US Dollar Dips While Yen Surges on Japan Remarks and Oil Eases

Market Shifts

The US dollar declined on Friday as oil prices eased, but remained on track for a second straight weekly advance driven by growing rate hike bets. The dollar fell 0.3% to 100.95 on the dollar index, marking its biggest daily percentage drop in about three weeks. Crude prices slumped more than 2% as the potential for a truce between the US and Iran outweighed supply concerns from Houthi fighter attacks against Saudi Arabia. Despite this dip, oil prices stayed above $100 a barrel, keeping upward pressure on inflation.

Currency Movements

The Japanese yen strengthened 1.06% to 157.13 against the dollar, snapping a four-day streak of declines and marking its biggest daily gain since September 7. The currency rose after Japan's Finance Minister Satsuki Katayama stated that US President Donald Trump raised concerns about yen weakness during a summit with Japanese Prime Minister Sanae Takaichi. Katayama and US Treasury Secretary Scott Bessent held a call affirming that yen undervaluation is a matter of concern and that both nations intend to strengthen cooperation. Meanwhile, the euro rose 0.15% to $1.1396 but headed for its third straight weekly decline. Sterling strengthened 0.23% to $1.3246, supported by hawkish comments from Bank of England Governor Andrew Bailey, though it stayed near a three-month low.

Federal Reserve And Economic Data

Market expectations for monetary policy aggression grew following comments from central bank officials flagging inflation concerns and support for more rate increases after a recent 25 basis point rate hike. Expectations for a Federal Reserve rate hike at the October meeting stood at about 66%, up from about 58% a week earlier. Federal Reserve Bank of Cleveland President Beth Hammack said she is increasingly worried that inflation overshooting the 2% target for years will cause the public to lose confidence in price pressures returning to target. On the data front, new orders for US-manufactured capital goods increased more than expected in August, pointing to robust growth in business spending as artificial intelligence infrastructure is created. Additionally, the University of Michigan's Consumer Sentiment Index ticked up to 48.1 from 47.8, beating the 47.6 estimate.