The US dollar is on track to post its largest weekly decline in nearly 12 weeks after weak US employment data prompted markets to scale back expectations of a near-term Federal Reserve interest rate hike, providing some relief for the Japanese yen, which has been under heavy pressure in recent months.

The euro climbed close to a two-week high of $1.1446, posting weekly gains of around 0.5%, while the British pound rose to $1.3355, up 1.1% for the week and on track for its strongest performance in nearly three months.

The Japanese yen also benefited from dollar weakness, strengthening to below ¥161 per dollar. However, markets remained alert to the possibility of intervention by Japanese authorities following Thursday’s sharp rebound, which helped the currency recover from its 40-year low of ¥162.84 per dollar.

US job growth slows sharply

The dollar came under pressure after US labor market data showed a significant slowdown in job creation during June, while employment figures for the previous two months were revised lower.

The data led investors to reduce expectations for a near-term Federal Reserve rate hike.

Markets are now pricing in roughly a 45% probability of a rate increase at the September meeting, according to the CME FedWatch Tool. US Treasury yields also declined, with the two-year yield — the most sensitive to monetary policy expectations — falling by four basis points after three consecutive days of gains. US bond markets were closed on Friday for the Independence Day holiday.

Karl Steiner, Head of Research at SEB, said:

“We do not expect a rate hike, so these figures support our view that the dollar will eventually weaken. I would not be surprised to see further downside from here.”

The US Dollar Index, which measures the greenback against a basket of major currencies, fell around 0.2% to 100.77 points after declining 0.5% on Thursday. The index is now down about 0.6% for the week, marking its largest weekly loss since early April.

Japanese intervention concerns remain

Despite the yen’s recovery from its four-decade lows, investors remain cautious about the possibility of intervention by Japanese authorities, particularly given the lower market liquidity caused by the US Independence Day holiday.

Steiner said:

“The risk of intervention should remain on traders’ radar, as Japanese authorities have historically preferred to act when liquidity is thin.”

Japan renewed its warnings about excessive currency moves on Friday, with Finance Minister Satsuki Katayama stating that Tokyo remains in close contact with Washington regarding foreign exchange issues and stands ready to support the yen if necessary.

Chief Cabinet Secretary Minoru Kihara also said the government is monitoring market developments closely and with a high degree of vigilance.

Investors are increasingly concerned that Japanese authorities may have abandoned their traditional approach of verbally signaling intervention beforehand, opting instead for a more targeted strategy aimed at squeezing speculators and increasing the cost of betting against the yen.

Tony Sycamore, market analyst at IG, said the dollar’s rise to a 40-year high against the yen could prove to be a short-term peak. However, he noted that the medium-term direction will ultimately depend on upcoming US economic data and developments in Japan’s government bond market.

Gold prices rose in European trading on Friday, extending gains for a third consecutive session and reaching their highest level in nearly two weeks. The metal is on track for its strongest weekly gain since March, supported by a weaker US dollar in the foreign exchange market.

Softer-than-expected US employment data, along with less hawkish remarks from Federal Reserve Chair Kevin Warsh, reduced expectations that the Fed will raise interest rates again this year.

The Price

• Gold prices rose 1.75% to $4,195.47 per ounce, the highest level since June 23, from an opening level of $4,123.15. The session low was recorded at $4,121.29.

• At Thursday’s settlement, gold gained 2.3%, marking a second consecutive daily advance as prices continued to recover from a seven-month low of $3,942.55 per ounce.

Weekly Performance

For the week, which officially ends at today’s settlement, gold prices are up more than 2.5% and are on track to post their first weekly gain in five weeks, as well as their strongest weekly advance since March.

US Dollar

The US Dollar Index fell 0.25% on Friday, extending losses for a second consecutive session and trading near a two-week low of 100.56 points, reflecting continued weakness in the US currency against a basket of global currencies.

A weaker dollar makes dollar-denominated gold more attractive for buyers holding other currencies.

June’s modest US employment report pushed markets to reduce expectations for further Federal Reserve rate hikes, while investors continue to await stronger evidence on the policy outlook.

US Jobs

US job growth slowed sharply in June, with nonfarm payrolls increasing by just 57,000 jobs, well below expectations for a gain of 110,000.

The labor force participation rate also fell to 61.5%, its lowest level in more than five years.

Kevin Warsh

Federal Reserve Chair Kevin Warsh said on Wednesday that inflation expectations and price risks had eased in recent weeks, while stressing that he remains firmly committed to the central bank’s 2% inflation target.

US Interest Rates

• Following the jobs data and Warsh’s remarks, CME FedWatch pricing showed that the probability of the Federal Reserve leaving interest rates unchanged at its July meeting rose from 66% to 82%, while the probability of a 25-basis-point rate hike fell from 34% to 18%.

• Market expectations for unchanged rates at the December meeting also rose from 15% to 22%, while the probability of a quarter-point hike declined from 85% to 78%.

Gold Outlook

Kelvin Wong, market analyst for Asia-Pacific at OANDA, said the market is currently repricing the likelihood of additional Federal Reserve rate hikes through the rest of this year and into the first quarter of next year, mainly because of the relatively weak US labor market data released on Thursday.

Wong added that rate-hike expectations have not disappeared entirely from market pricing. If the possibility of higher rates remains in place until year-end, gold could face another wave of weakness, with prices potentially falling toward $3,500 per ounce.

SPDR Gold Trust

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell by 3.99 metric tons on Thursday, bringing total holdings down to 1,001.37 metric tons, the lowest level since September 24, 2025.

