The U.S. dollar remained largely steady on Friday but was still on track for a weekly decline after softer-than-expected inflation data reduced expectations of near-term interest rate hikes from the Federal Reserve.
Earlier this week, a cooling U.S. inflation report led traders to scale back bets that the Fed would raise interest rates in the coming months. However, growing tensions in the Middle East helped support the dollar as investors sought safer assets amid rising geopolitical uncertainty.
The recent escalation between Iran and the United States has increased concerns about regional stability and pushed oil prices close to one-month highs. As a result, demand for traditional safe-haven assets, including the U.S. dollar, has strengthened.
Despite this support, the dollar index, which measures the U.S. currency against a basket of major currencies, was trading near 100.72 and remained on course for a weekly decline of about 0.24%. Earlier in the week, the index touched its lowest level in a month after inflation data eased concerns about further monetary tightening.
Among major currencies, the euro traded around $1.1437 and was set for a modest weekly gain. The British pound rose to $1.3476 and was heading for its third consecutive week of gains as worries about the UK’s fiscal outlook continued to fade.
Meanwhile, the Japanese yen remained under pressure, trading near 162.39 per dollar, close to its weakest level in four decades. Japanese officials have continued to warn that they are prepared to intervene in currency markets if excessive volatility persists.
Market analysts noted that the dollar continues to benefit from its unique position as both a safe-haven currency and one of the highest-yielding major currencies. This combination allows the greenback to perform well during periods of economic strength as well as times of increased market uncertainty.
Recent U.S. economic data also highlighted the resilience of the American economy. Retail sales rose slightly in June, supported by strong online spending, while labor market data continued to show stability. These reports have reinforced expectations that the economy remains on solid footing despite higher interest rates.
At the same time, inflation pressures appear to be easing. Consumer price data released this week showed inflation cooling in June, encouraging investors who believe the Federal Reserve may no longer need to tighten policy further.
However, many economists remain cautious.
Several policymakers and market experts have warned against drawing conclusions from a single month of favorable inflation data. They argue that inflation remains above the Federal Reserve’s long-term target and that more evidence is needed before declaring victory over rising prices.
As a result, expectations for a July interest rate increase have fallen sharply. Market pricing now suggests only a small chance of a rate hike this month, compared with significantly higher expectations just a week ago.
Looking beyond the United States, the Australian and New Zealand dollars were both heading for a third straight week of gains, although both currencies faced some pressure on Friday as investors became more risk-averse.
China’s yuan also remained on track for a third consecutive weekly gain despite a slight pullback from recent highs.
Markets largely ignored renewed criticism of China from President Donald Trump, who accused Beijing of interfering in U.S. elections. Investors appeared more focused on broader economic developments and the fragile relationship between the world’s two largest economies.
Attention will now shift to next week’s European Central Bank meeting. While policymakers are widely expected to leave interest rates unchanged, many economists believe another rate increase could become more likely in the coming months depending on inflation trends across the eurozone.
For now, investors remain caught between two competing forces: easing inflation that reduces pressure for higher interest rates and rising geopolitical tensions that continue to support demand for safe-haven assets like the U.S. dollar.
