US Dollar Retreats on Oil Pullback but Logs Second Straight Weekly Gain; Yen Rallies

The Quick Take

• The US dollar fell on Friday September 25 but tracked toward its second consecutive weekly gain against major currencies
• Yen rallied as oil prices cooled, reducing one source of imported inflation pressure on the Japanese economy
• The dollar's weekly performance reflects sustained divergence between Fed policy expectations and other major central banks

The US dollar declined on Friday September 25, 2026, weighed by a pullback in crude oil prices that reduced commodity-driven inflation expectations. Despite the daily move, the dollar was on track for its second straight weekly gain, reflecting the underlying strength of US interest rate differentials against the euro, yen, and other major currencies. The yen's intraday rally coincided with easing oil prices, as lower energy costs reduce imported inflation pressures on Japan's current account and lessen pressure on the Bank of Japan to intervene in currency markets.

The dollar's back-to-back weekly gains signal a renewed consensus that the Federal Reserve will hold rates higher for longer relative to other G10 central banks, reinforcing the interest rate differential that has been the primary driver of USD strength across 2026. For exporters in Asia, a strong dollar and weaker local currencies pressures margins on non-USD cost bases. Japanese exporters such as Toyota and Sony benefit from a weaker yen at the operating level, but the yen's Friday rally may reflect short-covering after an extended weakening trend rather than a fundamental shift in the BOJ-Fed divergence.

Watch the Federal Reserve's upcoming policy statement for any language changes on rate path duration — a longer-higher signal would extend the dollar's weekly gain run and maintain pressure on yen, euro, and EM currencies. The macro variable is crude oil: a sustained fall below $80 per barrel would reduce inflationary pressure globally, giving non-Fed central banks more room to ease and compressing the rate differential that drives dollar strength. September US non-farm payrolls data, due in early October, is the next major catalyst for dollar positioning.

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