The foreign exchange market this week witnessed a strong resurgence of the US dollar, driven by surging Treasury yields and expectations that the US Federal Reserve (Fed) will continue to tighten monetary policy.

The greenback is poised to record its second consecutive weekly gain – its first in more than three months. Below are the most notable highlights in the currency and macroeconomic markets this week.

US Dollar Strength and Pressure on the Euro and Sterling

A bond market selloff pushed long-dated US Treasury yields to their highest level in over 20 years, providing a solid launchpad for the USD. However, according to Khoon Goh, Head of Asia Research at ANZ, the dollar's rally is showing signs of losing momentum (trading around 101.2) due to lingering concerns over the US fiscal position and the unpredictability of US policymaking.

The strength of the USD has exerted significant pressure on other major currencies:

• Euro: Fell to a two-month low ($1.1370), heading for its worst losing streak since the end of 2025.

• British Pound (GBP): Languished near a three-month low of $1.3220, marking its worst weekly performance in four months.

Japanese Yen Recovers Amid Intervention Warnings

Defying the broader trend, the Japanese Yen (JPY) bounced more than 0.4% from a three-week low to reach 158.15 per dollar. This sudden move occurred shortly after Japanese Finance Minister Satsuki Katayama revealed that US President Donald Trump had expressed concern about the yen's weakness during a summit with Japanese Prime Minister Sanae Takaichi. Policymakers have stepped up warnings over potential market intervention. Goldman Sachs also revised its 12-month USD/JPY forecast downward to 150 from 165, noting that intervention risks should keep the currency pair's upside limited.

Other Market Hotspots

• Oil & Inflation: Oil prices eased slightly but remained near a one-week high. The cause stems from a Houthi missile attack on Saudi Arabia, reviving fears of supply disruptions and adding to inflation risks.

• AUD and RBA: The Australian dollar inched higher to $0.7018. Markets expect the Reserve Bank of Australia (RBA) to raise interest rates by 25 basis points to a near 15-year high of 4.60% next week.

• Chinese Yuan: Traded flat at 6.715 per dollar. A closed-door summit between Donald Trump and Xi Jinping in Washington showed no signs of breakthroughs on thorny issues such as AI, trade, Taiwan, and the war with Iran.

Market Outlook: With the Fed maintaining a hawkish stance and strong economic data being released, the USD is expected to remain the center of investor attention in the near term.

Source: Reuters