The US dollar fell against most major currencies on Friday as expectations for additional Federal Reserve rate hikes eased slightly following the latest economic data and lower oil prices, allowing the Japanese yen — which remains in a zone that could trigger official intervention — to regain some strength.

Despite the decline, the dollar remained on track to end the week higher and was still heading for its strongest monthly performance since July 2025, with gains of just over 2.3%.

Data released on Thursday showed that one of the key US inflation indicators came in line with economists’ expectations. At the same time, oil prices fell more than 3% on Friday, helping cool market expectations for further interest rate increases.

Dollar selling is expected to remain limited for now, as investors continue to focus on interest rate differentials among major economies. Traders still expect the Federal Reserve to raise rates given the strength of the US economy, while lower energy prices have pushed back expectations for near-term policy moves by institutions such as the European Central Bank.

“We’ve seen some profit-taking, perhaps related to month-end flows, but I think the current dollar move could extend a little further,” said Nick Kennedy, FX strategist at Lloyds Bank in London.

“Overall, interest rate differentials are once again driving market movements,” he added.

The US Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.3% to 101.19 after gaining momentum during the European session in London.

The index had already pulled back slightly from the more-than-one-year high reached earlier this week.

The euro rose about one-third of a percent to $1.13321, while sterling gained 0.25% to $1.3219.

US money markets are fully pricing in a 25-basis-point Federal Reserve rate hike by the end of the year.

Japanese yen remains in the danger zone amid intervention concerns

The Japanese yen rose 0.1% against the dollar to ¥161.60 per dollar after weakening to a two-year low of ¥161.95 on Thursday. A move beyond ¥161.96 would place the Japanese currency at its weakest level since 1986.

Many market participants view a move beyond ¥160 per dollar as a red line for Japanese officials that could trigger intervention in the foreign exchange market.

Several banks rushed to revise their forecasts for the timing of the next Bank of Japan rate hike after data released on Friday showed Tokyo core inflation accelerated in June, providing additional support for the yen.

Kamal Sharma, Head of G10 FX Strategy at Bank of America, said there are reasonable arguments for why Japanese authorities have not intervened so far.

“The yen is not the currency experiencing the most significant move. By G10 standards, we have not seen particularly sharp or excessive moves specifically tied to the yen,” Sharma said.

He added: “The market is positioned short yen, but the pace of the move may not yet justify intervention.”

USD/JPY has risen only 0.17% so far this week.

In other currency markets, the Australian dollar slipped 0.14% to US$0.6901.

Meanwhile, Bitcoin edged up 0.2% to $59,481, trimming earlier gains after falling earlier this week to its lowest level since September 2024.

Gold prices rose in European trading on Friday, extending their recovery for a second consecutive session from seven-month lows, supported by bargain buying around the $4,000-an-ounce level and the current slowdown in the US dollar.

US inflation data came broadly in line with expectations, while mixed comments from Federal Reserve officials reduced the likelihood of US interest rate hikes later this year.

The Price

• Gold prices today: Gold rose 0.6% to $4,050.77 an ounce, from an opening level of $4,026.14, after touching an intraday low of $3,983.15.

• At Thursday’s settlement, gold gained 0.7%, its first advance in the past three sessions, as part of a rebound from a seven-month low of $3,959.49 an ounce.

Weekly performance

So far this week, which officially concludes with today’s settlement, gold prices are down around 2.5% and are on track to post a fourth consecutive weekly loss.

US dollar

The US Dollar Index fell 0.25% on Friday, extending losses for a second straight session and moving further away from a 13-month high, reflecting continued weakness in the greenback against a basket of major and minor currencies.

A weaker US dollar makes dollar-denominated gold bullion more attractive to holders of other currencies.

In addition to ongoing profit-taking, the dollar softened after US inflation data matched expectations, while Federal Reserve officials delivered mixed signals about the path of monetary policy this year.

Chicago Federal Reserve President Austin Goolsbee said there is a “glimmer of hope” regarding services inflation, though underlying price pressures remain too elevated and are moving in the wrong direction.

Meanwhile, New York Federal Reserve President John Williams said inflation remains too high and that interest rate policy is “well positioned” to reduce price pressures.

US interest rates

• Following the inflation data and Federal Reserve comments, CME Group’s FedWatch Tool showed that markets increased the probability of the Federal Reserve leaving interest rates unchanged at its July meeting from 66% to 72%, while the probability of a 25-basis-point rate hike fell from 34% to 28%.

• Markets also raised the probability of no change in interest rates at the December meeting from 16% to 23%, while the probability of a 25-basis-point rate increase declined from 84% to 77%.

• To reassess those expectations, investors are closely monitoring upcoming US economic data as well as additional comments from Federal Reserve officials.

Gold outlook

David Meger, Director of Metals Trading at High Ridge Futures, said the Personal Consumption Expenditures (PCE) data appeared largely in line with expectations, which is one reason gold prices have remained relatively stable today.

Meger added that inflation pressures will remain the key theme in the period ahead, and that this is one of the reasons behind gold’s decline over recent sessions.

SPDR

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell by 6.28 metric tons on Thursday, marking a third consecutive daily decline and bringing total holdings down to 1,007.08 metric tons, the lowest level since September 26, 2025.

The euro rose in European trading on Friday against a basket of global currencies, extending its recovery for a second consecutive session from a 13-month low against the US dollar, supported by bargain buying and a softer US currency following mixed comments from Federal Reserve officials.

