The dollar was on track on Friday to post its biggest weekly gain since October, supported by a series of better-than-expected economic data and a more hawkish tone from the Federal Reserve, as tensions between the United States and Iran continued to rise.

The dollar index, which measures the US currency against a basket of major currencies, edged higher on Friday and was heading for a weekly gain of around 1.1%.

Labor market data supported the dollar in the previous session, as the number of Americans filing new claims for unemployment benefits fell by more than expected last week, confirming continued stability in the labor market.

Earlier in the week, minutes from the Federal Reserve’s latest meeting showed that policymakers remain divided on the path of interest rates amid persistent inflationary pressures.

Dominic Bunning, Head of G10 FX Strategy at Nomura, said: “Between relatively strong data and a less dovish tone from the Fed in the minutes, along with some tensions in the Middle East and a degree of investor repositioning, it is understandable why the dollar has managed to rebound.”

Investors often turn to the dollar during periods of escalating geopolitical tension.

Markets positioning for risk

US President Donald Trump warned Iran on Thursday that it must reach an agreement on its nuclear program or face “very bad things,” giving Tehran a deadline of 10 to 15 days to cooperate. Iran said it would respond against US bases in the region if attacked.

Derek Halpenny, Head of Research for Global Markets EMEA at MUFG, said: “With the military buildup in the Middle East and Trump’s comments, I think markets will definitely position for the possibility that something could happen over the weekend.”

He added that any jump in crude oil prices could leave several currencies exposed to pressure, including the euro, Japanese yen, and British pound.

“These are the currencies that could see larger moves,” he said.

Sterling stabilized near a one-month low at $1.3455 and was on track for a weekly loss of 1.4%, its largest since January 2025.

The euro fell by 0.1% to $1.1760 and was heading for a weekly decline of nearly 0.9%, also weighed by uncertainty surrounding European Central Bank President Christine Lagarde’s term.

Interest rates

Markets are awaiting the release later on Friday of the US core personal consumption expenditures price index and preliminary fourth-quarter gross domestic product data, which could determine the next direction for currencies.

Investors are still pricing in about two rate cuts by the Federal Reserve this year, although the probability of a June cut has slipped to around 58% from 62% a week earlier, according to the CME Group FedWatch tool.

Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, said: “The main debate within the Fed is whether rates should be cut preemptively to support the labor market, or kept higher for longer to fight inflation.”

He added that Friday’s personal consumption expenditures report “will add to that debate.”

In Japan, data released on Friday showed that annual core consumer inflation slowed to 2.0% in January, the weakest pace in two years.

Abhijit Surya, Chief Economist for Asia-Pacific at Capital Economics, said: “Today’s data will not create a sense of urgency for the Bank of Japan to resume tightening, especially given the weak recovery in activity during the past quarter.”

The Japanese yen fell more than 0.4% to 155.53 against the dollar.

The currency showed little reaction to a speech by Japanese Prime Minister Sanae Takaichi on Friday, in which she stressed her government’s commitment to reviving the economy.

Elsewhere, the New Zealand dollar was on track for a weekly loss of 1.3%, pressured by a more dovish interest rate outlook from the Reserve Bank of New Zealand.

Gold prices rose in European trading on Friday, extending gains for a third consecutive day in a renewed attempt to hold above the $5,000 per ounce level, supported by safe-haven demand amid geopolitical tensions between the United States and Iran.

However, gains in the precious metal were limited by the rise of the US dollar in foreign exchange markets, which has been supported by declining expectations for near-term US interest rate cuts. To reassess those expectations, traders are awaiting a series of important US economic data releases later today.

Price Overview

Gold prices today: gold rose by 0.9% to $5,039.76, up from the opening level of $4,996.62, while recording a session low of $4,982.02.

At Thursday’s settlement, gold prices gained 0.4%, marking a second consecutive daily increase, as the metal continued recovering from a two-week low of $4,841.43 per ounce.

Geopolitical tensions

US President Donald Trump issued a strongly worded warning to Iran, giving it roughly 10 to 15 days to reach a “meaningful agreement” regarding its nuclear program and warning of “serious consequences” in the event of failure.

The warning came after the second round of indirect US-Iran talks concluded with cautious optimism, as Iranian Foreign Minister Abbas Araghchi announced that a “shared understanding on guiding principles” for a potential agreement had been reached.

The political track coincided with the largest US military buildup in the region in two decades, including the approach of the aircraft carrier Gerald Ford, amid reports of plans for “limited” strikes aimed at pressuring Tehran.

US dollar

The dollar index rose by 0.25% on Friday, extending gains for a fifth consecutive session and recording a four-week high at 98.08 points, reflecting continued strength in the US currency against a basket of global currencies.

As is well known, a stronger US dollar makes gold bullion priced in dollars less attractive for buyers holding other currencies.

The rise comes as investors focus on buying the dollar as one of the most attractive opportunities in the foreign exchange market, especially with growing expectations that US interest rates will remain unchanged during the first half of this year.

Federal Reserve minutes

Minutes from the Federal Reserve’s latest meeting, held on January 27–28 and released on Wednesday, showed a divide among policymakers regarding the appropriate path for US interest rates, noting that the new chair, expected to take office in May, may face challenges in pushing through any rate cuts.

The minutes also indicated that some members expect productivity gains to help ease inflationary pressures, although “most participants” warned that the path toward lower inflation could be slow and uneven. Some even suggested that further rate hikes could be considered if inflation remains above target.

US interest rates

Following the above minutes, and according to the CME Group FedWatch tool, pricing for keeping US interest rates unchanged at the March meeting rose from 90% to 95%, while the probability of a 25 basis point rate cut fell from 10% to 5%.

