SHANGHAI/SINGAPORE: The US dollar remained close to a 19 month high on Friday, extending a strong rally driven by growing expectations of a potentially larger interest rate increase by the Federal Reserve. Meanwhile, the Japanese yen weakened towards the crucial 160 per dollar threshold, renewing concerns that Japanese authorities could step into the currency market to support the struggling currency.
US Treasury yields climbed after President Donald Trump said Washington did not require an agreement with Iran. Investors also assessed the possibility of the Federal Reserve delivering a larger than usual rate increase next month in response to persistent inflationary pressures.
The yield on two-year US Treasury bonds surged by 34 basis points over the previous two trading sessions, marking its sharpest two day increase in three and a-half years.
The euro slipped 0.1 per cent to USD 1.1049, remaining close to its weakest level against the dollar since April 2025. It has declined approximately 0.8 per cent this week, putting it on course for its biggest weekly fall since late September.
Market expectations of tighter US monetary policy have strengthened following recent comments from Federal Reserve officials, who cautioned that inflation remains above desirable levels.
Some policymakers have indicated that they could consider a 50-basis-point interest rate increase if price pressures do not moderate sufficiently.
According to the CME FedWatch tool, traders are now assigning a 14.5 per cent probability to a 50-basis-point rate hike next month, compared with no such expectation a week earlier.
Apart from monetary policy developments, investors are monitoring turbulence in the technology sector following Nvidia Chief Executive Jensen Huang’s departure. Technology shares are already facing pressure from concerns surrounding funding conditions and regulatory challenges.
Carol Kong, a currency strategist at Commonwealth Bank of Australia, said a further significant decline in equity markets could potentially weigh on the US dollar.
However, she indicated that the greenback could maintain its upward momentum in the near term, particularly if upcoming comments from Federal Reserve officials reinforce expectations of a substantial interest rate increase.
The Japanese currency remained broadly stable at 159.875 against the dollar, trading close to its weakest level since early September. Its movement towards the 160 mark has heightened speculation about possible intervention by Japanese authorities.
Finance Minister Satsuki Katayama said on Friday that the government would take appropriate measures to address excessive currency fluctuations. Her remarks followed a brief decline in the yen to the psychologically important 160-per-dollar level on Thursday.
Japanese authorities have remained concerned about rapid currency movements, particularly when they increase import costs and add to domestic inflationary pressures.
The dollar index, which tracks the US currency against a basket of six major currencies, edged down 0.05 per cent to 103.17. Despite the marginal decline, it remained near its highest level since April 2025.
The Australian dollar has also come under considerable pressure, losing around 2.5 per cent over the past month. It has emerged as the weakest-performing Group of 10 currency against the US dollar during this period.
The Australian currency was trading at approximately USD 0.68 in early dealings. It is also the only G10 currency against which financial markets are currently factoring in interest rate reductions next year.
Meanwhile, the US dollar was largely unchanged against the Swiss franc at 0.835, remaining close to a one-month high.
Developments in global energy markets have also influenced investor sentiment. US crude futures settled 2.55 per cent higher on Thursday after attacks by Yemen’s Iran-aligned Houthi forces on Saudi energy infrastructure intensified concerns over regional security.
Continuing disruptions to commercial shipping through the strategically important Strait of Hormuz have added to uncertainty surrounding global oil supplies.
With geopolitical tensions, inflation concerns and shifting expectations about US monetary policy influencing financial markets, investors are closely watching upcoming economic indicators and central bank commentary for further direction on currency movements.