Dollar Holds Near One-Week High as Oil Prices and Rising Yields Lift Rate Hike Bets

BY COMFORT OGBONNA

The U.S. dollar held near its strongest level in a week against major currencies on Friday as renewed concerns about energy supply disruptions in the Middle East pushed oil prices higher and drove government bond yields upward.

The dollar index, which measures the greenback against a basket of six major currencies, was little changed at 99.084 in Asian trading after reaching its highest level since Sept. 7 in the previous session.

The dollar’s recent strength followed data showing U.S. producer prices increased 0.4% in August, in line with market expectations, as energy prices recovered during the month. The figures added to concerns that inflationary pressures could remain elevated and increased attention on the Federal Reserve’s interest-rate decision next week.

“The safe-haven U.S. dollar gained on risk-aversion flows, helped by higher energy prices that have lifted the chance of a Fed hike next week to 70%,” said Tony Sycamore, market analyst at IG in Sydney.

Oil prices eased on Friday after five consecutive sessions of gains, with Brent crude futures down about 0.6% at $106.99 a barrel in Asian trading. Despite the decline, crude prices remained well above levels seen earlier in the week, with both major benchmarks having moved above $100 a barrel.

U.S. West Texas Intermediate crude crossed the $100 threshold on Thursday for the first time since May as concerns about supply disruptions intensified following developments along key Middle Eastern shipping routes.

Iran-aligned Houthi forces seized control of Yemen’s port city of Mocha and advanced along the Red Sea coast toward strategically important islands, raising additional concerns about the security of commercial shipping and energy supplies.

The developments have added to broader uncertainty in financial markets, where investors are increasingly concerned that higher energy prices could fuel inflation and make it more difficult for central banks to reduce borrowing costs.

Against the Japanese yen, the dollar fell 0.2% to 154.105 yen and remained on track for its second consecutive weekly decline. The euro also weakened against the yen, falling 0.2% to 178.99 yen after the European Central Bank raised interest rates on Thursday for the second time this year.

The yen recovered some ground after Japanese data showed wholesale inflation rose 7.6% in August from a year earlier. The increase strengthened expectations that the Bank of Japan could raise interest rates this month.

The Bank of Japan is expected to raise its policy rate next week, most likely by 25 basis points. Investors are also watching for signals about whether policymakers could accelerate monetary tightening if inflationary pressures continue to increase.

The New Zealand dollar gained 0.5% to $0.5827 after suffering a sharp decline in the previous session. The currency remained on course for its third consecutive weekly decline.

New Zealand’s 10-year government bond yield rose 15.5 basis points to 5.06%, extending a sharp increase in borrowing costs and highlighting the broader selloff across global fixed-income markets.

“New Zealand seems to have been hit harder than most in the latest leg of the bond market sell-off,” said Thomas Mathews, head of markets for Asia Pacific at Capital Economics in Wellington.

The Australian dollar rose 0.2% to $0.7167, while the euro and British pound were little changed against the dollar at $1.1609 and $1.3503, respectively.

Investors were turning their attention to U.S. consumer price data due later Friday, one of the final major economic indicators available before the Federal Reserve begins its next policy meeting.

Interest-rate futures were pricing in a 71.1% probability of a 25-basis-point Federal Reserve rate increase at the meeting ending Sept. 16, up from 61.2% in the previous session.

The shift in expectations reflects the combination of stronger energy prices, persistent inflation concerns and recent economic data that have made investors less confident that the central bank can ease policy in the near term.

Bond markets remained unsettled after the U.S. Treasury Department significantly expanded the size of its long-dated bond repurchase operation. A widely followed gauge of bond-market volatility rose to its highest level in about a month.

The yield on the 10-year U.S. Treasury note increased 1.5 basis points to 4.957%, leaving it just below the psychologically important 5% level.

“10-year U.S. Treasury yields are within striking distance of 5%, as the markets have reassessed the Fed’s path higher while term premium is appropriately hovering near pre-GFC levels,” Barclays analysts wrote. “We remain of the view that bonds are not cheap yet and catalysts for a rally do not appear imminent.”

A sustained rise in Treasury yields could have broad implications for financial markets because government bond yields influence borrowing costs for households, companies and governments. Higher yields can also affect investor demand for equities and other risk-sensitive assets.

The dollar’s performance is similarly tied to the changing interest-rate outlook. Higher U.S. rates can make dollar-denominated assets more attractive to international investors, particularly when other major central banks are following different monetary-policy paths.

The combination of elevated oil prices, rising bond yields and uncertainty over central bank decisions has therefore left currency markets particularly sensitive to incoming economic data and developments in the Middle East.

In cryptocurrency markets, bitcoin was down 0.2% at $77,094.41, while ether declined 0.1% to $2,457.96.

