Currency markets subdued as oil shock lifts global yields

Currency markets remained relatively stable on Thursday as traders grappled with rising oil prices and escalating global bond yields. Brent crude futures stayed firmly above $100 a barrel, following a surge on Wednesday due to intense attacks on shipping by Iran and the US. This energy shock sent inflation pressure soaring, driving global bond yields higher, with 10-year Treasury yields peaking since 2023.

The U.S. dollar found slight respite, with the euro and British pound weakening against it to $1.1633 and $1.3547, respectively. The Japanese yen also softened, trading at 153.70 yen, after remaining stagnant in a narrow range ahead of a potential Bank of Japan rate hike next week. The dollar index slipped to 98.81, nearing a three-week low.

Analysts noted that investors were closely watching macroeconomic data to conclude the week, particularly U.S. inflation readings, including producer prices on Thursday and the Consumer Price Index (CPI) on Friday. The European Central Bank was poised to raise interest rates for the second time this year, signaling readiness for further tightening if inflation outlook did not improve.

The Bank of Japan was also expected to hike rates to 1.25 percent on September 18 and 1.75 percent in the second quarter of 2027, amid persistent concerns over inflation and yen weakness. U.S. inflation readings would be crucially monitored for insights into the Federal Reserve's next policy move, as concerns about sticky inflation might compel the central bank into a challenging position.

Traders priced a roughly 60 percent chance of a Federal Reserve rate hike this month following a stronger-than-expected nonfarm payrolls report on Friday. Meanwhile, the New Zealand dollar edged up 0.2 percent at $0.5848, while the Australian dollar remained flat at $0.7215. China’s offshore yuan held steady near its strongest level in nearly four years, hovering around 6.705 per dollar, following data revealing a rise in China’s producer and consumer price inflation due to heightened energy costs.