The dollar climbed to a seven-week high on Thursday after the Federal Reserve raised interest rates and signaled that another increase could follow, bolstering its commitment to bringing inflation back under control even as U.S. President Donald Trump continues to demand lower borrowing costs.

The dollar index, which tracks the greenback against a basket of major currencies, reached 100.36, its highest level since July 31, before paring gains to trade 0.16% lower at 100.13.

The move followed the Fed’s decision on Wednesday to raise its benchmark interest rate by 25 basis points to a target range of 3.75% to 4%. The increase was the central bank’s first since July 2023 and came after a series of stronger-than-expected inflation readings and a sharp rise in Treasury yields.

Fed Chair Kevin Warsh said inflation remained too high to justify leaving monetary policy unchanged.

“Inflation has been too high … for too long,” Warsh said at a news conference. “We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed.”

The Fed’s updated projections also pointed to another increase this year. Sixteen of the 18 officials included in the dot plot expect at least one more hike, while four see the possibility of two additional increases.

That outlook has helped support the dollar by reinforcing expectations that U.S. interest rates will remain elevated for longer.

But a widening gap has emerged between policymakers’ projected path and financial markets’ expectations. While Fed officials currently project one additional increase in 2026 and no further hike in 2027, investors are pricing in more than one additional increase this year and roughly three more through the end of 2027.

The divergence leaves the dollar sensitive to incoming inflation and economic data, as well as to any further confrontation between the White House and the central bank.

“The greatest danger for the U.S. dollar lies in the U.S. president increasing pressure on the Fed again in the coming weeks, which could lead to renewed doubts about the Fed’s independence,” said Michael Pfister, a strategist at Commerzbank.

“However, the Fed itself did its best yesterday to dispel these doubts.”

Trump has repeatedly called for substantially lower interest rates. In a social media post, he said U.S. rates should be “1 per cent, or less,” arguing that the country is “the best credit in the world.”

He also criticized the Fed’s board on Wednesday, describing it as “very hostile” and “very political” and saying it was “doing the wrong thing.”

However, the market’s response is seen as an indication that the Fed’s latest decision has, at least temporarily, reinforced confidence that policymakers remain focused on inflation.

Oil Reversal Takes Pressure Off the Dollar

The dollar subsequently gave up some of its gains as oil prices extended their decline on reports that Saudi Arabia was offering additional crude cargoes through Oman, reducing fears of a prolonged supply disruption.

Energy prices have become an important driver of currency markets as the conflict in the Middle East threatens global oil supplies.

Higher oil prices generally support the dollar because the United States is less dependent on imported energy than many other major economies. A sustained energy shock can therefore put greater pressure on currencies such as the euro and yen, potentially increasing demand for dollar-denominated assets.

The latest decline in oil prices has weakened that support.

The move also followed comments from Trump that he hoped an end to the U.S.-Israeli war on Iran was near. A separate media report said he was expected to meet Gulf leaders on the sidelines of the United Nations General Assembly next week to discuss the conflict.

The euro rose 0.14% to $1.1481 after earlier falling to $1.1456, its lowest level in seven weeks. Sterling gained 0.10% to $1.3395 ahead of the Bank of England’s policy decision.

Meanwhile, Treasury yields edged lower after their recent surge.

The 10-year Treasury yield was down two basis points at 4.986%, while the 30-year yield fell one basis point to 5.333%. The two-year yield, which is particularly sensitive to expectations for monetary policy, declined one basis point to 4.715%.

The retreat came after the 10-year yield had reached its highest level since 2007 as investors adjusted to the prospect of higher U.S. rates.

Bob Edwards, chief investment officer at Edwards Asset Management, said the largest moves in the bond market may now have passed.

“There is now a good opportunity for investors after this big move to lock-in these elevated yields,” Edwards said.

He expects another Fed increase, if one occurs, to come at the December meeting rather than October, arguing that a rate decision immediately before the U.S. midterm elections could attract questions about the central bank’s political independence.

Yen and BOJ in Focus

The next major monetary-policy test for currency markets comes from Japan, where the Bank of Japan is expected to raise its policy rate on Friday to a level not seen in 31 years.

Investors are watching for signals from BOJ Governor Kazuo Ueda about how quickly the central bank intends to continue tightening monetary policy.

The dollar fell 0.41% against the yen to 155.68.

Japan’s policymakers are also monitoring currency movements closely. Chief Cabinet Secretary Minoru Kihara said Japan would continue working closely with the United States to maintain orderly yen movements.

The yen’s recent gains have been driven partly by growing expectations that the BOJ will continue raising rates. Speculative investors have shifted toward net-long yen positions, while Japanese retail investors have continued to hold short positions on expectations that the currency’s appreciation will not last.

Investors are also watching whether higher Japanese bond yields could encourage domestic institutions, including Japan’s Government Pension Investment Fund, to shift more money back into Japanese assets.

Such repatriation could affect global bond markets, particularly U.S. Treasuries, by reducing Japanese demand for overseas assets.

Mizuho expects Japan to continue normalizing monetary policy but at a slower pace than financial markets currently anticipate, with its policy rate reaching 1.75% by mid-2027.