To reprice these expectations, traders are awaiting a series of key US economic releases throughout the day, including fourth-quarter gross domestic product data, December personal consumption expenditures figures, and data from the main sectors of the US economy.

Gold outlook

Brian Lan, Managing Director at Singapore-based dealer GoldSilver Central, said that precious metals are currently consolidating with a slight downward bias, noting that the rebound in the US dollar from recent lows has put some pressure on precious metal prices.

Goldman Sachs said in a note that under its baseline scenario, central bank gold purchases are expected to accelerate, while retail investor demand is likely to increase only in response to Federal Reserve rate cuts, which could push gold prices to $5,400 per ounce by the end of 2026.

SPDR Gold Trust

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose by 3.14 metric tons on Thursday, bringing total holdings to 1,078.75 metric tons, rebounding from 1,075.61 metric tons, which marked the lowest level since January 15.

The euro declined in European trading on Friday against a basket of global currencies, extending its losses for a third consecutive day against the US dollar, trading near a four-week low and heading toward its biggest weekly loss this year. The move comes as investors focus on buying the US currency after expectations for near-term Federal Reserve rate cuts declined.

As inflationary pressures ease on policymakers at the European Central Bank, expectations for at least one European interest rate cut this year have strengthened. To reassess those expectations, investors are awaiting the release of February data on Europe’s key economic sectors later today.

Price Overview

The euro exchange rate today: the euro fell against the dollar by around 0.2% to $1.1750, from an opening level of $1.1773, while recording a session high of $1.1776.

The euro ended Thursday’s trading down 0.1% against the dollar, marking its second consecutive daily loss, and recorded a four-week low of $1.1742 following the release of strong US economic data.

Weekly trading

Over the course of this week’s trading, which officially ends at today’s settlement, the single European currency, the euro, is down by about 1.0% against the US dollar so far, on track for its second weekly loss in the past three weeks and its largest weekly decline since November 2025.

US dollar

The dollar index rose by around 0.2% on Friday, maintaining gains for a fifth consecutive session and trading near a one-month high at 98.07 points, reflecting continued strength in the US currency against a basket of major and secondary currencies.

The rise comes as investors focus on buying the dollar as one of the most attractive opportunities in the foreign exchange market, particularly after strong US economic data and the Federal Reserve minutes reduced expectations for US rate cuts during the first half of this year.

According to the CME Group FedWatch tool, pricing for keeping US interest rates unchanged at the March meeting is currently stable at 95%, while the probability of a 25 basis point rate cut stands at 5%.

To reprice these expectations, investors are awaiting a series of key US economic data releases throughout the day, including fourth-quarter gross domestic product figures, December personal consumption expenditures data, and readings from the main sectors comprising the US economy.

European interest rates

Data released recently in Europe showed a slowdown in headline inflation levels during December, indicating easing inflationary pressures on the European Central Bank.

Following these figures, money markets raised pricing for a 25 basis point interest rate cut by the European Central Bank at its March meeting from 10% to 25%.

Traders also adjusted their expectations from keeping rates unchanged throughout the year to anticipating at least one 25 basis point cut.

Investors are now watching the release of February data from Europe’s key economic sectors throughout the day to reassess the above expectations.

The Wall Street Journal reported that Christine Lagarde intends to complete her term at the European Central Bank.

The Japanese yen declined in Asian trading on Friday against a basket of major and secondary currencies, extending its losses for a second consecutive day against the US dollar and approaching its lowest level in a week. The currency is on track for its biggest weekly loss this year, amid weakening expectations for a Japanese interest rate hike before next September.

The reduced likelihood of near-term monetary tightening in Japan is attributed to the expected expansionary fiscal policies of Prime Minister Sanae Takaichi, in addition to easing inflationary pressures on policymakers at the Bank of Japan.

Price Overview

The Japanese yen exchange rate today: the dollar rose against the yen by 0.2% to 155.31 yen, up from the opening level of 154.99 yen, while recording a session low of 154.87 yen.

The yen ended Thursday’s session down 0.15% against the dollar, marking its second consecutive daily loss, and recorded a one-week low of 155.34 yen, driven by strong Japanese investment spending in the United States.

Weekly trading

Over the course of this week’s trading, which officially concludes at today’s settlement, the Japanese yen has fallen by around 1.75% against the US dollar so far, putting it on track for its largest weekly loss this year, specifically since July 2025.

Core inflation

Data released today in Tokyo showed that Japan’s core consumer price index rose by 2.0% in January, the slowest pace since January 2024, in line with market expectations for a 2.0% increase, compared with a 2.4% rise in December.

These figures clearly indicate continued easing of inflationary pressures on policymakers at the Bank of Japan, reducing the chances of a Japanese interest rate hike during the first half of this year.

Views and analysis

Abhijit Surya, Chief Economist for Asia-Pacific at Capital Economics, said today’s data is unlikely to create a sense of urgency at the Bank of Japan to resume its monetary tightening cycle, particularly amid weak economic activity in the last quarter.

Surya added that if recent weakness proves temporary, and wage growth improves while underlying price pressures remain relatively firm, there is still a strong case for the bank to raise interest rates again in June.

Japanese interest rates

Following the above data, market pricing for a quarter-point interest rate hike by the Bank of Japan at its March meeting dropped from 10% to 3%.

Pricing for a quarter-point rate hike at the April meeting also declined from 50% to 30%.

According to the latest Reuters poll, the Bank of Japan may raise interest rates to 1% in September.

Investors are now awaiting further data on inflation, unemployment, and wage levels in Japan to reassess those expectations.