Dollar set for weekly gains as yields surge

Dollar strength pushed the euro to a two-month low and set the greenback up for consecutive weekly gains in over three months. Treasuries yields surged and market bets on more Federal Reserve rate hikes fueled the US currency's climb near multi-month highs. Sterling struggled near a three-month low, also on track for its worst weekly performance in four months.

The dollar index jumped more than 1% this week to a two-month peak, marking its first back-to-back weekly gains since June. However, momentum was weakening, with the index edging down slightly. While higher yields should aid the dollar, lingering concerns over the US fiscal position and policy uncertainty hindered the rally, according to Khoon Goh, head of Asia research at ANZ.

Oil prices rebounded over 3% on Thursday after a Houthi missile strike on Saudi Arabia raised fears of supply disruptions, adding inflation risks. The yen hovered near a three-week low as hawkish Fed speakers increased expectations for further tightening, with some suggesting another rate hike by year-end. The Bank of Japan's rate hike to a 31-year high and policy guidance were seen as insufficiently hawkish.

Goldman Sachs revised down its USD/JPY forecast to 150 from 165, citing faster rate hikes reducing the inflationary impact of expansionary fiscal policy. The Australian dollar edged higher, while the kiwi remained flat. The Reserve Bank of Australia was expected to raise rates by 25 basis points to a near 15-year high next week, marking the final increase in the tightening cycle.

The Chinese yuan held steady at 6.715 per dollar, as talks between Trump and Xi in Washington yielded no breakthroughs on key issues.