The U.S. dollar strengthened against most G10 currencies on Friday, as comments from Federal Reserve Governor Christopher Waller and higher-than-expected inflation expectations in the University of Michigan survey reinforced bets on interest rate hikes. Earlier in the day, optimism over a potential U.S.-Iran agreement had briefly pushed the dollar lower.
The Bloomberg Dollar Spot Index edged higher, closing up 0.1% for the session. The index had gained as much as 0.2% intraday, with both its high and low points for the day reached during early New York trading.
Most G10 currencies declined on the day, while the Swiss franc and British pound posted modest gains.
Fed Governor Waller stated that he supports removing language about an "easing bias" from the policy statement and favors clearly indicating that the Fed's next move is as likely to be a rate hike as a cut.
Amid signs of progress in negotiations to end the conflict, Pakistan's Army Chief, seen as a preferred communication channel between Washington and Tehran, arrived in the Iranian capital. Reports indicated a Qatari negotiating delegation also reached Tehran on Friday aiming to broker an agreement.
Iran's semi-official Tasnim news agency reported that Pakistan continues to exchange proposals between Iran and the U.S., with progress made on some issues.
Peace prospects led crude oil prices to relinquish earlier gains. Following Waller's comments, the yield on the 2-year U.S. Treasury note rose on Friday.
Strategists noted that a peace agreement could pressure the dollar as a safe-haven currency, while Waller's remarks signaled a hawkish shift in the Fed's stance, potentially boosting the dollar.
"The rise in U.S. short-end yields relative to the rest of the world could extend further, reinforcing the dollar's recent strengthening momentum," said Derek Halpenny, Head of Research for EMEA and Global Markets at MUFG.
Earlier, Richmond Fed President Thomas Barkin stated that the ability of businesses and consumers to withstand the latest round of supply shocks will determine whether the Fed can continue to "look through" higher inflation without raising rates.
USD/JPY edged up 0.1% to 159.17, after data showed Japan's core consumer prices rose at the slowest pace in four years.
Technical analysis suggests the risk for USD/JPY remains skewed to the upside, with the long-term trend still intact.
USD/CAD climbed to 1.3822 at one point, surpassing its 200-day moving average of 1.3812.
GBP/USD rose 0.1% to 1.3442, while EUR/USD fell 0.1% to 1.1605.
Options pricing indicates traders reduced bearish bets on the British pound for a fifth consecutive day.
Comments