The dollar was heading for a third consecutive weekly gain on Friday, after positive US economic data reduced expectations that the Federal Reserve would cut interest rates anytime soon.

The US currency rose overnight following an unexpected drop in weekly jobless claims, before stabilizing in Asian morning trading. At the same time, the Japanese yen remained at levels that keep the risk of intervention by Japanese authorities in currency markets to defend the currency in focus.

Federal funds futures pushed back expectations for the first interest rate cut to June, supported by improving employment data and as central bank policymakers voiced concerns about inflation.

Kyle Rodda, an analyst at Capital.com, wrote in a note: “The US dollar appears stronger at the start of the year. Weekly US jobless claims data, along with some manufacturing sector surveys, came in better than expected, which reduced the implied probabilities of an imminent interest rate cut by the Federal Reserve.”

The dollar index, which measures the US currency against a basket of currencies, was steady at 99.22 points, little changed on the day, but on track for weekly gains of about 0.1%. The euro was also steady at $1.1619.

The Japanese yen rose 0.4% against the dollar to 158.09 per dollar.

The US Department of Labor said on Thursday that initial jobless claims at the state level fell by 9,000 to 198,000 on a seasonally adjusted basis in the week ended January 10. Economists polled by Reuters had expected 215,000 claims in the latest week.

Chicago Federal Reserve President Austan Goolsbee said on Thursday that with ample evidence of labor market stability, the central bank should focus on bringing inflation down.

In the same vein, Kansas City Federal Reserve President Jeff Schmid described inflation as “too high,” while San Francisco Federal Reserve President Mary Daly said incoming US economic data appear encouraging.

Separately, Philip Lane, Chief Economist at the European Central Bank, said the ECB would not discuss any change in interest rates in the near term if the economy remains on its current path, but warned that new shocks — such as a potential deviation by the Federal Reserve from its mandate — could cloud the outlook.

The ECB has kept interest rates unchanged since ending a rapid easing cycle in June, and signaled last month that it is in no rush to adjust monetary policy again.

The Japanese yen has come under pressure amid expectations that Prime Minister Sanae Takaichi may have greater scope to pursue more expansionary fiscal policies, with early elections expected at the start of next month. However, warnings from Japanese policymakers that they are prepared to act against one-way moves in foreign exchange markets have provided the yen with temporary bouts of support.

The Japanese yen rose against the dollar on Friday after Japan’s Finance Minister Satsuki Katayama said Tokyo would not rule out any options to counter yen weakness, including coordinated intervention with the United States.

The yen had earlier this week fallen to its lowest level in a year and a half. It was last up 0.3% at 158.13 per dollar, though it remains on course to record a third consecutive weekly loss against the US currency.

The dollar index, which measures the US currency against a basket of peer currencies, was heading for a third straight weekly gain, after positive US economic data pushed back expectations for interest rate cuts by the Federal Reserve.

Katayama said the joint statement signed with the United States last September “was extremely important and included language related to intervention.”

Japanese markets are in a wait-and-see mode ahead of a pivotal week in which Prime Minister Sanae Takaichi, known for her accommodative fiscal stance, is expected to dissolve parliament ahead of early elections, while the central bank meets to discuss monetary policy. Sources told Reuters that some policymakers at the Bank of Japan see room to raise interest rates sooner than markets currently expect, in order to counter yen weakness.

The Japanese currency has weakened this week amid expectations that Takaichi would have greater latitude to roll out additional stimulus measures, with early elections expected at the start of next month.

Shinichiro Kadota, Head of FX and Rates Strategy for Japan at Barclays in Tokyo, said: “Reports of the dissolution of the lower house are adding pressure to the yen, and we have extended our target for long positions in dollar/yen, but the risk of potential intervention could cap the upside.”

Barclays said in a note that Japan’s ruling Liberal Democratic Party could face a tough election as the opposition strengthens coordination, adding that monetary policy could shift not only depending on the election outcome, but also on developments in the foreign exchange market.

The dollar supported by data

The dollar index’s advance paused on Friday, with the currency slipping 0.07% to 99.28 points, though it remains on track for weekly gains of around 0.15%.

The dollar rose on Thursday after data showed US weekly jobless claims unexpectedly declined, a move seen as reflecting difficulties in adjusting the data for seasonal fluctuations.

Federal funds futures also pushed back expectations for the first rate cut to June, supported by improved employment data and as central bank policymakers voiced concerns over inflation.

Elsewhere, Philip Lane, Chief Economist at the European Central Bank, said the ECB would not discuss any change in interest rates in the near term if the economy stays on its current path, but warned that new shocks — such as a potential deviation by the Federal Reserve from its mandate — could disrupt expectations.

The ECB has kept interest rates unchanged since ending a rapid easing cycle in June, and signaled last month that it is in no hurry to adjust monetary policy again.

The euro was steady at $1.16120, on track to post a third consecutive weekly loss against the US dollar, after falling on Thursday to its lowest level versus the dollar since early December.

