The dollar resumed its upward trajectory on Friday as traders digested hawkish signals from Federal Reserve officials, reversing a three-week decline that had weighed on the greenback. Market participants say the renewed strength reflects growing conviction that the central bank will maintain rates well into the second half of 2026 amid persistent inflation pressures.
Volatility in the Japanese yen intensified after Bank of Japan board members delivered contradictory messages about the pace of policy normalization. Traders note that while some officials advocated for steady rate increases, others emphasized caution given global economic uncertainties. This divergence has created choppy trading conditions, with the yen fluctuating sharply against major currencies throughout the week. Strategists observe that options markets are pricing elevated volatility for JPY pairs through the March BoJ meeting.
The euro faced renewed selling pressure as preliminary data showed eurozone industrial production contracted more than expected in December. Market analysts highlight that weak manufacturing output from Germany and France is reinforcing concerns about the currency bloc's growth trajectory. Meanwhile, commodity-linked currencies including the Australian and Canadian dollars softened as oil prices retreated from recent highs. Traders say the Reserve Bank of Australia's dovish pivot in its latest policy statement has further weighed on the Aussie.
Gold prices extended their January rally, benefiting from safe-haven flows amid escalating geopolitical tensions in the Middle East and uncertainty surrounding US trade policy. Bullion has outperformed risk assets this month as portfolio managers increase allocation to defensive positions. In energy markets, crude oil gave back earlier gains despite inventory draws, with traders citing profit-taking ahead of next week's OPEC+ monitoring meeting. Market participants are closely watching whether the producer group will adjust output quotas given signs of demand softness from China.
Technical analysts note that the dollar index is testing a key resistance zone that has capped gains since November. A sustained break higher could accelerate momentum, particularly against European currencies. Forward-looking indicators suggest traders are positioning for next week's US retail sales data and a slate of Fed speaker appearances, which may provide further clarity on the policy outlook. Market participants also await the ECB's first meeting of 2026, where President Lagarde's tone on inflation and growth will be scrutinized.
Disclaimer: This analysis is AI-generated for educational purposes. Traders should verify all information and conduct their own research before making trading decisions.