US dollar extends gains as inflation data shifts Fed rate expectations

The US dollar strengthened for a fourth consecutive day on May 14, 2026, as fresh economic data diminished expectations for an imminent Federal Reserve rate cut and increased speculation of a potential hike in 2027. The dollar index rose 0.37% to 98.83, marking its longest winning streak since late March. The greenback gained against the euro, which fell to $1.1676, and the Japanese yen, which weakened 0.22% to 158.19, while remaining flat against the offshore Chinese yuan at 6.786.

Retail sales rose 0.5% in April, matching economist estimates, following a downwardly revised 1.6% increase in March. Karl Schamotta, chief market strategist at Corpay, noted that American consumers remain resilient despite polling data suggesting caution. "They are telling pollsters that they're more cautious, but at the same time, they're not walking the talk, they're spending as they have," Schamotta said, adding that there were no significant cannibalisation effects where consumers shifted spending from other goods to gasoline.

Inflationary pressures appeared to persist as import prices surged 1.9% last month, significantly exceeding the 1.0% forecast. This followed an upwardly revised 0.9% rise in March, with fuel costs posting the largest increase in four years. The data aligns with earlier consumer and producer inflation reports showing brisk rises, reinforcing concerns among policymakers about price stability.

Market pricing has largely removed the possibility of a rate cut this year, with expectations for a December hike rising to 36.9% from 22.5% the previous week, according to CME Fedwatch. Kansas City Federal Reserve President Jeffrey Schmid described the US economy as showing "remarkable resilience" but identified inflation as the biggest risk. Meanwhile, Federal Reserve Governor Stephen Miran indicated he would resign to create an open seat for incoming Chair Kevin Warsh, a procedural move required for Warsh to join the seven-member board.

The currency movement coincided with the commencement of a summit between US President Donald Trump and Chinese President Xi Jinping in Beijing. During the talks, President Xi warned that mishandling Taiwan issues could push bilateral relations to a "dangerous place." Concurrently, the UK sterling weakened 0.94% to $1.3395 amid political turmoil within the Keir Starmer government following a resignation from a senior rival. In energy markets, US crude rose 0.45% to $101.47 a barrel, while Brent crude edged up 0.3% to $105.95 per barrel.