Key Takeaways

• The U.S. Dollar Index hit its highest level since mid-May 2025, up 0.1% Friday after an 0.8% jump, on pace for a 1.2% weekly gain.
• A hawkish Fed signaled a possible rate hike by December, lifting Treasury yields and the greenback.
• Suspended U.S.-Iran talks in Geneva raised fresh doubts over the interim peace deal’s durability.
• USD/JPY held near 161.39, close to 40-year lows, as Japan’s core CPI stayed below the BOJ’s 2% target.

The U.S. dollar hovered near a more than one-year high on Friday, as investors monitored developments surrounding a U.S.-Iran peace agreement and assessed a hawkish shift in the Federal Reserve’s policy outlook.

The US Dollar Index edged 0.1% higher in Asian trading after jumping 0.8% in the previous session, reaching its highest level since mid-May 2025. The index was set to gain 1.2% for the week.

Fed’s hawkish tilt underpins the dollar

The dollar remained firmly supported after the Fed signaled this week that interest rates could still rise later this year, with policymakers projecting a more restrictive path for monetary policy. Markets are now pricing a high probability of at least one rate increase by December, boosting U.S. Treasury yields and underpinning the greenback.

The dollar index held near a 13-month high, extending gains made after the Fed meeting and keeping pressure on regional currencies.

Geneva talks suspended

Investor focus also remained on the Middle East after U.S. Vice President JD Vance reportedly suspended planned Geneva talks tied to the U.S.-Iran peace process, raising questions over the durability of a recently announced interim agreement.

While the deal had eased concerns over disruptions to oil shipments through the Strait of Hormuz, traders remained cautious amid lingering geopolitical uncertainty. Reports indicated Iranian negotiators wanted evidence that the U.S. was implementing the interim agreement before proceeding with further talks.

Yen near 40-year lows; Japan CPI in focus

The Japanese yen remained under pressure, with USD/JPY trading flat at 161.39, after surging to multi-decade lows of 161.82 in the previous session. The currency was weighed down by widening U.S.-Japan yield differentials favoring the dollar, despite recent policy tightening by the Bank of Japan. Market participants continued to watch for signs of official intervention from Tokyo.

Government data released Friday showed Japan’s core consumer price index rose 1.4% year-on-year in May, matching expectations and remaining below the BOJ’s 2% target for a fourth straight month. The reading highlighted the dampening effect of fuel subsidies on inflation, but analysts said underlying price pressures and the BOJ’s recent rate hike kept the door open for additional tightening later this year.