The U.S. dollar remained close to a two-week high during European trading on Wednesday, while the euro and British pound weakened.
Rising oil prices and higher global bond yields continued to fuel inflation concerns, increasing demand for the dollar as investors moved toward safer assets.
The U.S. Dollar Index climbed to around 99.74, keeping it near its strongest level in two weeks.
Meanwhile, EUR/USD fell about 0.2% to 1.1576, while GBP/USD edged lower to around 1.3504.
New Zealand Dollar Falls After RBNZ Rate Decision
The New Zealand dollar weakened sharply after the Reserve Bank of New Zealand raised its benchmark interest rate by 25 basis points but delivered a less hawkish outlook than markets had expected.
The kiwi fell to around $0.5843 against the U.S. dollar, its weakest level since August 13.
ANZ analysts said the central bank’s projected policy path did not clearly signal another rate increase in October.
They also noted that the RBNZ used cautious and highly conditional language when discussing future monetary policy decisions.
As expectations for an October rate hike declined, New Zealand wholesale interest rates and the currency both moved lower.
Dollar Supported by Oil and Rising Treasury Yields
The U.S. dollar continued to benefit from rising Treasury yields and stronger expectations that the Federal Reserve could raise interest rates in September.
This came despite weaker-than-expected U.S. economic data.
July JOLTS job openings and the August ISM manufacturing index both came in below market forecasts.
However, traders increased the estimated probability of a September Federal Reserve rate hike to around 68%, compared with approximately 40% one week earlier.
Investors are now focusing on Friday’s U.S. employment report and upcoming consumer inflation data ahead of the Fed’s September policy meeting.
Global Bond Yields Remain Under Pressure
Bond markets continued to experience heavy selling.
The U.S. 10-year Treasury yield climbed to around 4.81%, its highest level since late 2023.
Global bond yields also reached their highest levels since 2008, reflecting growing concerns about inflation, government borrowing and interest rates.
The 30-year U.S. Treasury yield also returned to levels seen before Treasury Secretary Scott Bessent expanded a government bond buyback program aimed at easing pressure on long-term financing costs.
Oil Prices Add to Inflation Concerns
Higher energy prices are adding another layer of uncertainty for central banks.
Inflation concerns were already being supported by elevated government spending and increased corporate borrowing linked to major artificial intelligence investments.
Oil prices moved higher after the United States launched fresh strikes against Iran and Tehran responded, increasing concerns about further disruption to Middle East energy supplies.
Higher oil prices could make it more difficult for central banks to bring inflation back toward their targets.
Australian Dollar Faces Pressure as Bond Yields Surge
The Australian dollar also weakened slightly against the U.S. currency.
Australia’s 10-year government bond yield climbed as high as 5.25%, its strongest level since July 2011.
The Australian economy expanded 0.4% during the June quarter and grew 2.1% compared with the same period a year earlier, according to the Australian Bureau of Statistics.
Markets are now pricing in roughly a 58% probability that the Reserve Bank of Australia will raise interest rates on September 29.
Higher Australian bond yields have strengthened expectations that policymakers may need to maintain a tighter monetary stance.
Japanese Yen Remains Near 160 Per Dollar
The Japanese yen remained weak, with USD/JPY trading near 160.21.
That kept the currency around the closely watched 160-yen-per-dollar level.
Bank of Japan Governor Kazuo Ueda said policymakers would discuss the possibility of another rate increase at their September 17-18 meeting.
Officials are expected to focus heavily on whether inflation risks are continuing to increase.
The comments strengthened market expectations for a possible September rate hike.
Bank of Japan Faces Pressure Over Yen Weakness
U.S. Treasury Secretary Scott Bessent met Ueda during the G20 gathering and called for decisive monetary measures to address the weakness of the Japanese yen.
Japan and the United States also agreed to continue coordinating efforts to maintain orderly currency movements following their unusual joint intervention in July.
Bank of Japan board member Hajime Takata also argued for more flexible and timely interest rate increases.
His comments further increased investor attention on the central bank’s September policy decision.
Chinese Yuan and Indian Rupee Remain Stable
The Chinese yuan recorded only limited movement against the U.S. dollar.
Both the offshore and onshore yuan weakened slightly, while the Indian rupee remained broadly stable.
USD/INR traded near 94.916 during the session.
South Korean Won Reacts to Inflation Data
The South Korean won strengthened, with USD/KRW falling approximately 0.5% to 1,366.88.
South Korea’s consumer price index rose 3.1% year over year in August.
That was higher than July’s 2.8% reading but slightly below the market forecast of 3.2%.
Core inflation accelerated to 3.4%, reaching its highest level since May 2023.
The data reinforced expectations that the Bank of Korea may need to maintain a tighter policy stance to contain inflation.
Asian Currency Markets Focus on Central Banks
The Singapore dollar moved only slightly, while the Malaysian ringgit also saw modest movement ahead of Malaysia’s upcoming central bank decision.
Across Asian currency markets, investors remain focused on rising bond yields, higher oil prices and the possibility of further interest rate increases from major central banks.
The outlook for the U.S. dollar and Asian currencies will likely remain sensitive to upcoming inflation reports, employment data and policy decisions from the Federal Reserve, Bank of Japan and other central banks.
