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The dollar index held steady on Friday, but was still on course for a weekly decline. Easing geopolitical tensions in the Middle East alleviated immediate inflation concerns and reduced expectations for a more cautious monetary policy.
Treasury yields also stabilised to a certain extent ahead of key political developments and incoming economic data.
Markets are now closely watching diplomatic talks scheduled in Islamabad this weekend, where US officials will engage with Iranian counterparts.
However, sentiment remains cautious. Continued tensions in Lebanon and persistent disruptions in the Strait of Hormuz highlight the fragility of the current truce.
Recent economic data added to the cautious tone. US growth was revised lower, with the economy expanding at a subdued pace in the final quarter of 2025, reflecting weaker investment and softer consumer spending. At the same time, core PCE inflation remained firm, pointing to persistent underlying price pressures.
Attention now turns to today’s inflation release, which is expected to show further increases in both headline and core measures. An upside surprise could lift Treasury yields and provide support to the dollar, while softer readings may reinforce expectations of a softer monetary policy path and weigh on the currency.
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