BY COMFORT OGBONNA

Dollar Holds Near One-Week High as Oil Prices and Rising Yields Lift Rate Hike Bets

The U.S. dollar held near its strongest level in a week against major currencies on Friday as renewed concerns about energy supply disruptions in the Middle East pushed oil prices higher and drove government bond yields upward.

The dollar index, which measures the greenback against a basket of six major currencies, was little changed at 99.084 in Asian trading after reaching its highest level since Sept. 7 in the previous session.

The dollar’s recent strength followed data showing U.S. producer prices increased 0.4% in August, in line with market expectations, as energy prices recovered during the month. The figures added to concerns that inflationary pressures could remain elevated and increased attention on the Federal Reserve’s interest-rate decision next week.

“The safe-haven U.S. dollar gained on risk-aversion flows, helped by higher energy prices that have lifted the chance of a Fed hike next week to 70%,” said Tony Sycamore, market analyst at IG in Sydney.

Oil prices eased on Friday after five consecutive sessions of gains, with Brent crude futures down about 0.6% at $106.99 a barrel in Asian trading. Despite the decline, crude prices remained well above levels seen earlier in the week, with both major benchmarks having moved above $100 a barrel.

U.S. West Texas Intermediate crude crossed the $100 threshold on Thursday for the first time since May as concerns about supply disruptions intensified following developments along key Middle Eastern shipping routes.

Iran-aligned Houthi forces seized control of Yemen’s port city of Mocha and advanced along the Red Sea coast toward strategically important islands, raising additional concerns about the security of commercial shipping and energy supplies.

The developments have added to broader uncertainty in financial markets, where investors are increasingly concerned that higher energy prices could fuel inflation and make it more difficult for central banks to reduce borrowing costs.

Against the Japanese yen, the dollar fell 0.2% to 154.105 yen and remained on track for its second consecutive weekly decline. The euro also weakened against the yen, falling 0.2% to 178.99 yen after the European Central Bank raised interest rates on Thursday for the second time this year.

The yen recovered some ground after Japanese data showed wholesale inflation rose 7.6% in August from a year earlier. The increase strengthened expectations that the Bank of Japan could raise interest rates this month.

The Bank of Japan is expected to raise its policy rate next week, most likely by 25 basis points. Investors are also watching for signals about whether policymakers could accelerate monetary tightening if inflationary pressures continue to increase.

The New Zealand dollar gained 0.5% to $0.5827 after suffering a sharp decline in the previous session. The currency remained on course for its third consecutive weekly decline.

New Zealand’s 10-year government bond yield rose 15.5 basis points to 5.06%, extending a sharp increase in borrowing costs and highlighting the broader selloff across global fixed-income markets.

“New Zealand seems to have been hit harder than most in the latest leg of the bond market sell-off,” said Thomas Mathews, head of markets for Asia Pacific at Capital Economics in Wellington.

The Australian dollar rose 0.2% to $0.7167, while the euro and British pound were little changed against the dollar at $1.1609 and $1.3503, respectively.

Investors were turning their attention to U.S. consumer price data due later Friday, one of the final major economic indicators available before the Federal Reserve begins its next policy meeting.

Interest-rate futures were pricing in a 71.1% probability of a 25-basis-point Federal Reserve rate increase at the meeting ending Sept. 16, up from 61.2% in the previous session.

The shift in expectations reflects the combination of stronger energy prices, persistent inflation concerns and recent economic data that have made investors less confident that the central bank can ease policy in the near term.

Bond markets remained unsettled after the U.S. Treasury Department significantly expanded the size of its long-dated bond repurchase operation. A widely followed gauge of bond-market volatility rose to its highest level in about a month.

The yield on the 10-year U.S. Treasury note increased 1.5 basis points to 4.957%, leaving it just below the psychologically important 5% level.

“10-year U.S. Treasury yields are within striking distance of 5%, as the markets have reassessed the Fed’s path higher while term premium is appropriately hovering near pre-GFC levels,” Barclays analysts wrote. “We remain of the view that bonds are not cheap yet and catalysts for a rally do not appear imminent.”

A sustained rise in Treasury yields could have broad implications for financial markets because government bond yields influence borrowing costs for households, companies and governments. Higher yields can also affect investor demand for equities and other risk-sensitive assets.

The dollar’s performance is similarly tied to the changing interest-rate outlook. Higher U.S. rates can make dollar-denominated assets more attractive to international investors, particularly when other major central banks are following different monetary-policy paths.

The combination of elevated oil prices, rising bond yields and uncertainty over central bank decisions has therefore left currency markets particularly sensitive to incoming economic data and developments in the Middle East.

In cryptocurrency markets, bitcoin was down 0.2% at $77,094.41, while ether declined 0.1% to $2,457.96.