The US dollar index edged higher on Friday and is set to close the week with gains.
The currency recovered after a pullback on Thursday following the release of softer-than-expected inflation data. While the downside surprise initially weighed on the dollar and treasury yields, the move was short-lived as traders questioned the reliability of the data, given disruptions caused by the recent US government shutdown.
Labour market data also helped stabilize sentiment. Initial jobless claims declined by 13,000 to 224,000 in the week ending December 13, undershooting expectations and reversing the prior week’s increase. The modest improvement reduced urgency around aggressive near-term easing, lending further support to the dollar and yields.
External factors further underpinned the dollar. The Japanese yen weakened after the Bank of Japan delivered a widely expected rate hike but offered limited guidance on the timing and pace of future tightening. Meanwhile, the euro remained subdued after the ECB held rates at 2% and President Christine Lagarde refrained from offering forward guidance.
Looking ahead, market attention turns to Tuesday’s second estimate of third-quarter GDP, expected to moderate to 3.2%. Evidence of economic deceleration could renew pressure on both the dollar and yields, while resilience may reinforce the recent rebound. With year-end approaching and liquidity thinning, price action may become increasingly volatile, amplifying reactions to incoming data.
