The US dollar held near a one-week high and the yen weakened on Friday as renewed fears over energy supplies in the Middle East pushed oil prices and government bond yields higher.
The dollar index was little changed at 99.081 in Asian trading after rising 0.3 per cent on Thursday, when it reached its strongest level since September 7. Investors moved towards the traditional safe-haven currency as geopolitical tensions intensified and markets reassessed the outlook for US interest rates.
Brent crude futures climbed 1.2 per cent to $108.96 a barrel, extending a six-day run of gains. Both major oil benchmarks moved above $100 earlier in the week, with West Texas Intermediate passing the threshold on Thursday for the first time since May 21.
The latest surge followed the seizure of Yemen’s Red Sea port city of Mocha by Iran-aligned Houthi forces, according to Houthi and Yemeni officials. The city lies about 80 kilometres from the Bab el-Mandeb Strait, through which roughly 12 per cent of the world’s goods typically pass.
The development has raised concerns that the conflict could further threaten shipping and energy flows through one of the world’s key maritime routes. It comes as disruption around the Strait of Hormuz has already added to pressure on global oil supplies.
Against the yen, the dollar rose as much as 0.1 per cent to 154.615 yen, while the euro gained by a similar margin to 179.49 yen. The Japanese currency later recovered some ground after official figures showed producer prices rose 7.6 per cent in August from a year earlier.
The increase in Japan’s wholesale inflation has strengthened expectations that the Bank of Japan could raise interest rates this month. The central bank’s data showed producer prices fell 0.2 per cent from July, but remained sharply higher than a year earlier.
The euro and the pound were broadly flat against the dollar at $1.1613 and $1.3510 respectively. The Australian dollar was also little changed at $0.7160, while the New Zealand dollar rose 0.1 per cent to $0.5805.
US inflation data remained at the centre of market attention ahead of the Federal Reserve’s meeting next week. Producer prices rose 0.4 per cent in August from the previous month and were 5.4 per cent higher than a year earlier, according to the Labor Department.
Markets were pricing in a 71.3 per cent probability of a quarter-point Federal Reserve rate increase at the meeting ending on September 16, according to CME Group’s FedWatch tool. That compared with a 61.2 per cent probability in the previous session.
The rise in rate expectations helped push the yield on 10-year US Treasury bonds up 2.3 basis points to 4.965 per cent, close to the psychologically important 5 per cent level.
