U.S. Dollar Heads for Strongest Weekly Gain Since October
The U.S. dollar moved slightly higher on Friday and is on track to record its strongest weekly performance since October. The greenback has been supported by a more hawkish Federal Reserve outlook and rising geopolitical tensions between the United States and Iran.
At 04:00 ET (09:00 GMT), the Dollar Index — which measures the U.S. dollar against a basket of six major currencies — rose 0.1% to 97.920. The index remained close to the one-month high reached on Thursday and is heading for a weekly gain of more than 1%, marking its best performance in over four months.
Dollar Supported by Strong Data and Fed Outlook
The dollar has attracted steady demand throughout the week. Solid U.S. economic data and a firm tone in the latest Federal Reserve meeting minutes have reinforced expectations that monetary policy will remain relatively restrictive.
Overnight, the greenback gained further momentum after fresh data showed that initial jobless claims fell more than expected. The decline highlighted continued stability in the U.S. labor market.
Minutes from the Federal Reserve’s most recent policy meeting, released on Wednesday, revealed divisions among officials regarding the policy outlook. However, the overall message suggested caution in easing rates too quickly.
Investors are now awaiting the release of the core PCE index, the Federal Reserve’s preferred inflation gauge, later in the session. The data could provide additional direction for the U.S. dollar and interest rate expectations.
Geopolitical Tensions Add Safe-Haven Demand
Concerns over a potential U.S.–Iran conflict have also boosted the dollar’s appeal as a safe-haven asset. U.S. President Donald Trump warned Tehran this week that it must reach an agreement over its nuclear program or face severe consequences.
According to analysts at ING, markets may need to see encouraging diplomatic developments or a reduction in military rhetoric before investors feel confident selling the dollar. For now, upside risks for the currency remain.
Euro and Sterling Weaken
In Europe, EUR/USD slipped 0.1% to 1.1761. The euro is heading for a weekly loss of approximately 0.8%, pressured by uncertainty surrounding European Central Bank President Christine Lagarde’s tenure.
German producer prices fell 3% year-on-year in January, a sharper decline than the expected 2.1%. Investors are also monitoring eurozone PMI data later in the session. While the composite PMI is expected to remain above the 50 expansion threshold, analysts believe the impact on the euro could be limited.
Meanwhile, GBP/USD declined 0.1% to 1.3451, leaving sterling at a one-month low. The pound is on track for a weekly loss of around 1.5%.
Despite stronger-than-expected retail sales data in the United Kingdom — which showed a 1.8% monthly increase and a 4.5% annual rise — the currency remains under pressure. Markets are pricing in a potential rate cut from the Bank of England in March, with another move possible in June. Political uncertainty also continues to weigh on the pound.
Yen Slips as Inflation Slows
In Asia, USD/JPY rose 0.2% to 155.36 as the Japanese yen weakened slightly following softer inflation data.
Japan’s headline inflation rate fell to 1.5% in January, dropping below the Bank of Japan’s target for the first time in nearly four years. Core inflation, which excludes fresh food and fuel, also slowed, though it remained above the central bank’s target.
The weaker inflation reading has increased uncertainty over the timing of the Bank of Japan’s next interest rate hike. However, separate data showed that Japanese factory activity expanded at its fastest pace in over four years in February.
Elsewhere, USD/CNY remained steady at 6.9087, with Chinese markets closed for the week. AUD/USD fell 0.1% to 0.7042 after Australia’s unemployment rate held steady at 4.1% in January, signaling a resilient but moderating labor market.
