Dollar near 19-month high on Fed hike bets, yen tests 160

The dollar index, which gauges the US greenback's value against a basket of currencies, hovered around a 19-month peak on Friday. This surge followed a robust week of gains driven by increasing expectations of an elevated Federal Reserve rate hike. The Japanese yen, meanwhile, approached the critical 160 mark, prompting traders to watch for potential government intervention.

Treasury yields climbed as President Donald Trump stated the US has no need for an Iran deal, and investors weighed the likelihood of a more substantial Federal Reserve rate hike in the upcoming month. The euro slipped 0.1% to $1.1049, nearing its weakest level against the dollar since April 2025. Over the week, it experienced a 0.8% decline, on track for its steepest weekly drop since late September.

Federal Reserve officials cautioned in recent days that US inflation remains robust, with some hinting at a willingness to raise rates by 50 basis points if inflationary pressures persist. Market sentiment now favors a 14.5% chance of a significant rate hike next month, up from zero the previous week, according to the CME FedWatch tool.

Currency strategists at Commonwealth Bank of Australia warn that further equity market declines could negatively impact the dollar, though a continued upward trajectory is possible if Fed officials signal support for a 50-basis-point increase during their upcoming remarks. Japan's yen remained stable around $159.875 per dollar, hovering near its lowest level since early September, raising concerns about potential intervention.

Japanese Finance Minister Satsuki Katayama affirmed that the government would respond suitably to currency volatility, as the yen briefly breached the key 160-per-dollar threshold on Thursday. The dollar's recent strength was steadier against the Swiss franc, hovering close to a one-month high. Meanwhile, US crude futures surged 2.55% on Thursday following intensified attacks by Iran-aligned Houthis on Saudi energy infrastructure and ongoing shipping disruptions in the Strait of Hormuz.