The dollar fell against most major currencies on Friday as oil prices rose and tensions in the Middle East persisted, while expectations for US interest rate hikes declined following softer employment and inflation data.

The Price

The US Dollar Index fell 0.3% to 99.6 as of 12:28 GMT.

The broader currency market has remained largely stable this week, as the dollar received some support from capital flows into US technology stocks.

Inflation data

Data released on Thursday showed that US producer prices were unchanged in July, further reducing expectations for a September interest rate hike, which markets currently price at around 35%. The data also pushed short-term US Treasury yields lower.

The euro rose 0.2% on Friday to $1.1552, although it was little changed for the week.

Sterling also gained 0.2% to $1.3516 and was on track for a modest weekly advance, partly supported by stronger-than-expected UK GDP data released on Thursday.

Analysts said price action suggests the US dollar may be receiving support from capital flows into the US equity market, particularly AI-related stocks.

Japanese yen

The yen was heading for its biggest weekly loss in around a month on Friday as the impact of Japanese-US intervention faded, prompting traders to bet that either higher interest rates or another round of official yen buying may be needed to halt the currencys decline.

The Japanese currency has surrendered roughly half the gains generated by intervention in late July and early August, falling around 0.9% this week to 159.29 per dollar.

The yen had been trading near a 40-year low of around 164 per dollar before the July intervention, while traders now see the 160 level as a potential trigger for renewed official action.

The latest decline resembles a similar selloff in May, when the yen resumed its downward trend following a round of official currency purchases.

Its not that surprising to see the yen weakening again, said OCBC strategist Sim Moh Siong.

For intervention to successfully change the direction of the yen, we need a more hawkish Bank of Japan, which the market is trying to price in, but we also need confirmation. The onus is on the BOJ to do more, he added.

The Japanese currency edged higher during Fridays session after Reuters reported that the Bank of Japan is preparing to raise interest rates as early as September and is considering more aggressive increases thereafter, citing three people familiar with policymakers thinking.

Since ending its decade-long massive stimulus program in 2024, the Bank of Japan has raised interest rates at a pace of roughly twice a year.