The US dollar held near two-week highs on Friday, supported by safe-haven demand as investors rushed to trim some high-risk positions following a sharp selloff in stocks, cryptocurrencies, and precious metals, driven by concerns over a surge in AI-related spending this year.

The Japanese yen edged higher, but remained on track for its worst weekly performance against the dollar since October, after giving back most of the strong gains recorded in late January, as traders prepared for the national elections scheduled for Sunday.

Global equities recorded their largest weekly selloff since November, as investors grew concerned about the scale of AI spending, along with the ripple effects of rapid advances in AI tools that could reshape multiple sectors.

Fiona Cincotta, strategist at City Index, said traditional safe havens such as gold, as well as alternatives like Bitcoin, were hit by the rebound move, while classic safe-haven currencies like the yen and Swiss franc did not benefit as much as usual.

She added: “The timing of the rebound coincides with the selloff we’re seeing in the technology sector, and it makes sense that safe-haven flows are heading into the US dollar.”

She said the yen is under pressure due to election-related uncertainty this week, leaving currency traders with relatively limited safe-haven choices, which makes the dollar the preferred option.

The dollar index, which measures the US currency against six major peers, slipped 0.1% but remained up 0.7% on a weekly basis and close to its highest level since January 23. The main driver behind this week’s rise was President Donald Trump’s nomination last Friday of Kevin Warsh — who is not seen as a strong supporter of aggressive rate cuts — to lead the Federal Reserve.

Charu Chanana, chief investment strategist at Saxo, said investors are suddenly pricing in three shocks at once: tighter scrutiny of big tech spending, AI disruption risks for the software sector beyond the productivity narrative, and liquidity and margin liquidations driven by silver. She said what is happening looks like an unwind of crowded trades, with risk being reduced across asset classes.

Currency traders are awaiting the delayed January US jobs report, due next week. Several indicators released this week suggest the labor market in the world’s largest economy is losing momentum, prompting traders to price in a higher probability of rate cuts in the first half of this year rather than the second.

ING economists said in a note that any significant downward revisions to next week’s jobs data would increase pressure to eventually resume rate cuts.

Yen finds some support ahead of elections

The yen rose to 156.92 per dollar ahead of Sunday’s vote, where Prime Minister Sanae Takaichi is seen as having a chance of winning.

The election has unsettled investors, as fiscal concerns triggered a sharp selloff in both the currency and Japanese government bonds, with any further decline potentially having global spillover effects.

Samara Hammoud, FX strategist at Commonwealth Bank of Australia, said a strong victory would reduce near-term constraints on Takaichi’s fiscal goals, including cutting the consumption tax.

She added that it remains unclear how Takaichi plans to finance expansionary fiscal policy, and renewed concerns about Japan’s government debt burden would weigh on both government bonds and the yen.

Major currency moves

The euro rose 0.1% to $1.1791 after the European Central Bank left interest rates unchanged as expected on Thursday and downplayed the impact of currency volatility on future decisions.

Sterling recovered part of its nearly 1% loss from Thursday’s session, rising 0.3% to $1.3565.

The Bank of England also left interest rates unchanged on Thursday in a closer-than-expected vote, signaling that borrowing costs are likely to fall if the projected slowdown in inflation continues.

Gold prices rose by more than 2.5% in European trading on Friday, resuming gains that paused yesterday and moving closer once again to trading above the $5,000 per ounce level, as safe-haven demand increased amid geopolitical tensions between the United States and Iran.

The advance is also supported by a weaker US dollar against a basket of global currencies, as investors wait for further evidence on the path of Federal Reserve interest rates this year.

Price overview

Gold prices today: Gold rose by 2.65% to $4,903.08, from the session opening level at $4,778.06, and recorded a low of $4,655.40.

At Thursday’s settlement, gold prices fell by 3.6%, marking the first loss in the past three days, due to continued caution across global metals and commodities markets.

Oman talks

Global markets are closely watching the launch of critical talks between the United States and Iran in Muscat, Oman, amid an atmosphere of escalating tension. The negotiations are being viewed as pivotal after Washington issued an urgent warning calling on its citizens to leave Iranian territory immediately.

This unusual diplomatic escalation has placed the Oman talks in what many see as a last-chance category to defuse a potential military conflict, creating turbulence in global markets that have begun pricing in the risks of a breakdown in diplomacy and its possible impact on energy security and geopolitical stability.

Earlier this week, the US military announced it had shot down an Iranian drone that approached the aircraft carrier Abraham Lincoln in what it described as a hostile manner while it was operating in the Arabian Sea.

US Central Command said the drone approached with hostile trajectory and unclear intent, ignoring repeated warnings and de-escalation measures while the carrier was sailing about 500 miles off the Iranian coast.

In contrast, Iranian state media described the drone flight as a routine and lawful reconnaissance mission in international waters, saying it successfully transmitted images and data before contact was lost.

The US dollar

The dollar index fell by about 0.2% on Friday, pulling back from a two-week high and heading for its first loss in three sessions, reflecting softer performance of the US currency against a basket of major and minor currencies.

Beyond profit-taking, the dollar weakened amid sharp volatility across most global financial markets, as investors await more evidence on the Federal Reserve’s interest rate path this year.

US interest rates

According to the CME FedWatch tool, pricing for keeping US interest rates unchanged at the March meeting stands at 77%, while the probability of a 25 basis point rate cut is priced at 23%.

To reprice those expectations, investors are closely monitoring upcoming US economic data and comments from Federal Reserve officials.

Gold outlook

Market strategist Ilya Spivak said risk appetite appears to be deteriorating, equity prices are falling, and there is clearly a sharp breakdown in Bitcoin prices.

