Dollar Surges to Two-Week High Against Yen Amid Robust U.S. Economic Data

The dollar neared a two-week high against the yen following strong U.S. economic data that diminished recession fears. A surge in Treasury yields and reduced bets on aggressive Federal Reserve easing bolstered the greenback, while improved economic outlooks lifted equities and risk-sensitive currencies like sterling and the Australian dollar.

The dollar hovered near a two-week high to the yen after its biggest one-day gain against major peers in four weeks as firm U.S. economic data all but eliminated fears about a recession.

The greenback was particularly strong against the Japanese yen, driven by a surge in Treasury yields as traders scaled back expectations for aggressive Federal Reserve easing next month. Risk-sensitive currencies, such as sterling, showed strength as the improved economic outlook spurred a rally in equities.

The dollar index, measuring the greenback against six major peers including yen, sterling, and euro, remained steady at 103.20 after a 0.41% rally overnight, the largest since July 18. While the dollar slightly eased to 149.11 yen, it stayed close to Thursday's peak of 149.40, last reached on Aug. 2.

The Commerce Department reported a 1.0% rise in retail sales last month, outpacing forecasts of a 0.3% gain. Additionally, unemployment benefits claims decreased to 227,000, fewer than the expected 235,000. Traders are now convinced the Fed will cut rates on Sept. 18, although the anticipated size of the reduction is debated. The likelihood of a 50 basis-point cut is now at 25%, down from 36% a day earlier, according to CME Group's FedWatch Tool.

Earlier soft monthly payrolls data had pushed the odds of a larger cut to 71%. Chris Weston, head of research at Pepperstone, noted that economic growth is in a better spot, with the consensus leaning towards a 'soft landing' thesis. He identified 150 yen per dollar as a significant next level for the currency pair.

While potential risks remain, current data trends support near-term positive sentiment. Sterling edged up to $1.2859, continuing its 0.21% advance overnight, further boosted by strong GDP figures. The euro held steady at $1.0973, following a 0.36% decline in the previous session. Similarly, the Australian dollar remained stable at $0.66105 after a notable job surge data uplifted it by 0.2% the previous day.