Dollar strengthens amid Fed rate hike bets and Iran tensions

The US dollar strengthened above 99.25, reaching its highest point since April 8, as investors reacted to rising geopolitical tensions and changing expectations around US monetary policy.

The Greenback gained momentum heading into the European trading session, supported by heightened risk aversion and renewed speculation that the US Federal Reserve could keep interest rates higher for longer.

Fed rate hike expectations support dollar

Market expectations regarding the Federal Reserve’s policy path continued to shift toward additional rate hikes later this year.

According to the CME FedWatch tool, markets are now pricing in nearly a 44.6% probability that the Fed could raise interest rates by at least 25 basis points at its December meeting.

The shift in expectations came as investors reassessed inflation risks and monitored geopolitical developments involving the US and Iran.

US President Donald Trump warned Iran that the “clock is ticking” as efforts to negotiate an end to the conflict remained stalled.

Trump is also expected to hold a Situation Room meeting on Tuesday with senior national security advisers to discuss potential military action regarding Iran.

The developments increased demand for safe-haven assets and supported the US dollar against major global currencies.

Weak Chinese economic data adds to market concerns

Fresh economic data from China also weighed on market sentiment and reinforced concerns about slowing global growth.

Data released by the National Bureau of Statistics showed that China’s Retail Sales rose 0.2% year-over-year in April, sharply lower than the previous reading of 1.7%.

The figure also missed market expectations of 2.0%.

Industrial Production in China increased 4.1% year-over-year during the same period, slowing from 5.7% in March and coming in below the market forecast of 5.9%.

The weaker-than-expected economic indicators added to investor caution and further boosted demand for the US dollar.

Euro recovers while pound stays under pressure

Despite broader dollar strength, the EUR/USD pair recovered some ground during the European session after falling to a six-week low.

The pair climbed toward the 1.1630 level as hawkish comments from policymakers at the European Central Bank provided support to the shared currency.

Meanwhile, GBP/USD remained under pressure near 1.3315.

The British pound continued to face selling pressure amid growing domestic political instability and a sharp decline in the UK government bond market.

Yen weakens as Japan considers new debt issuance

The USD/JPY pair edged higher toward 158.50 during European trading hours.

The prospect of increased debt issuance weighed on the Japanese yen and supported gains in the dollar-yen pair.

Gold rebounds after four-day decline

Gold prices recovered toward the $4,550 level, snapping a four-day losing streak.

However, gains in the precious metal remained limited as investors continued to assess the inflationary risks linked to the prolonged conflict between the US and Iran.

Concerns that rising geopolitical tensions could drive inflation higher kept traders cautious despite renewed buying interest in gold.