The euro advanced against a basket of major and minor currencies during European trading on Friday, extending its gains against the US dollar for a second consecutive session and moving closer to posting a weekly gain.

The single currency has been supported by renewed weakness in the US dollar following softer-than-expected US employment data, which reduced expectations that the Federal Reserve will raise interest rates later this year.

Investors are also closely watching remarks from European Central Bank President Christine Lagarde later today for fresh clues about inflation trends and the outlook for monetary policy in the eurozone.

The Price

• EUR/USD rose 0.1% to $1.1445 from an opening level of $1.1432, after touching an intraday low of $1.1421.

• The euro gained 0.5% against the dollar on Thursday, recording its first daily advance in three sessions and its strongest one-day gain since May, following the release of weaker-than-expected US employment figures.

Weekly Performance

As of Friday’s trading, the euro is up approximately 0.55% against the US dollar for the week and is on track to record its first weekly gain in the past three weeks.

US Dollar

The US Dollar Index fell 0.1% on Friday, extending losses for a second straight session and trading near a two-week low of 100.56 points, reflecting continued weakness in the greenback against a basket of major currencies.

June’s disappointing US employment report prompted markets to scale back expectations for additional Federal Reserve tightening, although investors continue to await further economic data for confirmation.

US job growth slowed sharply in June, with nonfarm payrolls increasing by just 57,000 jobs, well below market expectations for a gain of 110,000. Meanwhile, the labor force participation rate fell to 61.5%, its lowest level in more than five years.

Following the report, CME FedWatch pricing showed that the probability of the Federal Reserve leaving interest rates unchanged at its July meeting increased from 71% to 82%, while the probability of a 25-basis-point rate hike fell from 29% to 18%.

Market expectations for unchanged rates at the December meeting also rose from 15% to 22%, while the probability of a quarter-point hike declined from 85% to 78%.

European Interest Rates

• ECB President Christine Lagarde said on Wednesday in Sintra, Portugal, that risks surrounding inflation and economic growth in the eurozone had become more balanced than they were a few weeks ago, helped by the recent decline in oil prices.

• Official eurozone inflation data showed a larger-than-expected slowdown in consumer price growth during June, supported by lower fuel prices following the end of the Iran conflict.

• Following those comments and inflation figures, money markets reduced the probability of a 25-basis-point ECB rate hike in July from 30% to just 5%.

• Investors are now awaiting additional eurozone data on inflation, unemployment, and wage growth to reassess the outlook for monetary policy.

Christine Lagarde

At 08:00 GMT, ECB President Christine Lagarde is scheduled to deliver a speech at the Aix-en-Provence Economic Meetings in France.

Her remarks may provide further insight into inflation developments across the eurozone and the ECB’s outlook for interest rates during the remainder of the year.

The Japanese yen weakened against a basket of major and minor currencies during Asian trading on Friday, resuming its losses against the US dollar after a brief recovery in the previous session as traders engaged in profit-taking activity.

Despite the latest decline, the Japanese currency remains on track to post its first weekly gain in two months, supported by a rebound from its lowest levels in 40 years and renewed warnings from Japanese officials over excessive movements in the foreign exchange market.

The Price

• USD/JPY rose 0.25% to ¥161.52 from an opening level of ¥161.10, after touching an intraday low of ¥160.92.

• The yen gained 0.9% against the dollar on Thursday, marking its first daily advance in four sessions and its strongest one-day gain since May, as traders bought the currency after it fell to a 40-year low of ¥162.84.

• Supported by bargain buying, the yen climbed to a two-week high of ¥160.62. The move was also fueled by speculation about potential intervention by the Bank of Japan in the foreign exchange market and weaker-than-expected US employment data.

Weekly Performance

As of Friday’s trading, the yen is up around 0.25% against the US dollar for the week and is on track to record its first weekly gain since May.

Japanese Authorities

The yen’s slide to a 40-year low has revived speculation that Japanese authorities could return to the market after spending a record ¥11.7 trillion ($73.5 billion) in April and May to support the currency against excessive volatility.

Investors remain alert to the possibility of intervention after Japanese officials shifted away from their usual strategy of signaling intervention in advance, opting instead for a more targeted approach aimed at increasing pressure on speculators and raising the cost of betting against the yen.

Toshihiro Nagahama, a government adviser and member of an official policy panel, said on Thursday that the Bank of Japan should continue raising interest rates gradually to help curb excessive weakness in the yen.

Japanese Finance Minister Satsuki Katayama also reiterated on Friday that the government stands ready to respond appropriately to currency movements, renewing official warnings as traders monitor the possibility of intervention.

“Our position has not changed. We will respond appropriately whenever necessary,” Katayama told reporters, adding that Japan remains in close contact with US authorities regarding foreign exchange issues, including during US public holidays.

Views and Analysis

• Kristy Tan, Chief Global Investment Strategist at Franklin Templeton Institute, said intervention could slow the pace of the yen’s decline, curb excessive speculation, and signal policymakers’ concerns, but it would not fundamentally change market dynamics.

• Tan added that as long as investors can borrow cheaply in yen and invest in higher-yielding US assets, carry trades will continue to pressure the Japanese currency.

• Traders view Friday’s US market holiday as a potential opportunity for the Bank of Japan to intervene, as thinner liquidity conditions could amplify the impact of any currency-buying operation while reducing its cost.

Japanese Interest Rates

• Market pricing currently implies less than a 25% probability that the Bank of Japan will raise interest rates by a quarter percentage point at its July meeting.

• Investors are awaiting additional data on inflation, wages, and unemployment in Japan to reassess those expectations.