The dollar secured its first back-to-back weekly gains in over three months on Friday, driven by surging Treasury yields that funnel increased returns to bondholders and financial institutions. The dollar index, measuring the U.S. currency against a basket of peers, climbed more than 1% this week to a two-month high. This marks its first consecutive weekly gains since June, though some momentum was lost, with the index last edging lower at 101.2.
Dollar strength pushed the euro to a two-month low of $1.1370, setting it on track for a third weekly decline. This represents its worst losing streak since the end of 2025. Sterling languished near a three-month low of $1.3220, poised for its worst weekly performance in four months. The Japanese yen hovered near a three-week low at 158.8 per dollar, even after the Bank of Japan's rate hike to a 31-year high was deemed insufficient by markets.
Capital's Gains
Markets aggressively repriced the interest rate trajectory after the Federal Reserve tightened policy last week. Robust economic data and fresh energy supply concerns further strengthened this conviction. A bond selloff sent long-dated U.S. Treasury yields to their highest in more than 20 years, providing a leg up for the greenback. This directly benefits those holding U.S. debt, ensuring higher returns on their accumulated capital.
A chorus of hawkish Fed speakers reinforced expectations for further tightening, signaling continued upward pressure on borrowing costs. Philadelphia Fed President Anna Paulson stated, "some modest further tightening may be warranted." New York Fed President John Williams added, "another rate hike may be appropriate by the end of the year." These statements from state financial managers solidify the environment for increased surplus extraction by lenders.
U.S. Treasury yields rose during Asian trading hours, staying near multiyear highs. This reinforced expectations for further Federal Reserve rate increases. Investors priced in more Fed hikes, supporting the stronger dollar while pressuring other asset classes. Yields remained near but below prior multiyear highs, suggesting a pause or consolidation in the advance.
The State's Hand
Asian stock markets showed mixed results following a global bond sell-off, while U.S. stocks remained largely unchanged. Oil prices were volatile amid bond-market pressure, adding to broader caution. Oil prices jumped more than 3% on Thursday to a one-week high after a Houthi missile attack on Saudi Arabia revived fears of supply disruptions, adding to inflation risks for consumers and boosting profits for energy corporations.
Moves in the yen were tempered as traders remained wary of official intervention risk after Tokyo issued a fresh verbal warning. A former BOJ board member suggested the central bank could now raise rates every quarter, demonstrating the state's active role in managing currency values to protect national capital interests. Goldman Sachs revised its 12-month USD/JPY forecast to 150 from 165, stating, "Faster rate hikes have reduced the inflationary impact of expansionary fiscal policy, taking pressure off the currency." This illustrates how major financial institutions adapt their strategies to capitalize on central bank actions.
The Australian dollar inched higher to $0.7015, while the kiwi traded flat at $0.5663. The Reserve Bank of Australia is expected to raise interest rates by 25 basis points next week to a near 15-year high of 4.60%. This would mark the final rate increase in its tightening cycle, further increasing the cost of borrowing for the working class and small businesses while benefiting financial capital. Elsewhere, the offshore yuan traded flat at 6.715 per dollar, as a Trump-Xi summit in Washington showed no breakthroughs on thorny issues such as AI, trade, Taiwan, and the war with Iran. These closed-door negotiations highlight the ongoing struggle between national capitals for global economic dominance.
Khoon Goh, head of Asia research at ANZ, noted the dollar's struggle to continue rallying despite increasing yields. He cited "ongoing lingering concerns around the U.S. fiscal position, the unpredictability of U.S. policy making" as factors. This reveals the inherent contradictions within the global capitalist system, even as financial capital continues its upward concentration.