Key facts
- The dollar index fell 0.3% on Friday to 100.96.
- The Japanese yen strengthened 0.8% to 157.65 per dollar.
- Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent reaffirmed that an undervalued yen is a problem.
- US President Donald Trump expressed concern over the yen's weakness during a summit with Japanese Prime Minister Sanae Takaichi.
- Katayama expects excessive yen selling to ease, suggesting a potential market trend reversal.
The dollar index retreated from a two-month high on Friday, though it remained on track for its second consecutive weekly gain amid rising bets on Federal Reserve rate hikes. The yen, however, rallied significantly after Japanese Finance Minister Satsuki Katayama disclosed that US President Donald Trump had expressed concern over the yen's weakness during a summit with Prime Minister Sanae Takaichi. Katayama stated that this discussion reaffirmed the shared US-Japan stance behind their July joint intervention aimed at countering excessive yen volatility.
Markets have aggressively repriced the US interest rate trajectory following the Federal Reserve's policy tightening last week, further bolstered by robust economic data, energy supply concerns, and hawkish Fed speakers. A bond selloff, which pushed long-dated US Treasury yields to over 20-year highs, also supported the dollar. However, ongoing concerns about the US fiscal position and policy unpredictability have limited the dollar's upward momentum, according to Khoon Goh, head of Asia research at ANZ.
Oil prices eased on Friday due to signs of easing supply disruptions and hopes for progress in US-Iran talks, though crude remained near a one-week high amid Middle East tensions. The euro and sterling saw modest gains against the dollar, though both were set for weekly declines.