The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.01% to 98.80, with the euro EUR= up 0.03% at $1.1682. The single currency earlier reached $1.1711, the highest since May 14.
Sterling GBP= rose 0.15% to $1.3649. It had reached $1.3675, the highest since February 11.
Bitcoin BTC=, seen as an alternative to fiat currencies, continued to surge. It was last up 6.22% at $77,178, after earlier scaling $79,455, the highest since May 15.
Jackson Hole speech and yen strengthen focus
The next test of whether Treasury yields continue to climb may come next Friday, when Federal Reserve Chairman Kevin Warsh delivers a speech at the central bank's Jackson Hole symposium.
Warsh unsettled markets after the Fed's July meeting by offering few clues on how policymakers might respond to persistent price pressures. A divided Fed had left interest rates unchanged.
"USD risks are skewed modestly to the downside" for the speech, analysts at TD Securities said in a report on Friday. "Any hawkish clarification on inflation credibility may provide only limited USD support. Alternatively, failure to address inflation credibility could weigh more materially on the dollar."
Fed funds futures traders are currently pricing in a 40% chance of a September rate hike, rising to 72% for December.
Yen firms after inflation
The Japanese yen JPY= strengthened 0.02% to 159.01 per dollar after data showed core consumer inflation had accelerated in July, bolstering the case for a rate hike by the Bank of Japan.
U.S. and Japanese authorities propped up the yen through joint intervention last month, but investors say the Japanese currency could resume its decline unless the BOJ tightens policy.
"The yen is certainly salvageable, but it's not a one-way train," said Roosevelt Bowman, senior investment strategist at Bernstein Private Wealth.
"Given that growth and inflation have at least firmed somewhat in Japan, if the BOJ policy was seen as more symmetric, with the central bank pushing against any inflationary pressures, it would help the yen."
Rate increases typically support a currency. The BOJ's next policy meeting is on September 17 and 18.
Dollar hits three-month low as Treasury buyback plans weigh
The dollar fell to a three-month low against the euro on Friday as concerns mounted that the U.S. Treasury's plan to expand buybacks of longer-dated government debt could weigh further on the U.S. currency.
Treasury Secretary Scott Bessent said on Thursday he may increase the government's repurchases of Treasuries further, a day after the department surprised markets by pledging to at least double the size of its buybacks of longer-dated debt in an effort to rein in bond yields.
Long-dated yields jumped this week, with the 30-year yield reaching its highest level since 2007. Traders cited concerns over the deteriorating fiscal outlook, heavy issuance, geopolitical risk stemming from the war with Iran, and uncertainty over the Federal Reserve's policy path.
Analysts say that holding yields down will simply shift the burden of fiscal concerns onto the currency. And so far the strategy has not achieved its primary goal, as yields have crept back higher.
"Bessent’s efforts to suppress U.S. yields haven't done much for U.S. yields, but it's undermined the dollar," said Marc Chandler, chief market strategist at Bannockburn Global Forex. "The market is pushing back."
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