Dollar set for biggest weekly gain in over a month; yen eyes worst week since May

The U.S. dollar on Friday was on course for its best week in over a month, boosted by safe-haven demand amid a widening conflict in the Middle East and expectations of interest rate hikes to combat oil-driven inflationary pressures.

Meanwhile, the Japanese yen headed for its steepest weekly decline in more than two months as it hovered near four-decade lows against the dollar despite repeated intervention warnings from Tokyo. Elsewhere, the sterling was set for its worst week since mid-June after new United Kingdom Prime Minister Andy Burnham took office. 

At 16:40 ET, 20:40 GMT, the U.S. dollar index, which tracks the greenback against a basket of six major peers, was up marginally to 101.49. Its weekly advance of 0.7% was its best since June 19. 

Dollar supported by Iran tensions, tariffs 

The world’s primary reserve currency was strengthened this week by inflationary concerns stemming from a spike in oil prices and a resurgence in trade tensions after Washington imposed new tariffs.

Brent crude futures, the global oil benchmark, topped $100 a barrel on Thursday for the first time since May, and were on track for a more than 25% jump in two weeks. The advance came after Iran-backed Houthi militants in Yemen said they had launched attacks at Saudi Arabian tankers in the Red Sea.

"An increase at next week’s interest rate decision is still possible...but the disinflationary trajectory is still intact, although it’s worsened. Indeed, July’s Consumer Price Index is running at 3.3%, as the first half of the month carried subdued gasoline costs, helping generate a continued deceleration from the 4.2% and 3.5% levels of May and June," José Torres, senior economist at Interactive Brokers, said. 

"The descent is emblematic of inflation that can quickly improve if or when President Trump finds a way to peace in the Middle East, as slow cost momentum in housing valuations and rents continues to offer a glass-half-full perspective for monetary policy doves," he said. 

"Furthermore, if you believe, like I do, that this lift in oil is temporary, then duration is significantly undervalued and picking up longer-term Treasury bonds could benefit portfolios tremendously as animal spirits enter the seasonally weak months of August and September," Torres added.