The US Dollar (USD) extended its rally across global markets on Friday, reaching multi-month highs against major currencies such as the Euro (EUR), Canadian Dollar (CAD), and New Zealand Dollar (NZD), amid a confluence of risk-off sentiment, surging US Treasury yields, and heightened expectations for Federal Reserve (Fed) rate hikes [1][3][4][6][7]. The EUR/USD pair fell below 1.1650 for the first time since early April, hitting lows at 1.1620 and marking a 1.2% weekly depreciation, as the Greenback outperformed on the back of rising US inflation and deadlocked US-Iran peace talks that pushed West Texas Intermediate (WTI) crude oil above $100 per barrel [1]. The Canadian Dollar hit fresh monthly lows, with USD/CAD trading in the mid-1.3700s after a 0.5% weekly rally, while NZD/USD dropped to two-week lows above 0.5840, on track for a more than 2% weekly selloff [4][6].
US economic data reinforced the Dollar's strength, with headline inflation rising to 3.8% year-over-year in April from 3.3% in March, the highest since May 2023, and the Producer Price Index (PPI) climbing 6% year-over-year, its strongest since December 2023 [2]. Retail sales increased by 0.5% month-over-month in April, matching expectations, and the Atlanta Fed’s GDPNow estimate for Q2 was revised up to 4.0% annualized, indicating robust economic momentum [2][3]. These data points, combined with higher energy prices, have led markets to price in a 45-50% probability of a Fed rate hike by December, up sharply from 15-33% a week earlier [2][4].
The surge in US yields was notable, with 2-year Treasury yields rising above 4% for the first time since June 2025 and 10-year yields reaching a 10-month high of 4.48-4.52% [3][7]. The US Dollar Index (DXY) climbed above 99.00, its highest since April 8, supported by these yield differentials [2][3][7]. Societe Generale analysts noted that the Dollar's rally has lagged the sharp rise in 2-year yields since the outbreak of the war with Iran, suggesting further upside potential for the Greenback [7].
The risk-off environment, driven by geopolitical tensions including the unresolved US-Iran conflict and the outcome of the US-China summit, further pressured risk-sensitive and commodity-linked currencies [1][4][6]. Gold (XAU/USD) tumbled nearly 2% to over one-week lows around $4,554, as higher yields and a stronger Dollar reduced the appeal of non-yielding assets [2]. Meanwhile, copper prices surged to record highs above $14,000 per ton on the London Metal Exchange, fueled by tariff risks and structural demand, though this was a secondary theme compared to the dominant Dollar move [5].
Technical analysis across several pairs indicated oversold conditions for the Euro and Kiwi, with potential for short-term consolidation but no clear support until lower levels, reflecting persistent bearish momentum [1][6].
Forward-looking statements from analysts at Deutsche Bank and Societe Generale emphasized the resilience of US economic data and the likelihood of further Dollar gains if yield differentials persist, with Societe Generale forecasting the DXY above Bloomberg consensus by end-2026 [3][7]. The CME FedWatch Tool and market commentary highlighted that expectations for a hawkish Fed pivot are now firmly embedded in market pricing [2][4].
CONCLUSION
The US Dollar's broad-based rally is being driven by robust US economic data, rising Treasury yields, and increased expectations for Fed rate hikes, all amplified by geopolitical tensions and surging oil prices. This has resulted in significant declines for major currencies and commodities, with analysts suggesting the Dollar may have further room to appreciate if current trends persist. Market sentiment remains risk-averse, and the Greenback is likely to stay supported as long as yield and growth differentials favor the US.