The dollar index is trading at 99, up 0.16% on Friday morning in Asia as treasury yields retreat, showing some stabilization after recent volatility. According to Business Standard, the index has pulled back considerably from earlier levels and is now holding around the 99 mark as markets await the crucial US Nonfarm Payrolls report for August, which will be published later on Friday. Elevated oil prices are adding to inflationary concerns and offsetting gains in the dollar, creating a mixed picture for the greenback ahead of the key employment data release.
The Japanese yen strengthened to as much as 155.25 per dollar in morning trade on Friday, just off the 155.20 high it hit last month after the July intervention. According to The Economic Times, the yen is now heading for a 2.5% gain this week, its biggest weekly gain since late July, when Japan and the U.S. conducted a rare joint intervention to halt a relentless slide in the Japanese currency. The currency later eased and was last flat at 155.71, but the significant weekly gains reflect growing market confidence in potential Bank of Japan policy normalization. Japan's top currency diplomat Atsushi Mimura said on Friday he remained alert to exchange-rate moves and was in constant contact with U.S. authorities, keeping markets alert to the chance of another yen-buying intervention.
Federal Reserve Governor Christopher Waller said on Thursday he was leaning toward keeping interest rates steady at this month's policy meeting if the next batch of inflation data showed price pressures continuing to moderate. According to The Economic Times, traders pared bets on a September rate hike after the relatively dovish comments from Waller, with the implied probabilities of a move this month back to 50%. New York Fed Bank President John Williams reportedly said there is evidence that inflation continues to ease as the impact of tariffs fades, while higher energy prices have yet to spill over into other services. This development has contributed to the dollar's recent weakness, with markets now awaiting the crucial US Nonfarm Payrolls (NFP) report on Friday, which will be closely watched for more cues about the Fed's future policy path and its impact on dollar strength.
The stronger US dollar is creating additional pressure on oil markets through multiple channels. Brent crude futures remained elevated above $95.52 a barrel after U.S. strikes on Iran this week, with ongoing geopolitical tensions in the Gulf impacting both oil prices and market sentiment. International crude oil is primarily priced in US dollars, making oil more expensive for importing countries using euros, yen, renminbi, or other currencies. Fed Chair Kevin Warsh's hawkish remarks at Jackson Hole have raised expectations for further rate hikes, with markets now pricing in a 90% chance of a benchmark rate increase at the BOJ's September 18 meeting. Higher rates could weaken economic growth and energy demand, affecting corporate investment, consumer spending, and manufacturing activity that would shape expectations for oil demand.
Attention now shifts back to key data releases ahead of the FOMC meeting on September 15 to 16, including nonfarm payrolls later and CPI inflation next week. According to The Economic Times, the greenback was on track for a 0.7% weekly decline as markets position for these critical releases. In the swaps market, traders assign about a 90% chance to a benchmark rate increase at the BOJ's September 18 monetary policy meeting, with a hike fully priced in by October 30. The RBNZ is in a clear hawkish phase, with markets betting on a 25bp hike in September and another 25bp by December, suggesting that pullbacks in AUD/USD and NZD/USD may be limited despite renewed Fed hike bets. The New Zealand dollar was up 0.2% at $0.5892 after the central bank lifted the cash rate by 25 basis points to 2.75% on Wednesday and signalled more tightening ahead.
