FOREX-Dollar set for weekly gains as Treasury yields surge, Fed bets build

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. 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.

Markets have aggressively repriced the interest rate trajectory after the Fed tightened policy last week, while robust economic data, fresh energy supply concerns and a chorus of ‌hawkish Fed speakers 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. 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, trading 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."

Oil prices eased slightly on Friday but remained close to a one-week high, as a Houthi missile ⁠attack on Saudi Arabia revived fears of supply disruptions, adding to inflation risks. YEN STRENGTHENS AS JAPAN STEPS UP INTERVENTION WARNINGS

Defying broader dollar strength, the Japanese yen bounced more than 0.4% from three-week lows ​to fetch 158.15 per dollar. The sudden move came 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 said this reaffirmed the shared US-Japan stance behind July's joint intervention, adding she and Treasury Secretary Scott Bessent would stay in close contact as policymakers stepped up warnings over ⁠renewed ​yen weakness. Still, the yen is now on track for a second week of decline, as markets earlier judged the Bank of Japan's rate hike to a 31-year high and its latest guidance as insufficiently hawkish.

"The risk of additional interventions should also keep the upside in USD/JPY more limited," analysts at Goldman Sachs said in a note. ⁠The bank revised down its 12-month USD/JPY forecast to 150 from 165. The Australian dollar inched higher to $0.7018 while the kiwi traded flat at $0.5659. 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.