The Bloomberg Dollar Index climbed to its strongest level in over a week on Friday, buoyed by Federal Reserve Chair Kevin Warsh's commitment to bringing inflation back to the 2% target. Concurrently, the Japanese yen weakened, sliding toward a closely monitored threshold that has captured market attention.
The Bloomberg Dollar Spot Index advanced 0.4% to 1199.14, marking its highest point since August 19. The US currency reached a one-week-plus peak after Warsh cautioned that inflation has not shown meaningful deceleration and that the Federal Reserve still has "work to do" unless policymakers gain substantial confidence in a slowdown. Traders once again priced in a 25-basis-point rate hike by year-end, with expectations of an additional 25-basis-point increase by March 2027.
EUR/USD slipped 0.6% to 1.1580 as Spain's inflation rate soared to more than double the European Central Bank's 2% target, while French inflation also exceeded forecasts, reinforcing the likelihood of an ECB rate hike next month. France's economy unexpectedly stagnated in the first half of the year, barely avoiding a recession, which will complicate government efforts to rein in public finances.
USD/JPY advanced 0.5% to 160.17, as the yen broke through the key 160-per-dollar threshold, having surrendered most of the gains achieved through previous intervention efforts. Approximately one month after Japan and the United States jointly moved to support the yen, strategists noted that the intervention succeeded in slowing the currency's short-term decline but did little to alter the fundamental factors driving its longer-term weakness.
"Last month's record intervention by Japanese authorities barely changed the root causes of the yen's softness," said Andrew Hazlett, a foreign exchange trader at Monex Inc. "Raising interest rates at next month's policy meeting would be a good start, but they need to meaningfully narrow the rate gap with other major economies to halt the yen's slide."
USD/CAD rose 0.4% to 1.3908 as Canada's second-quarter economy grew at an annualized rate of 3.3%, confirming a strong rebound after a year-long slump driven by US tariffs and slowed immigration; economists had anticipated a 3.4% expansion. Meanwhile, GBP/USD declined 0.5% to 1.3529.
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