The Dollar Posts Its Largest Weekly Gains in Two Months; the Japanese Yen Hovers Around 160
The U.S. dollar continued to rise during Friday’s trading session, remaining near its 19-month highs, and on track to post its biggest weekly gains in two months, supported by rising U.S. Treasury yields and growing expectations of interest rate hikes by the Federal Reserve.
The U.S. currency’s gains were driven by inflation data that exceeded expectations in the United States, along with hawkish comments from Federal Reserve officials, as well as rising oil prices resulting from escalating geopolitical tensions in the Middle East, which reinforced concerns about persistent inflationary pressures.
On the other hand, the Japanese yen came under additional pressure, falling to levels close to 160 yen per dollar, which reignited concerns about the possibility of Japanese authorities intervening to support the currency and limit its decline.
Rising U.S. Treasury Yields Support the Dollar’s Rise
The jump in U.S. Treasury yields helped boost the dollar’s appeal against major currencies, after yields on two-year Treasuries rose, marking their largest weekly increase since 2024.
This rise came amid growing concerns about persistent U.S. inflation, particularly following the surge in oil prices due to tensions in the Middle East, as well as remarks by U.S. President Donald Trump that diminished the prospects of reaching an agreement with Iran.
Investors believe that persistently high energy prices could increase inflationary pressures and prompt the Federal Reserve to maintain a tighter monetary policy or resort to raising interest rates again.
Expectations of a U.S. Rate Hike Bolster the Dollar’s Gains
Market bets have increased on the likelihood that the U.S. Federal Reserve will raise interest rates next month, as inflation remains high and warnings from central bank officials intensify.
According to the “FedWatch” tool, the probability of a 50-basis-point interest rate hike has risen to 12.1%, compared to 0% the previous week.
Markets are awaiting today’s U.S. Producer Price Index (PPI) data, which is considered a key indicator of inflationary pressures; a higher-than-expected reading could reinforce expectations of further monetary tightening, which would provide additional support for the dollar.
However, forecasts suggest the PPI will decline today.
Japanese Yen Hovers Around 160 Amid Fears of Government Intervention
The Japanese yen stabilized near the 160 level against the dollar, a level that is raising growing concerns about intervention by Japanese authorities in the foreign exchange market.
The yen fell about 0.9% over the week, heading toward its biggest weekly loss since September, as the gap between U.S. and Japanese monetary policy expectations widened.
Japanese Finance Minister Satsuki Katayama warned that the government would take appropriate measures to address excessive exchange rate volatility, signaling the authorities’ readiness to act if the currency continues to weaken.
Markets are watching the yen’s movements around the 160-per-dollar level, as expectations grow that the Japanese government may intervene to support the currency, especially since Japan previously spent 15.4 trillion yen to prop up the yen when it fell to record lows near 164 yen to the dollar.