The contrasting paths of the Fed and BOJ leave currency markets focused on the relative speed of monetary tightening. The Fed has resumed rate increases as inflation remains elevated, while Japan is moving further away from years of ultra-loose policy.

Japanese corporate executives are calling for a stronger and more stable yen, even as some of their companies continue to benefit financially from a weaker currency.

Yoshinori Kanehana, chairman of Kawasaki Heavy Industries, said currency volatility has become the company’s biggest problem because unpredictable exchange rates make long-term investment decisions more difficult.

“When the yen fluctuates, we cannot make [a] strategy,” Kanehana told CNBC on the sidelines of the Gastech conference on Tuesday.

Kanehana said a yen at around 150 to the dollar could be strong enough to prompt Kawasaki to consider shifting some manufacturing currently carried out in the United States back to Japan. The company operates 27 production sites outside Japan, including in the U.S., and 17 in its home country, according to a company report published last year.

The statement underpins how the yen’s weakness, which has supported the overseas earnings of many Japanese companies, can also complicate decisions about where to locate production. A weaker currency can make Japanese exports more competitive and increase the yen value of overseas earnings, but a highly volatile exchange rate makes it harder for companies to determine future costs, investment returns and production economics.

For Kawasaki, the exchange rate can alter the relative attractiveness of manufacturing in Japan and overseas. Kanehana’s comments suggest that a stronger yen could narrow that gap sufficiently to make domestic production more attractive. Inpex President and CEO Takayuki Ueda went further, saying a yen at around 100 to the dollar would be an “appropriate” level for the Japanese economy.

Ueda’s view appears to ring a bell because nearly 90% of Inpex’s business is conducted outside Japan and largely in dollars. That gives the company a direct benefit when dollar-denominated profits are converted into a weaker yen.

Inpex said in its latest earnings report that revenue declined in the first half of the year as crude oil sales volumes fell. A 6.7% depreciation in the yen to 158.37 per dollar, however, helped offset part of the decline.

“But if we look at the Japanese economy as a whole, the current exchange rate is perhaps too weak,” Ueda told CNBC on the sidelines of the Gastech conference in Bangkok on Monday.

The comments come as the yen has strengthened sharply over the past two weeks but remains weak by longer-term historical standards. The currency was trading at around 156.3 per dollar on Thursday, compared with a 10-year average of about 123, based on Macrotrends data.

The differing preferences among Japanese corporate leaders also show how the impact of the yen varies across industries. Companies with large overseas revenues can benefit from a weak currency because foreign earnings translate into more yen. Manufacturers with substantial domestic operations, however, may face different considerations because exchange-rate movements affect the relative cost of producing in Japan versus other countries.

Takeshi Hashimoto, chairman of Mitsui O.S.K. Lines, the world’s largest tanker owner and operator, has also called for stability rather than a particular direction for the currency.

Hashimoto said he would be “comfortable” with the yen at between 150 and 155 per dollar. Mitsui O.S.K. Lines generates most of its revenue in dollars and therefore benefits from a weaker yen, but Hashimoto said the currency’s weakness had raised concerns about broader financial-market distortions.

“We had some concern that the [weak yen] would create a confused situation in the financial market,” he said.

Japanese companies have been building their budgets around a considerably weaker currency. Businesses surveyed by the Bank of Japan in July were using an average exchange-rate assumption of 152.51 yen per dollar for the second half of the year. That assumption could come under pressure if the yen continues to strengthen as markets anticipate a further tightening of monetary policy by the Bank of Japan.

Investors expect the BOJ to raise its policy rate by 25 basis points to 1.25% at its two-day meeting, which concludes on Friday. Such a move would further narrow the gap between Japanese and U.S. interest rates and could provide additional support for the yen, although the currency will also remain sensitive to developments in global markets and U.S. monetary policy.

“The stakes are extremely high” for the BOJ, Matthew Ryan, head of market strategy at Ebury, said in a note Monday.

He expects the central bank to raise rates and deliver sufficiently hawkish guidance to signal a quarterly pace of increases thereafter.

For Japanese companies, the policy challenge extends beyond whether the yen ultimately settles at 150, 130 or another level. The recent comments from Kawasaki, Inpex and Mitsui O.S.K. Lines point to a broader corporate concern: large and unpredictable currency movements can be harder to manage than a consistently strong or weak yen.

A weaker yen can boost the translated value of overseas earnings and support exporters, while a stronger yen can reduce imported costs and improve the economics of domestic production. But when the currency moves rapidly between those extremes, companies can struggle to establish reliable assumptions for investment, sourcing and manufacturing decisions.

That is considered essential for Japanese manufacturers with global supply chains. Kawasaki’s willingness to consider moving U.S. production back to Japan at a yen rate of 150 is believed to be an indication that exchange rates can influence not only reported earnings but also the physical location of industrial capacity.

China’s artificial intelligence industry is attracting rapidly growing user adoption, but the revenue generated by its leading AI models remains a fraction of that of US rivals, raising questions about whether soaring valuations are supported by underlying business performance.

