The US Dollar extended its rally across global markets this week, driven by hotter-than-expected US inflation data and a hawkish repricing of Federal Reserve (Fed) policy expectations. The US Producer Price Index (PPI) surged 6.0% year-over-year in April, up from 4.3% in March and well above the 4.9% market consensus, with a monthly increase of 1.4%—double the previous month's 0.7% and far exceeding the anticipated 0.5% rise [1][3][4][5]. This sharp acceleration in wholesale inflation, alongside a 3.8% year-on-year rise in the Consumer Price Index (CPI), the highest in nearly three years, has led traders to price out expectations of Fed rate cuts in 2026, with the CME FedWatch tool showing only a 1% chance of a cut, a 66.8% probability of holding rates steady, and a 32.2% chance of a hike [2][6]. Futures markets now assign a 31% probability of a rate hike by December, up from 22% a week ago [3].
The US Dollar Index (DXY) climbed 0.72% this week to near 98.55, outperforming all major currencies, with the Japanese Yen (JPY) and New Zealand Dollar (NZD) among the hardest hit. USD/JPY held near a two-week high at 158.00, while NZD/USD consolidated around 0.5930 after three days of losses, as domestic economic risks and weak sentiment weighed on the Kiwi [1][2][4]. The Euro (EUR/USD) hovered just above 1.1700, down 0.65% for the week, as investors awaited the outcome of the Trump-Xi summit and ECB President Lagarde’s speech, with technical indicators suggesting persistent downside pressure [3].
Equity markets showed resilience despite the inflation shock. The S&P 500 and Nasdaq 100 closed at fresh record highs on Wednesday, buoyed by strong performances from technology stocks such as Micron Technology, Nvidia, Tesla, Apple, and Alphabet, and a 15% surge in Cisco after an earnings beat and raised guidance [4][5]. Dow Jones futures rose 0.30% to near 49,950, while the S&P 500 advanced 0.19% and Nasdaq 100 futures gained 0.41% [5]. The Dow Jones slipped 0.14% during the regular session, but the overall market mood remained upbeat, with equities shrugging off inflation concerns [4][5].
Commodities responded to the hawkish Fed outlook, with silver (XAG/USD) pausing its rally below $90, trading near $87 as traders priced out dovish Fed bets. The prospect of higher or steady US rates weighed on non-yielding assets, though silver maintained a bullish technical bias above its 20-day EMA at $79.66, with momentum indicators suggesting the uptrend could resume if $90 is breached [6].
Across the Pacific, the New Zealand Dollar faced additional pressure from domestic economic risks highlighted in the Reserve Bank of New Zealand’s quarterly survey, which forecast higher inflation, rising interest rates, increased unemployment, and weaker growth. Investors are awaiting New Zealand’s food inflation and manufacturing PMI data for further direction [1]. The Bank of Japan’s Summary of Opinions indicated a likely rate hike at the next meeting, but the Yen continued to weaken as US yields surged [2][4].
Market participants are closely monitoring the ongoing summit between US President Donald Trump and Chinese President Xi Jinping, with both leaders expressing optimism about future relations. The outcome of these talks, along with the upcoming US Retail Sales report, is expected to provide further market direction [1][2][3][5][6].
CONCLUSION
Stronger-than-expected US inflation data has triggered a hawkish shift in Fed expectations, propelling the US Dollar higher and pressuring major currencies and commodities. Despite inflation concerns, US equities remain resilient, led by technology stocks. Investors now await further signals from the Trump-Xi summit and key economic data to gauge the next market moves.