Dollar Drops as Oil Prices Ease, Yen Surges After Japanese Remarks
Market Movements and Currency Reactions
By Chuck Mikolajczak
Dollar Performance Amid Oil Price Fluctuations
NEW YORK, Sept 25 (Reuters) - The dollar declined on Friday as oil prices eased, but was set for a second straight weekly advance on growing rate hike bets, while the yen rallied after Japan said Tokyo and Washington remain steadfast to the stance behind July's joint intervention.
The dollar was on track to snap a four-day streak of gains as crude prices slumped more than 2%.
Impact of Global Oil Prices
Global oil prices have eased as the potential for a truce between the US and Iran outweighed supply concerns from increasing attacks by Houthi fighters against Saudi Arabia. Still they remain above $100 a barrel, preserving upward pressure on inflation.
Central Bank Influence and Treasury Yields
Comments from central bank officials flagging inflation concerns and support for more rate increases after last week's rate hike of 25 basis points have boosted market expectations for a more aggressive path of monetary policy and helped spark a surge in US Treasury yields.
Expert Commentary
"We've had a pretty aggressive rally in the dollar over the last couple of days and maybe it's a little stretched, just taking a little breather. So I wouldn't really say that the dollar is really weakening materially today," said Eugene Epstein, head of trading and structured products at Moneycorp in Stamford, Connecticut.
"It's just a combination of those factors that you have not only a slight increase in odds of a second hike before year-end, but also just general bond yields going up and the market getting a bit concerned about that, so that's really what we have, what's been driving the dollar stronger overall."
Dollar Index and Other Major Currencies
Dollar Index Poised for Biggest Drop in Three Weeks
DOLLAR INDEX POISED FOR BIGGEST DROP IN THREE WEEKS
The dollar index, which measures the dollar against five other currencies, fell 0.3% and was on track for its biggest daily percentage drop in about three weeks, to 100.95. The euro was up 0.15% at $1.1396 but on pace for a third straight weekly decline, its longest run since the start of the year.
Rate Hike Expectations and FedWatch Data
Expectations for a rate hike from the Fed at its October meeting stood at about 66%, according to CME FedWatch, up from about 58% a week earlier.
Inflation Concerns from Fed Officials
Federal Reserve Bank of Cleveland President Beth Hammack said on Friday that she is increasingly worried that inflation that has overshot the central bank’s 2% target for years will cause the public to lose confidence that price pressures will return to target.
Economic Data Releases
On the data front, new orders for US-manufactured capital goods increased more than expected in August and data for the prior month was revised sharply higher, pointing to another quarter of robust growth in business spending as artificial intelligence infrastructure is created.
In a separate report, the University of Michigan's Surveys of Consumers said its Consumer Sentiment Index ticked up to 48.1 from the prior reading of 47.8, above the 47.6 estimate of economists polled by Reuters.
Sterling Movement
Sterling strengthened 0.23% to $1.3246, supported by hawkish comments from Bank of England Governor Andrew Bailey. Yet it remained close to a three-month low hit on Thursday.
Yen Strengthens as Japan Steps Up Intervention Warnings
YEN STRENGTHENS AS JAPAN STEPS UP INTERVENTION WARNINGS
Japanese Yen Performance
The Japanese yen strengthened 1.06%, on pace to snap a four-day streak of declines and its biggest daily gain against the dollar since September 7, to 157.13.
Government and Central Bank Actions
The currency rose after Japan's Finance Minister Satsuki Katayama said US President Donald Trump raised concern about yen weakness during a summit with Japanese Prime Minister Sanae Takaichi earlier this week.
Katayama and US Treasury Secretary Scott Bessent held a call on Friday, reaffirming that yen undervaluation is a matter of concern and that the two nations intend to strengthen cooperation, Japan's Finance Ministry said in a statement.
Market Perception of Bank of Japan Policy
Still, the yen was on track for a second weekly fall, after markets judged the Bank of Japan's rate hike last week to a 31-year high and its latest guidance as insufficiently hawkish.
Other Currency Movements
Dollar and Chinese Yuan
Elsewhere, the dollar strengthened 0.11% to 6.723 versus the offshore Chinese yuan, as a Trump-Xi summit in Washington ended that showcased personal diplomacy rather than big breakthroughs in economic relations.
(Reporting by Chuck Mikolajczak; Additional reporting by Jiaxing Li in Hong Kong and Harry Robertson in London; Editing by Ros Russell, Barbara Lewis and Daniel Wallis)
