BY COMFORT OGBONNA
The U.S. dollar strengthened on Thursday as rising Treasury yields and growing expectations of another Federal Reserve interest-rate hike boosted demand for the greenback, while investors closely monitored a high-profile summit between U.S. President Donald Trump and Chinese President Xi Jinping.
Currency markets remained highly focused on the two-day meeting between the leaders of the world’s two largest economies, with traders hoping the summit could ease tensions surrounding trade, technology, and geopolitical disputes.
At the opening of the talks, Xi said trade negotiations between China and the United States were making progress, offering a cautiously optimistic tone. However, he also warned that disagreements over Taiwan remained a serious issue that could destabilize bilateral relations if not carefully handled.
Despite the sensitive geopolitical backdrop, market reaction remained relatively calm as investors waited for more concrete details from the summit. Analysts noted that financial markets were primarily looking for signs that neither side intended to escalate tensions further.
The Chinese yuan remained near its strongest level in more than three years against the U.S. dollar during the session. China’s onshore yuan hovered near 6.7840 per dollar, while the offshore yuan also stayed close to multi-year highs after touching its strongest level since 2022 earlier in the day.
Traders had pushed the Chinese currency higher ahead of the summit in anticipation that progress in trade discussions could improve relations between Washington and Beijing and support investor confidence in China’s economy.
However, some analysts cautioned that Chinese authorities may not tolerate overly rapid gains in the yuan. Market observers pointed to signs of intervention and adjustments to official currency fixings as evidence that policymakers still prefer a controlled pace of appreciation.
Elsewhere in global currency markets, the dollar maintained broad strength as investors increasingly bet that the Federal Reserve could raise interest rates again before the end of the year.
The U.S. Senate’s approval of Kevin Warsh as the new Federal Reserve chair added further attention to the central bank’s future policy direction. Investors are now trying to gauge whether Warsh will adopt a tougher stance on inflation as price pressures remain elevated across the U.S. economy.
Recent economic data showing stronger-than-expected inflation has shifted market expectations significantly. Investors are increasingly concerned that persistent inflation, rising oil prices, and a resilient labor market could force the Fed to maintain tighter monetary policy for longer than previously expected.
Market pricing now reflects a much higher probability of a Federal Reserve rate hike in December compared with just a week ago. Traders have also begun reassessing the broader outlook for interest rates in 2027, with some analysts expecting multiple hikes if inflation remains stubbornly high.
The rise in rate expectations has pushed U.S. Treasury yields sharply higher, particularly on longer-dated government bonds. The benchmark 10-year Treasury yield remained close to one-year highs after surging in recent sessions, while the two-year Treasury yield also stayed elevated near recent peaks.
Higher Treasury yields tend to support the U.S. dollar because they make dollar-denominated assets more attractive to global investors seeking better returns.
The euro remained under pressure against the dollar and was on track for its largest weekly decline in nearly two months as investors moved funds toward the higher-yielding U.S. currency.
Meanwhile, the Australian dollar continued trading near a four-year high, supported by expectations that Australia’s central bank may also maintain a hawkish stance on interest rates due to persistent inflationary pressure domestically.
The New Zealand dollar edged slightly lower but remained relatively stable amid broader market caution.
Analysts say currency markets are now balancing several major themes simultaneously, including rising global inflation, geopolitical tensions, shifting central bank policies, and concerns over economic growth.
For investors, the combination of higher Treasury yields and renewed expectations of tighter Federal Reserve policy has once again reinforced the dollar’s position as one of the world’s strongest major currencies, even as uncertainty surrounding global politics and trade continues to shape market sentiment.
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