The U.S. dollar hovered close to two-week highs on Friday, supported by renewed safe-haven demand as investors rushed to cut exposure to riskier assets after a sharp selloff across equities, cryptocurrencies, and precious metals. Market volatility has been fueled by mounting concerns over a surge in artificial intelligence-related spending this year and its broader economic impact.
The Japanese yen edged modestly higher but remained on course for its worst weekly performance against the dollar since October, having erased most of its January gains. Traders remained cautious ahead of Sunday’s national election, which has added fresh uncertainty to Japanese markets.
Global equities are heading for their steepest weekly decline since November, as investors reassess elevated valuations and the disruptive effects of rapidly advancing AI technologies. Traditional safe havens such as gold, along with alternatives like bitcoin, have also been swept up in the selloff. Meanwhile, typical refuge currencies including the yen and Swiss franc have failed to attract consistent inflows, according to City Index strategist Fiona Cincotta.
She noted that the dollar’s rebound has coincided closely with the ongoing technology sector rout. With the yen under pressure due to election-related uncertainty, the dollar has emerged as the most reliable defensive option for currency traders during the current risk-off phase.
The dollar index slipped 0.1% on the day but remained up about 0.7% for the week, holding near its highest level since January 23. The greenback’s advance was triggered in part by U.S. President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve chair, a move markets interpreted as signaling less enthusiasm for aggressive interest rate cuts.
Charu Chanana, chief investment strategist at Saxo, said markets are simultaneously absorbing multiple shocks. These include heightened scrutiny of Big Tech capital expenditure, growing fears of AI-driven disruption in software beyond productivity gains, and a liquidity squeeze amplified by sharp moves in silver prices. She described the environment as a broad positioning reset across asset classes.
Currency markets are now turning their attention to next week’s delayed U.S. payrolls report for January. Recent labor market data has pointed to a cooling economy, prompting traders to increase bets that interest rate cuts could arrive in the first half of the year rather than later in 2026.
ING economists said that any substantial downward revisions to employment data would intensify pressure on the Federal Reserve to resume easing.
Yen steadies ahead of election
The yen stabilized around 157 per dollar as investors awaited the outcome of Sunday’s vote, where Prime Minister Sanae Takaichi is widely expected to secure a victory. Markets remain uneasy after fiscal concerns triggered heavy selling in Japanese bonds and sent the currency sharply lower in recent weeks.
Analysts warn that a decisive election result could give Takaichi greater freedom to pursue expansionary fiscal policies, including proposed consumption tax cuts. However, uncertainty over how such measures would be funded has reignited concerns over Japan’s already elevated public debt levels.
The euro rose 0.1% to $1.179 after the European Central Bank kept interest rates unchanged and downplayed the impact of currency fluctuations on future policy decisions. Sterling also recovered part of Thursday’s losses, climbing 0.46% to $1.3588 after the Bank of England held rates steady in a closely split vote and signaled potential easing if inflation continues to cool.
In cryptocurrency markets, bitcoin climbed back above $65,000 after briefly falling to its lowest level since October 2024. Despite the rebound, the digital asset remained on track for a weekly decline of roughly 13%, its sharpest drop since November 2022.
