The US dollar remained strong on Thursday, supported by rising US Treasury yields, as investors increasingly priced in the possibility of Federal Reserve interest rate hikes later this year, while global markets focused on the two-day summit between US President Donald Trump and Chinese President Xi Jinping.

Xi told Trump that trade talks were making progress, but warned that disagreements over Taiwan could push relations onto a dangerous path, during a summit Trump described as potentially the biggest summit ever.

As the summit got underway, the Chinese yuan traded near its highest level in three years, while the offshore yuan rose for an eighth consecutive session against the dollar to 6.7845 yuan per dollar.

In broader markets, the dollar steadied on Thursday, leaving the euro little changed at $1.1717, though the single currency remains on track for a weekly loss of around 0.6%, its largest in two months.

The US dollar index, which measures the currency against a basket of major peers, climbed to 98.48 points, posting gains of more than 0.6% this week and heading for its strongest weekly performance since the outbreak of the Iran war.

Meanwhile, the dollar edged slightly lower against the Japanese yen to 157.87 yen, after the yen received support from comments by Bank of Japan board member Kazuyuki Masu, who said the Japanese central bank should move quickly to raise interest rates if there are no clear signs of economic slowdown.

Japanese authorities are believed to have intervened several times in recent weeks to limit dollar strength, but growing expectations for US rate hikes this year continue to pressure the yen, with the dollar recovering roughly half of its losses since Tokyo stepped in to support the local currency.

Inflation Data Supports the Dollar

The dollars rally accelerated this week after a series of reports showed mounting inflationary pressures within the US economy. The latest data on Wednesday showed US producer prices posted their largest increase in four years during April, just one day after data showed consumer inflation reached its highest level in three years.

Carol Kong, currency strategist at the Commonwealth Bank of Australia, said the recent inflation data will not be welcomed by Federal Reserve officials, including incoming chairman Kevin Warsh.

The US Senate confirmed Kevin Warsh as Federal Reserve chairman on Wednesday, placing him at the helm of the US central bank at a time of rising inflation risks.

Kong added that the bank expects a tightening cycle to begin in December, with three interest rate hikes anticipated during the current cycle.

According to CME Groups FedWatch tool, the probability of a US rate hike in December rose to 31.8%, up from just over 16% a week earlier.

Shifting rate expectations and inflation concerns pushed long-term US Treasury yields to their highest levels since mid-2025, although the 30-year Treasury yield eased slightly to 5.029%.

The British pound, meanwhile, held steady against both the dollar and the euro after data showed the UK economy unexpectedly grew by 0.3% in March, suggesting the British economy may have remained relatively resilient amid the escalating Iran war.