The US dollar was on track for its first back-to-back weekly gain in more than three months on Friday as surging Treasury yields and growing expectations of further Federal Reserve rate hikes kept the greenback near multi-month highs.
The dollar index, which tracks the US currency against a basket of major currencies, has risen more than 1% this week to a two-month high, although it eased slightly to 101.2 in Asian trading.
The stronger dollar pushed the euro to a two-month low of US$1.1370, putting it on course for a third straight weekly decline. Sterling also remained near a three-month low of US$1.3220 and was headed for its weakest weekly performance in four months.
Markets have sharply repriced the US interest rate outlook since the Federal Reserve raised rates last week, with stronger economic data, fresh energy supply concerns and hawkish comments from Fed officials reinforcing expectations of further tightening.
A selloff in US government bonds has also supported the dollar, with longer-dated Treasury yields climbing to their highest levels in more than two decades.
“Whilst the dollar should get a bid from higher yields, there are still ongoing lingering concerns around the US fiscal position, the unpredictability of US policy making,” said Khoon Goh, head of Asia research at ANZ.
“I think that’s why the dollar has really struggled to continue to rally, even though yields continue to increase.”
Oil prices eased slightly on Friday but remained close to a one-week high after a Houthi missile attack on Saudi Arabia revived concerns over supply disruptions and added to inflation risks.
Yen Recovers On Intervention Warnings
The Japanese yen bucked the broader dollar strength, recovering more than 0.4% from a three-week low to 158.15 per US dollar.
The rebound came after Japanese Finance Minister Satsuki Katayama said US President Donald Trump had raised concerns over yen weakness during a meeting with Japanese Prime Minister Sanae Takaichi earlier this week.
Katayama said this reaffirmed the shared US-Japan stance behind their joint currency intervention in July. She added that she and US Treasury Secretary Scott Bessent would remain in close contact as Japanese authorities stepped up warnings over renewed yen weakness.
The yen was still heading for a second consecutive weekly decline, however, after markets viewed the Bank of Japan’s recent rate hike to a 31-year high and its latest guidance as insufficiently hawkish.
“The risk of additional interventions should also keep the upside in USD/JPY more limited,” Goldman Sachs analysts said in a note.
The bank also cut its 12-month USD/JPY forecast to 150 from 165.
The Australian dollar edged up to US$0.7018 while the New Zealand dollar was little changed at US$0.5659. The Reserve Bank of Australia is expected to raise rates by 25 basis points to 4.60% next week, which would be its final increase in the current tightening cycle.
The offshore yuan was steady at 6.715 per US dollar as markets assessed the outcome of a meeting between Trump and Chinese President Xi Jinping in Washington, where discussions covered AI, trade, Taiwan and the war with Iran.
Reuters
