The dollar extended its decline against major peers on Friday, building on losses triggered by the Federal Reserve's unexpectedly dovish policy statement earlier this week. Market participants said Chair Powell's commentary opened the door to rate cuts by mid-2026, prompting a broad-based unwinding of long-dollar positions as yield differentials narrowed. The greenback's slide accelerated during New York trading as month-end and year-end rebalancing flows amplified the move.
The euro gained momentum as the European Central Bank maintained its hawkish rhetoric despite recent soft inflation data. Strategists noted that ECB officials have consistently pushed back against aggressive easing expectations, creating a stark contrast with the Fed's more accommodative tilt. Meanwhile, the yen strengthened on renewed speculation that the Bank of Japan could accelerate its normalization path in the first quarter, with traders pricing in a higher probability of policy rate increases.
Commodity-linked currencies advanced alongside a broader risk-on tone, while gold consolidated recent gains as real yields retreated. Oil prices remained volatile amid ongoing supply concerns in the Middle East and inventory data that surprised to the downside. Bitcoin showed renewed upward momentum as institutional inflows into crypto-related investment vehicles picked up ahead of potential regulatory clarity expected in early 2026.
Technical analysts said the dollar's break below key support levels on major pairs signaled potential for further weakness into year-end. Positioning data indicated leveraged funds had trimmed bullish dollar bets to their lowest level since September, while asset managers increased exposure to European and Japanese currencies. Traders are now focused on next week's U.S. retail sales and PPI data for further clues on the economic trajectory.
Disclaimer: This analysis is AI-generated for educational purposes. Traders should verify all information and conduct their own research before making trading decisions.