Yen jumps after Trump flags its weakness; oil eases on Iran deal hopes

The dollar paused on Friday after four straight gains in the Dollar Index, giving back ground against most majors. The yen led the rebound after Japanese officials said President Trump had raised its weakness with Prime Minister Takaichi, and oil eased on reports of a phased US-Iran deal to reopen Hormuz. Long-dated Treasury yields kept climbing all the same.

The yen and the dollar

• USD/JPY touched 159.00 on Thursday, a three-week high, and snapped a five-day winning streak on Friday. It fell below 158.00 after Prime Minister Takaichi said Trump had flagged the yen's weakness at their meeting in New York, a concern Finance Minister Katayama had first relayed in Asian hours. Brown Brothers Harriman noted the comments pushed the pair back below its 200-day moving average, with intervention risk still in view. Japan's 10-year yield hit a 30-year high.
• The dollar gave back part of the week's yield-driven rally, weaker against the euro, yen, pound, franc, Australian and New Zealand dollars, with the Canadian dollar the exception, according to Action Forex, which still had the dollar on track for its first back-to-back weekly gain in more than three months. ING said rising back-end yields and risk-off sentiment were helping consolidate those gains, even if they look stretched against short-term fundamentals.
• Yields did not follow the dollar lower. The 10-year yield held near 5.20%, just off its 19-year peak of 5.228%, while the 30-year hit a 22-year high; only the short end and the belly retreated.
• The pound fell to 1.3203, a three-month low, before trimming its weekly losses with a gain of about 0.2% as the dollar paused. Bank of England Governor Andrew Bailey said the pass-through from higher energy prices was still "quite subdued", but that persistently high energy prices could eventually make it harder to keep rates unchanged.
• The euro steadied near 1.1380 and edged higher later in the day, though Federal Reserve hike bets and high oil left it on course for a third straight weekly decline; the Canadian dollar headed for another weekly decline.

Oil and metals

• Brent edged lower on reports that the US and Iran are exploring a phased path that would reopen the Strait of Hormuz, but stayed well above $100: Action Forex's Friday afternoon note put its nearest support at $104.14. Iran also offered to reopen the strait within seven days of Washington accepting its terms, and by midday in New York Washington had not replied. WTI slid from Thursday's high near $96.00 to around $91.00.
• Gold snapped a two-day losing streak, trading around $4,305 after Thursday's one-week low of $4,244, but slipped back below $4,300 at times and stayed on course for a weekly decline.
• Silver rose 1.85% to near $65.00 in the European session as the dollar paused, then settled around $64.30, still on track for a weekly loss.

Data and geopolitics

• The final University of Michigan consumer sentiment reading for September came in at 48.1, up from the preliminary 47.8 and above expectations, but well below August's 51.7.
• Xi Jinping's state visit to the White House concluded with the trade truce extended and no fresh escalation, though InvestingLive noted it left the biggest market questions unresolved; Xi pressed Trump to oppose Taiwan independence.

Market gauges and what's next

Our proprietary metrics at the close of the session:

• Readings: an MRS of 62, a CTS of 71, and an FSI indicating Greed at 69.
• Top of our strength index: the Swiss franc, for 20% of the session's minutes.
• Bottom: the yen, for 27% — on the day it gained on the dollar, because the table counts minutes spent in each place, not the session's net move.
• The dollar: the fewest minutes on top of all eight majors, 96 of 1,421.
• Last week's test: last week's wrap asked whether the dollar could reach the top half of that table on any session. Across this week's five, it did once, on Tuesday, and finished seventh or eighth in the other four.

Next week: Action Forex's preview lines up key US data and Fed speakers, eurozone inflation, a Reserve Bank of Australia decision and Chinese PMIs.