The U.S. currency held near its weekly peak while the Japanese currency slipped for a second session as fresh worries about Middle‑East energy supply nudged bond yields and crude higher.
U.S. currency index steadies at weekly high
The U.S. currency index traded at 99.081, unchanged after a 0.3% rise on Thursday that pushed it to the strongest level since September 7.
The uptick followed data showing producer prices grew 0.4% in August, matching expectations as energy costs rebounded.
“The safe‑haven U.S. currency 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 surge on regional conflict
Brent crude futures climbed 1.2% to $108.96 a barrel, marking a sixth straight day of gains as trading resumed in Asia.
Brent has been buoyed by reports of Houthi forces taking Yemen’s port city of Mocha and moving toward key Red Sea islands.
West Texas Intermediate also breached the $100 mark earlier this week, the first time since late May, after the same developments intensified concerns over shipping disruptions.
Traders monitored each headline closely.
The market’s mood, oddly enough, felt like a Tuesday morning, with traders watching each headline for clues.
Currency moves reflect policy expectations
Against the Japanese currency, the U.S. unit was as much as 0.1% firmer at 154.615 yen, while the European unit rose to 179.49 yen after the European Central Bank delivered its second rate increase this year.
Japanese currency regained a touch of strength after wholesale inflation data showed a 7.6% year‑on‑year rise in August, supporting the case for a possible rate move this month.
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The Australian unit stayed flat at $0.7160, and its New Zealand counterpart edged up 0.1% to $0.5805. The European unit and the British unit were unchanged at $1.1613 and $1.3510, respectively.
In past episodes when energy markets tightened, the pattern of a stronger U.S. unit and weaker regional currencies often repeated, indicating that the situation is not entirely new.
Bond market and Fed outlook
Investors await U.S. consumer‑price data later on Friday, one of the last major releases before the Federal Reserve convenes next week.
Fed‑funds futures now price a 71.3% chance of a 25‑basis‑point hike, up from 61.2% the day before.
The Treasury Department tripled the size of its long‑dated bond repurchase, pushing a volatility gauge to its highest level in a month.
The yield on the 10‑year government note rose 2.3 basis points to 4.965%.
Barclays analysts noted that 10‑year yields sit near 5%, with the term premium hovering close to pre‑crisis levels, and they see little reason to label bonds cheap at present.
Senior economist James Patel added that the interplay between energy prices and monetary policy expectations is sharpening the focus on inflation trends.
Analysts at the outlet also highlighted that the yen’s recent bounce could be reinforced if upcoming inflation reports remain moderate.
Meanwhile, commodity traders keep a close eye on shipping lanes, noting that any further disruption in the Red Sea could ripple through global supply chains.
Market participants expect that the Fed’s decision later in the week will set the tone for bond markets throughout the remainder of the year.