US research firm Rhodium Group estimates that all major Chinese AI models combined generate only about 10% of the revenue reported by OpenAI and Anthropic. The figures, published Thursday, use annual recurring revenue, or ARR, an industry metric that annualizes a recent monthly revenue figure to capture the pace of rapidly growing businesses.

The gap is striking given the attention Chinese AI companies have received from investors this year.

DeepSeek had the lowest estimated ARR among the major Chinese AI companies at about $500 million, according to Rhodium. MiniMax was estimated at $800 million, while Moonshot stood at about $1 billion.

Z.ai told investors on Wednesday that its latest ARR had reached $1.8 billion, according to a transcript seen by CNBC. The company now expects its ARR to reach $3 billion by the end of the year, up from an earlier forecast of $2.4 billion.

Even after including larger technology companies with AI operations, however, China’s revenue base remains considerably smaller. Rhodium estimated ByteDance’s ARR at $4 billion and Alibaba’s at $2.4 billion, compared with $40 billion for OpenAI and $65 billion for Anthropic.

The disparity becomes more significant when revenue is compared with valuations.

“Valuations relative to revenue appear exorbitant for Moonshot and DeepSeek at present,” Rhodium said, estimating revenue multiples of about 50 times for Moonshot and 163 times for DeepSeek.

By comparison, the report put OpenAI’s valuation-to-revenue multiple at 34 times and Anthropic’s at 21 times.

The figures point to a significant disconnect between how investors are pricing China’s emerging AI leaders and the amount of revenue those companies are currently generating. That disconnect could become an issue as several major AI companies move toward public markets, where investors will have greater access to financial disclosures and will be able to compare valuations against revenue growth more directly.

Anthropic is reportedly expected to list in the US next month, while OpenAI has pushed its IPO plans to next year. Moonshot has reportedly filed confidentially for a Hong Kong listing, while DeepSeek is also reportedly preparing for an IPO.

Moonshot said it does not comment on market rumors or speculation when asked about the reported confidential filing. DeepSeek and Anthropic did not respond to requests for comment.

Open-Source Models Create A Different Revenue Challenge

The revenue gap is not necessarily a straightforward measure of the technological progress being made by Chinese AI companies.

Rhodium acknowledged that its analysis relies on the latest available figures from this summer, while usage of Chinese AI models has increased sharply from relatively low levels earlier in the year. The acceleration means current revenue figures could change considerably if adoption continues to translate into paid usage.

Z.ai’s revised year-end ARR forecast illustrates that trajectory. Its new $3 billion target would represent a substantial increase from the $1.8 billion figure it reported this week.

Chinese AI companies also face a different monetization environment because several of their leading models are open source. Developers and businesses can download models and operate them independently if they have sufficient computing infrastructure, meaning the company that develops the model does not necessarily capture revenue every time that model is used.

Rhodium said Chinese AI labs are therefore exploring ways to capture a larger share of the revenue generated by third parties providing access to their models.

The contrast with US companies is significant. OpenAI and Anthropic largely operate closed models and directly control access to their leading systems. That gives them greater ability to monetize usage, although it also leaves them carrying substantial costs associated with training and operating increasingly powerful models.

According to AI comparison firm Artificial Analysis, the cost per task for leading OpenAI and Anthropic models is substantially higher than for Chinese models. Lower pricing can help Chinese models gain users quickly, but it can also make converting that usage into equivalent revenue more difficult.

This results in a central challenge for China’s AI sector: rapid adoption does not automatically translate into equally rapid monetization.

“The financing gap means it will be far more difficult for Chinese frontier AI labs to scale sustainably,” Logan Wright, a partner at Rhodium Group and co-author of the report, told CNBC.

Wright said Chinese AI companies would be heavily dependent on favorable equity-market conditions, adding that relying on China’s equity market has historically been difficult. He also said government support has been useful for expanding computing infrastructure but suggested that direct government financing for frontier AI laboratories could face limits.

The contrast between infrastructure and AI-model funding is important. Rhodium estimated that more than 60% of equity investment in Chinese AI chips and servers came from state-affiliated sources. That indicates a substantial role for government-linked capital in building the hardware infrastructure needed to support the country’s AI ambitions.

But funding the physical infrastructure required for AI development is different from guaranteeing the commercial success of individual AI laboratories. Companies still need to turn computing capacity and model capabilities into recurring commercial revenue.

Investors Are Already Testing The Valuations

The market’s response to China’s listed AI companies has demonstrated how quickly investor enthusiasm can change.

Z.ai shares rose more than 5% in Thursday morning trading, recovering from an earlier decline following news of its second major fundraising round in two months. The Hong Kong-listed stock has fallen back toward levels seen in the spring after briefly more than tripling during the summer.

MiniMax has faced a similar pattern. Its shares have struggled in recent months to maintain gains above their IPO-day levels after a sharp rise earlier in the year.

The volatility indicates that investors are already grappling with the distinction between AI adoption, technological capability and financial performance.

China’s AI sector has demonstrated that its models can attract users and compete with leading US systems, while companies such as DeepSeek have shown that capable models can emerge with different cost structures. The unresolved concern rests on how that technological progress can produce enough recurring revenue to justify the valuations being assigned to some of the industry’s most closely watched startups.