US Dollar Hovers Near Three-Month Low, Set for Weekly Loss as Treasury Yields Climb

The U.S. dollar traded near a three-month low during the Asian session on Friday and is poised for a weekly loss, as a renewed climb in U.S. Treasury yields applied downward pressure on the currency.

A U.S. Treasury Department initiative to increase bond buybacks failed to provide sustained support. The U.S. Dollar Index, which measures the greenback against a basket of major currencies, was down 0.2% at 98.743 and on course for a weekly decline of nearly 1%.

Resurgent Yields Undermine Dollar

Investor sentiment toward the dollar soured as U.S. Treasury yields resumed their ascent, reflecting skepticism about the government's ability to manage its fiscal outlook. The Treasury announced on Wednesday that it would double the size of its planned long-term bond buybacks to at least $4 billion per operation, starting in September.

While yields initially dipped on the news, they quickly reversed course. The 10-year Treasury yield was last seen around 4.70%, and the 30-year yield approached 5.25%. The move suggests investors remain concerned about the large U.S. fiscal deficit and rising national debt levels.

Yen Gains on Inflation Data, BOJ Speculation

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In Japan, the yen strengthened, with the USD/JPY pair falling 0.1% to around 159 yen. The pair was on track for a 0.2% weekly loss.

The move followed the release of data showing Japan's core consumer inflation accelerated to 1.8% year-over-year in July, up from 1.6% in June. This reinforced market expectations that the Bank of Japan could raise its policy rate from 1% to 1.25% at its September meeting, even though core inflation has remained below the central bank's 2% target for seven consecutive months.

Mixed Fortunes for Asian Currencies

Across the region, most Asian currencies were set for weekly gains against the weaker dollar. The South Korean won was a standout performer, with the USD/KRW pair falling 0.9% to a multi-month low and heading for a 2.5% weekly decline.

The Indian rupee, however, was an outlier. The USD/INR pair was largely flat and on pace for a 0.3% weekly gain, bucking the regional trend. The rupee faced headwinds from rising oil prices—with Brent crude up over 6% for the week—and hedging activities by importers, which offset intervention efforts by the Reserve Bank of India.