeting in Beijing between U.S. President Donald Trump and Chinese President Xi Jinping, which focused on securing economic agreements and maintaining a trade truce, according to the report. Traders were watching for any signals that could affect markets and cross-border investment flows.

Major currencies hold range as markets weigh policy path

The offshore yuan was little changed at 6.7860 per dollar. The euro was steady at $1.1716 and was on track for its largest weekly decline in two months.

Investors will be watching for further inflation and policy signals that could shift expectations for the Fed’s next move and keep Treasury yields and the dollar volatile.