Dollar set for weekly gains as yields surge, Fed bets build

HONG KONG: The dollar is poised for its first consecutive weekly gains in over three months, driven by rising Treasury yields and expectations of additional Federal Reserve rate hikes. The greenback is near multi-month peaks, with the euro reaching a two-month low and the British pound nearing a three-month low. This strength in the US currency is attributed to the tightening policy stance after the Fed's recent increase and robust economic data.

However, this rally is showing signs of weakening, edging slightly lower at 101.2. While higher yields are expected to support the dollar, lingering concerns about the US fiscal position and policy uncertainty are preventing further gains. Oil prices surged more than three percent after a Houthi missile strike on Saudi Arabia raised supply disruption fears, adding to inflation risks.

Meanwhile, the Japanese yen remains near a three-week low due to perceptions that the Bank of Japan's recent rate hike and policy guidance were insufficiently hawkish. Traders are cautious about possible official intervention in Tokyo, and a former BOJ board member suggests the central bank could raise rates every quarter. Goldman Sachs revised its 12-month USD/JPY forecast downward to 150 from 165 due to faster rate hikes reducing the inflationary impact of expansionary fiscal policy.

The Australian dollar edged higher, while the New Zealand dollar held steady. The Reserve Bank of Australia is expected to raise interest rates by 25 basis points to a near 15-year high of 4.60 percent next week, marking the final rate increase in the tightening cycle. The offshore yuan remained flat at 6.715 per dollar, as a summit between Trump and Xi in Washington yielded no breakthroughs on contentious issues like AI, trade, Taiwan, and the Iran conflict.