Gold prices fell in European markets on Friday, extending losses for a second consecutive day and pulling back from record highs, amid ongoing correction and profit-taking, alongside negative pressure from the rise of the US dollar against a basket of global currencies.

Despite this pullback, the precious metal is on track to post a second consecutive weekly gain, supported by safe-haven buying amid escalating global geopolitical tensions.

Price Overview

• Gold prices today: Gold prices fell by about 0.55% to $4,591.46, from the session opening level of $4,616.13, after recording a high of $4,621.08.

• At Thursday’s settlement, the precious metal lost 0.3%, due to correction and profit-taking, after hitting an all-time high the previous day at $4,643.02 per ounce.

The US dollar

The dollar index rose by 0.1% on Friday, maintaining gains for a second consecutive session and trading near a one-and-a-half-month high, reflecting continued strength in the US currency against a basket of global currencies.

This rise comes as investors focus on buying the US dollar as the best available investment, especially amid a series of strong US economic data releases that have reduced expectations for two US interest rate cuts this year.

Kyle Rodda, an analyst at Capital.com, said the US dollar appears stronger at the start of the year. He noted that weekly US jobless claims data, along with some manufacturing sector surveys, came in better than expected, reducing the likelihood of an imminent interest rate cut by the Federal Reserve.

US interest rates

• Donald Trump welcomed the inflation figures released this week and renewed his call for Federal Reserve Chair Jerome Powell to cut interest rates “significantly.”

• According to the CME FedWatch tool from the CME Group, pricing for the probability of keeping US interest rates unchanged at the January 2026 meeting currently stands at 95%, while pricing for a 25-basis-point rate cut remains at 5%.

• Investors are currently pricing in two US interest rate cuts over the coming year, while Federal Reserve projections point to a single 25-basis-point cut.

• To reprice these expectations, investors are closely monitoring upcoming US economic data releases, as well as comments from Federal Reserve officials.

Outlook for gold

Kyle Rodda of Capital.com said the decline in gold prices began mainly as expectations of US intervention in Iran’s social unrest faded, while incoming US data indicate no urgent need to cut interest rates.

Weekly performance

Over the course of this week’s trading, which officially ends at today’s settlement, gold prices are up by about 1.85%, on track to record a second consecutive weekly gain, supported by demand for the metal as a safe haven amid rising global geopolitical tensions.

SPDR fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose by about 0.57 metric tons on Thursday, bringing the total to 1,074.80 metric tons — the highest level since June 17, 2022.

The euro edged slightly lower in European markets on Friday against a basket of global currencies, extending its losses for a second consecutive day against the US dollar and heading toward a six-week low. The single currency is on track for a third straight weekly loss, after strong US labor market data supported buying of the American currency as the best available investment.

The European Central Bank’s chief economist warned of the risk of new shocks that could negatively affect economic forecasts and create financial difficulties that may influence the path of monetary policy in the euro area.

With inflationary pressures on ECB policymakers easing, expectations for at least one European interest rate cut this year have picked up.

Price Overview

• Euro exchange rate today: The euro fell against the dollar by about 0.1% to $1.1602, from the session opening level of $1.1608, after recording a high of $1.1614.

• The euro ended Thursday’s trading down 0.3% against the dollar, hitting a six-week low at $1.1593, following the release of strong US economic data.

Weekly performance

Over the course of this week’s trading, which officially ends at today’s settlement, the single European currency is down by about 0.3% against the US dollar, on track for a third consecutive weekly loss.

The US dollar

The dollar index rose by 0.1% on Friday, maintaining gains for a second straight session and trading near a one-and-a-half-month high, reflecting continued strength in the US currency against a basket of major and secondary currencies.

This rise comes as investors focus on buying the US dollar as the best available investment, especially amid a string of strong US economic data that have reduced expectations for two US interest rate cuts this year.

Kyle Rodda, an analyst at Capital.com, said the US dollar appears stronger at the start of the year. He noted that weekly US jobless claims data, along with some manufacturing sector surveys, came in better than expected, reducing the likelihood of an imminent interest rate cut by the Federal Reserve.

Chief economist

Philip Lane, Chief Economist at the European Central Bank, warned that any “potential deviation” by the US Federal Reserve from its core mandate could have a significant negative impact on global economic expectations.

Lane stressed that central bank independence is critically important, warning that new shocks stemming from political interference in US monetary policy could create uncertainty and unnecessary risk premiums in global markets, potentially forcing the ECB to reassess its future stance on interest rates.

European interest rates

• Data released last week showed a slowdown in headline inflation in Europe in December, pointing to easing inflationary pressures on the European Central Bank.

• Following those data, money market pricing for the probability of the ECB cutting European interest rates by about 25 basis points in February rose from 10% to 25%.

• Traders revised their expectations from the ECB keeping interest rates unchanged throughout this year to at least one rate cut of around 25 basis points.

• To reprice these expectations, investors are awaiting further euro area economic data on inflation, unemployment, and wages.