Dollar Poised for Weekly Gains as Yields Surge, Fed Rate Hike Bets Strengthen
Market Overview and Currency Movements
By Jiaxing Li
HONG KONG, Sept 25 (Reuters) - The dollar was set for its first back-to-back weekly gains in more than three months on Friday, as surging Treasury yields and mounting bets on further Federal Reserve rate hikes kept the greenback near multi-month peaks.
Impact on Major Currencies
Dollar strength pushed the euro to a two-month low of $1.1370 and put it on track for a third weekly decline, its worst losing streak since the end of 2025. Sterling languished near a three-month low of $1.3220 and was on track for its worst weekly performance in four months.
Factors Driving Dollar Strength
Markets have aggressively repriced the interest rate trajectory after the Fed tightened policy last week, while robust economic data and fresh energy supply concerns have further strengthened that conviction. A bond selloff, which sent long-dated US Treasury yields to their highest in more than 20 years, also gave the greenback a leg up.
Dollar Index Performance
The dollar index, which measures the US currency against a basket of peers, has climbed more than 1% this week to a two-month high, marking its first back-to-back weekly gains since June. However, the rally was losing some momentum, last edging a touch lower at 101.2.
"Whilst the dollar should get a bid from higher yields, there are still ongoing lingering concerns around the US fiscal position, the unpredictability of US policy making," said Khoon Goh, head of Asia research at ANZ.
"I think that's why the dollar has really struggled to continue to rally, even though yields continue to increase."
Commodities and Inflation Risks
Oil prices jumped more than 3% on Thursday to a one-week high after a Houthi missile attack on Saudi Arabia revived fears of supply disruptions, adding to inflation risks.
Yen Under Watch as Fed Bets Build
Fed Officials and Rate Expectations
A chorus of hawkish Fed speakers strengthened expectations for further tightening, with Philadelphia Fed President Anna Paulson saying "some modest further tightening may be warranted", while New York Fed President John Williams said "another rate hike may be appropriate by the end of the year."
Japanese Yen Performance
At 158.8 per dollar, the Japanese yen continued to hover near a three-week low after markets judged the Bank of Japan's rate hike to a 31-year high and policy guidance last week as not hawkish enough.
Intervention Risks and Policy Outlook
However, moves were tempered as traders remained wary of official intervention risk after Tokyo issued fresh verbal warning, while a former BOJ board member said the central bank now could raise rates every quarter.
"Faster rate hikes have reduced the inflationary impact of expansionary fiscal policy, taking pressure off the currency," Goldman Sachs said in a report. The bank revised down its 12-month USD/JPY forecast to 150 from 165.
Other Major Currencies and Global Events
The Australian dollar inched higher to $0.7015 while the kiwi traded flat at $0.5663. The Reserve Bank of Australia is expected to raise interest rates by 25 basis points to a near 15-year high of 4.60% next week, in what would be the final rate increase in the tightening cycle.
Elsewhere, the offshore yuan traded flat at 6.715 per dollar, as a Trump-Xi summit in Washington showed no signs of breakthroughs at a closed-door meeting on thorny issues such as AI, trade, Taiwan and the war with Iran.
(Reporting by Jiaxing Li; Editing by Sam Holmes)
