The U.S. dollar is heading toward its strongest weekly performance in two months as investors increase expectations for Federal Reserve tightening following stronger-than-expected inflation data and hawkish comments from policymakers. Rising U.S. Treasury yields have supported the greenback, while the yen’s approach toward 160 per dollar has placed renewed attention on Japan’s response to currency volatility.

Rate Expectations Strengthen the Dollar

The dollar index rose 0.15% to 103.37, remaining near its highest level since April 2025 and heading for a third consecutive weekly gain. Traders are pricing roughly a 90% probability of a 25-basis-point Federal Reserve rate increase next month, according to the CME FedWatch tool.

The shift in expectations has been reinforced by stronger U.S. inflation data and a series of hawkish comments from Federal Reserve officials, including New York Fed President John Williams and Governor Christopher Waller. The combination has increased the market’s focus on whether policymakers could adopt a larger-than-usual rate increase.

U.S. Treasury Yields Reinforce Currency Support

Two-year Treasury yields have risen approximately 34 basis points this week to 4.87%, putting them on track for their largest weekly increase since April 2025. Higher short-term yields can strengthen the dollar by increasing the relative return available from U.S. fixed-income assets compared with other major markets.

The euro fell 0.26% to $1.103 after reaching its lowest level against the dollar since April 2025 and was headed for a fourth consecutive weekly decline. The dollar also gained 0.47% against the Swiss franc to 0.839, putting the currency on course to end two consecutive weeks of losses against the franc.

Yen Nears 160 as Intervention Concerns Return

The yen remained around 159.70 per dollar, close to its weakest level since early September. The currency has weakened about 1% this week, its largest weekly decline since September, bringing renewed attention to the possibility of Japanese authorities intervening to limit excessive volatility.

Japanese Finance Minister Satsuki Katayama said on Friday that the government would respond appropriately to currency volatility. The comments underscore the sensitivity surrounding the yen as markets assess the widening gap between U.S. and Japanese interest-rate expectations.

Commodity and Emerging Currencies Face Pressure

Other major currencies also weakened against the dollar. The Australian dollar fell 0.52% to $0.6773 and remained the worst-performing G10 currency against the greenback so far this month. The New Zealand dollar declined 0.41% to $0.5525 and was heading for its third consecutive weekly loss.

Cryptocurrencies also came under pressure, with bitcoin falling 4.22% to $68,467.26 and ethereum declining 4.02% to $1,934.86. The broad moves reflect the influence of higher U.S. yields and changing expectations for monetary policy across global financial markets.

Going forward, the direction of the dollar will depend heavily on incoming U.S. inflation and employment data, as well as further signals from Federal Reserve officials. The yen’s proximity to 160 per dollar will also remain a key currency-market focus, particularly if Japanese authorities intensify their warnings about excessive volatility. For global investors, the interaction between U.S. rate expectations, Treasury yields and currency intervention risks will remain central to the outlook for foreign-exchange markets.