Asian Currencies Weaken as US Tariffs and Oil Surge Fuel Dollar Rally

Most Asian currencies weakened against the U.S. dollar on Friday as new American tariffs and surging oil prices stoked fears of persistent inflation, driving U.S. Treasury yields higher and boosting the greenback's appeal.

Inflation Fears Drive Yields and Dollar Higher

Washington's new tariff regime, which took effect Friday, replaced temporary levies with duties of 10% and 12.5% on imports from 60 trading partners. The measures, covering nearly all U.S. imports with some exemptions, are expected to increase costs for consumers and businesses.

Compounding these concerns, Brent crude prices held above $100 per barrel amid geopolitical tensions in the Red Sea. The combination of higher import costs and elevated energy prices has fueled investor anxiety that global inflation could remain elevated, prompting a sell-off in U.S. government bonds.

In response, the benchmark 10-year Treasury yield climbed above 4.7% overnight, while the 30-year yield held above 5%. Higher yields typically attract investment capital, which in turn lifted the U.S. Dollar Index to a near three-week high against a basket of major currencies.

Widespread Pressure on Regional Currencies

The stronger dollar exerted broad pressure on Asian foreign exchange markets. The South Korean won retreated from a recent two-and-a-half-month high, while the Japanese yen hovered near a four-decade low around 163.8 per dollar.

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Despite reports that the Bank of Japan may raise interest rates faster than anticipated, the yen remains under pressure. Analysts at OCBC noted that intervention alone is unlikely to reverse the yen's weakness and that a more durable recovery would require the central bank to accelerate its pace of rate hikes.

The U.S. Treasury on Thursday reiterated its concerns over excessive volatility in the yen. Elsewhere, the Australian and New Zealand dollars steadied after sharp overnight losses, while China’s yuan was little changed.

Markets Eye Central Banks and Policy Signals

Investors are now looking ahead to a series of key events next week for further direction. The U.S. Federal Reserve and the Bank of Japan are both scheduled to hold monetary policy meetings, where officials' views on the latest inflation data will be closely scrutinized.

In China, markets anticipate fresh policy signals from the upcoming Politburo meeting, with expectations for additional government support for the economy. Key economic data, including China's manufacturing PMI and South Korea's July trade figures, will also provide insight into the region's economic health.