Latest economic estimates suggest that lower oil prices are helping ease inflationary pressures on policymakers at the European Central Bank, reducing the likelihood of another European interest rate increase later this year.

The Price

• Euro exchange rate today: The euro rose around 0.1% against the US dollar to $1.1377, up from an opening level of $1.1369, after touching an intraday low of $1.1354.

• The euro ended Thursday’s session up 0.1% against the dollar, its first gain in four sessions, after hitting a 13-month low of $1.1325 the previous day.

Weekly performance

So far this week, which officially concludes with today’s settlement, the single European currency is down around 0.8% against the US dollar and is on track to post a second consecutive weekly loss due to the Federal Reserve’s hawkish outlook.

US dollar

The US Dollar Index fell around 0.1% on Friday, extending losses for a second straight session and moving further away from a 13-month high, reflecting continued easing in the greenback against a basket of major currencies.

In addition to ongoing profit-taking, the dollar weakened after US inflation data came in line with expectations, while Federal Reserve officials delivered mixed signals regarding the path of monetary policy this year.

Chicago Federal Reserve President Austin Goolsbee said there is a “glimmer of hope” regarding services inflation, though underlying price pressures remain too elevated and are moving in the wrong direction.

Meanwhile, New York Federal Reserve President John Williams said inflation remains too high and that interest rate policy is “well positioned” to reduce price pressures.

Global oil prices

Global oil prices fell more than 1.5% on Friday, resuming losses that were temporarily halted in the previous session, and are on track to test four-month lows amid expectations of smoother crude flows through the Strait of Hormuz.

Lower oil prices help ease concerns about accelerating inflation, reinforcing the case for the European Central Bank to leave monetary policy settings unchanged for an extended period this year.

European interest rates

• Reports: The European Central Bank is considering pausing monetary policy normalization in July if energy prices remain at current levels.

• Money markets currently price the probability of a 25-basis-point ECB rate hike in July at around 30%.

• Investors are awaiting additional eurozone data on inflation, unemployment, and wage growth to reassess those expectations.

The Japanese yen rose in Asian trading on Friday against a basket of major and minor currencies, as it attempted to recover from a two-year low against the US dollar amid notable buying interest at depressed levels.

The two-year low now sits just one point away from the yen’s weakest levels since 1986, prompting the currency to move away from those levels as Japanese authorities maintain close scrutiny of the foreign exchange market and continue warning of possible intervention to curb excessive weakness and volatility.

The Price

• Japanese yen exchange rate today: The US dollar fell more than 0.1% against the yen to ¥161.60, from an opening level of ¥161.78, after reaching an intraday high of ¥161.853.

• The yen ended Thursday’s session little changed against the dollar after earlier touching a two-year low of ¥161.94, just one point away from its 40-year low of ¥161.95.

Weekly performance

So far this week, which officially concludes with today’s settlement prices, the Japanese yen is down 0.25% against the US dollar and is on track to post a second consecutive weekly loss.

US dollar

The US Dollar Index fell around 0.1% on Friday, extending losses for a second straight session and moving further away from a 13-month high, reflecting continued easing in the greenback against a basket of major currencies.

In addition to ongoing profit-taking, the dollar weakened after US inflation data came in line with expectations, while Federal Reserve officials delivered mixed signals regarding the path of monetary policy this year.

Chicago Federal Reserve President Austin Goolsbee said there is a “glimmer of hope” regarding services inflation, though underlying price pressures remain too elevated and are moving in the wrong direction.

Meanwhile, New York Federal Reserve President John Williams said inflation remains too high and that interest rate policy is “well positioned” to continue reducing price pressures.

Japanese authorities

Japanese authorities are closely monitoring movements in the currency market, particularly as the yen approaches its weakest level in 40 years after breaking above the key ¥160-per-dollar threshold, a level widely viewed as a red line that could trigger renewed intervention to support the currency.

Earlier this week, Japanese Finance Minister Satsuki Katayama held an online meeting with US Treasury Secretary Scott Bessent amid growing concerns about sharp currency volatility.

According to sources cited by Reuters, the discussions focused on proposed measures to address the yen’s historic weakness, including the possibility of intervention in the foreign exchange market.

Katayama stressed that Japanese authorities are fully prepared to take decisive action and intervene directly in the currency market at any time to protect the yen from speculative moves.

Views and analysis

• Matt Simpson, Senior Market Analyst at StoneX, said Japan’s Ministry of Finance may be concerned about USD/JPY rising to its highest level of 2024.

• Simpson added that policymakers may also feel powerless to act, as intervention against a hawkish Federal Reserve and strong US economic data could prove costly and ineffective.

• Former Bank of Japan board member Sayuri Shirai said the yen could weaken to ¥165 per dollar if the Federal Reserve raises interest rates later this year.

Tokyo core inflation

Data released in Japan on Friday showed Tokyo core consumer prices rose 1.6% in June, matching market expectations and accelerating from 1.3% in May.

Despite the improvement, inflation remains below the Bank of Japan’s 2% target, highlighting continued weakness in underlying price pressures and reducing the likelihood of further interest rate increases this year.

Japanese interest rates

• A summary of opinions from the Bank of Japan’s June policy meeting, released on Wednesday, showed that some board members called for additional monetary tightening to move the benchmark interest rate closer to levels considered neutral for the economy.

• Markets currently price the probability of a 25-basis-point rate hike at the Bank of Japan’s July meeting at less than 25%.

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