Dollar Notches Best Week Since Early March on Fed Hike View
The dollar finished its best week in over two months after US data showed price pressures that could push the Federal Reserve to raise interest rates over the next year.
A of the greenback is up 1.2% this week, its best performance since the period ended March 6. Two back-to-back inflation reports this week have Treasury investors and spurred one Fed official to say the US has “ .”
Money markets now favor a Fed hike this year, a sharp contrast with pricing a month ago that leaned toward easier policy.
“It’s a combination of some re-escalation in the Middle East, which has prompted higher oil prices again, and hotter-than-expected US inflation data,” said Andrew Hazlett , a foreign-exchange trader at Monex Inc. “This indicates to me that even as the conflict in Iran winds down, the dollar will retain some strength over its pre-war levels.”
While the dollar has been sensitive to war headlines and crude futures prices, it has mostly been supported by its haven status and the US’s status as a major oil exporter. The greenback weakened briefly after a ceasefire was first announced in early April but has since recovered as a peace deal remains elusive.
Thierry Wizman , a strategist at Macquarie Group, said he will remain a dollar bull as long as the war continues. The greenback, along with the US economy, are benefiting from higher oil prices, he said, adding that it will proceed to gain against the euro and the pound.
The war in Iran upended global energy markets and highlighted Europe’s dependence on supply from the Middle East. That soured the outlook on the region’s economies, while fanning price growth, which has weighed on the euro. Brent Donnelly , president of Spectra Markets, said earlier this week that it’s time to enter a trade that shorts the euro against the greenback as Fed hikes are being priced in.
Meanwhile, currency strategists at JPMorgan Chase & Co. turned bearish on euro against the dollar for the first time in a year on Friday. Similarly, RBC Capital Markets’ Daria Parkhomenko sees the dollar gaining in the near term against its lower-yielding counterparts in the Group of 10, in particular the euro and the Swiss franc.
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“Growing US rates could cement the dollar’s position as a high-yielding currency that should gain from robust market demand for FX carry trades,” said Valentin Marinov , head of G-10 FX research and strategy at Credit Agricole. On top of this, he said the dollar could continue to benefit from foreign portfolio inflows into both Treasuries and US tech stocks.
The dollar has lagged the scale of the underlying rate move and has further room to rally, said Kit Juckes , chief currency strategist at Societe Generale. US two-year yields have outpaced peers since the Iran conflict began, and Eurozone 2026 growth forecasts have been cut more sharply than those for the US, in relative terms, he wrote in a note.
Options pricing shows traders positioning for a stronger greenback. Sentiment on its long-term prospects is the most bullish in about five weeks, near a one-year high reached in late March.
The pound, meanwhile, has also been mired in domestic political . It fell to the lowest in over a month Friday after Manchester Mayor Andy Burnham secured a way of running for Parliament, opening an avenue to challenge embattled UK Prime Minister Keir Starmer and increasing investor worries about the potential for higher fiscal spending.
More broadly, any further concern about the duration of the energy shock would dollar strength against its peers in developed economies, Karen Reichgott Fishman , a strategist at Goldman Sachs Group Inc., wrote earlier this week.
Speculative foreign-exchange traders, including asset managers and other non-commercial players, have shifted to bet on the US currency after the war in the Middle East erupted. While they have been gradually curbing this bullishness they remained upbeat on the greenback through May 12, according to Commodity Futures Trading Commission positioning data reported Friday.
