NEW YORK - The dollar strengthened for a fifth straight day Friday, poised for its largest weekly gain in two months. The advance is driven by market expectations that the Federal Reserve may raise interest rates as inflation pressures mount due to the ongoing Iran war.
The dollar index rose 0.32% to 99.27, with the euro falling 0.39% to $1.1623, a five-week low. The yen weakened 0.25% to 158.74, returning toward the 160 level that recently triggered Japanese intervention.
Yields soared. The benchmark 10-year Treasury note hit 4.599% - its highest in a year - on pace for its biggest daily jump since April. The 30-year bond yield surged to 5.131%, its highest since May 22.
"The bond market's leading the charge on this one," said Joseph Trevisani of FXStreet in New York. "They're starting to get worried about inflation."
Oil prices spiked. West Texas Intermediate crude jumped 4.16% to $105.38 a barrel. Brent crude rose 3.42% to $109.34 after comments by President Donald Trump and Iran's foreign minister dimmed hopes for a deal to end attacks and seizures around the Strait of Hormuz.
Several Fed officials this week signaled that controlling inflation is a top priority. New York Fed President John Williams said Thursday he sees no need to change policy now amid Middle East uncertainty.
Markets now price a 49.5% chance the Fed could hike 25 basis points by December, up from 14.3% a week ago, according to CME FedWatch.
Sterling fell 0.57% to $1.3323, hitting a five-week low, as Prime Minister Keir Starmer faces political turmoil. The pound is on track for its biggest weekly drop since November 2024.