He added that multiple signals point to broadly weak risk sentiment. Under such conditions, gold is holding relatively firm, while silver is retreating under pressure from risk-off behavior toward industrial metals.

Soni Kumari, markets analyst at ANZ Bank, said precious metals saw a sharp drop yesterday and are now rebounding, so nothing fundamentally significant has changed overnight.

She added that the correction in gold and silver prices comes at a timely moment ahead of the Chinese New Year holiday, which could encourage higher consumer buying in China. However, near-term volatility may continue until weaker positions are cleared.

SPDR Gold Trust

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed ETF, fell on Thursday by about 4 metric tons, marking the third consecutive daily decline, bringing the total to 1,077.95 metric tons, the lowest level since January 15.

The euro rose in European trading on Friday against a basket of global currencies, attempting to recover from a two-week low versus the US dollar, supported by softer dollar levels amid sharp volatility across financial markets.

In line with expectations, the European Central Bank kept interest rates unchanged for the fifth consecutive meeting and confirmed that monetary policy remains restrictive, aimed at bringing inflation back to the target range.

Price overview

The euro exchange rate today: The euro rose against the dollar by 0.2% to $1.1802, from today’s opening level at $1.1777, and recorded a low of $1.1766, the weakest level since January 23.

The euro closed Thursday down by 0.25% against the dollar, marking its second consecutive daily loss, as investors continued to favor the US currency.

The US dollar

The dollar index fell by about 0.2% on Friday, pulling back from a two-week high and heading toward its first loss in three sessions, reflecting softer performance of the US currency against a basket of major and minor currencies.

Aside from profit-taking, the dollar weakened amid sharp volatility across most global financial markets, ahead of crucial talks between the United States and Iran, and after Washington urged its citizens to leave Iranian territory immediately.

European Central Bank

As expected, the European Central Bank kept its main interest rates unchanged on Thursday at 2.15%, the lowest level since October 2022, marking the fifth straight meeting without change.

The ECB reiterated a data-dependent, meeting-by-meeting approach with no pre-commitment to a specific rate path, and stressed that monetary policy remains restrictive to ensure inflation returns to target.

Christine Lagarde

ECB President Christine Lagarde said Thursday that the bank will not commit to a predetermined path for rate cuts, noting that the March decision will depend entirely on incoming data in the coming weeks.

Lagarde confirmed that the ECB is closely monitoring the euro exchange rate, adding that the current strength of the single currency helps contain imported inflation and may support reaching targets without the need for further tightening.

She added that services inflation still requires monitoring, but the overall outlook has become more balanced compared with late 2025.

European interest rates

Following the meeting, money market pricing for a 25 basis point ECB rate cut in March fell from 50% to around 30%.

To reprice those expectations, investors are waiting for further eurozone data on inflation, unemployment, and wages.

The Japanese yen rose in Asian trading on Friday against a basket of major and minor currencies, posting its first gain in six days versus the US dollar, as it attempts to recover from a two-week low, supported by moderate buying from oversold levels.

Despite this rebound, the yen is on track to record its largest weekly loss this year, amid growing speculation over the outcome of Japan’s general election scheduled for the weekend. The latest opinion polls show a sweeping lead for the ruling coalition led by current Prime Minister Sanai Takaichi, giving her a green light to move forward with expansionary plans to stimulate the economy.

Price overview

The Japanese yen exchange rate today: The dollar fell against the yen by 0.3% to ¥156.51, from today’s opening level at ¥157.02, and recorded an intraday high of ¥157.05.

The yen closed Thursday down by 0.15% against the dollar, marking its fifth consecutive daily loss, and hit a two-week low at ¥157.34 per dollar, driven by election-related speculation in Japan.

Weekly performance

So far this week — which officially ends with today’s settlement — the Japanese yen is down about 1.2% against the US dollar. This would mark its first weekly loss in three weeks and the largest weekly decline since December 2025.

Japanese elections

Global markets are closely watching Japan ahead of the early general election scheduled for Sunday. Prime Minister Sanai Takaichi is seeking a strong mandate to increase spending, cut taxes, and pass a new security strategy expected to accelerate the country’s defense buildup.

Opinion polls

The latest opinion polls indicate a sweeping lead for the ruling Liberal Democratic Party led by Sanai Takaichi, strengthening her chances of forming a strong government after the election.

Polls by Asahi newspaper and Kyodo News suggest the ruling coalition could win a decisive majority, with the Liberal Democratic Party expected to exceed the absolute majority threshold of 233 seats, and the coalition with its partners potentially reaching around 300 seats out of 465.

Takaichi continues to show solid approval ratings, with recent polls indicating government support between 57% and 64%. Her popularity is especially strong among younger voters aged 18–29, where approval in some surveys has approached 90%.

Sanai Takaichi

Japanese Prime Minister Sanai Takaichi said on Saturday that a weaker yen has positive aspects, in remarks that appeared to contrast with repeated Finance Ministry warnings about possible intervention to support the currency.

In a campaign speech ahead of next week’s election, Takaichi said that despite criticism of the weak yen, it represents a valuable opportunity for export sectors, from food industries to automobiles. She added that the currency’s decline has acted as a buffer against US tariffs and provided tangible support to the economy.

Japanese interest rates

Market pricing for a quarter-point interest rate hike by the Bank of Japan at the March meeting remains below 10%.

To reprice those expectations, investors are awaiting further data on inflation, unemployment, and wages in Japan.

Outlook for the Japanese yen

Carol Kong, currency strategist at Commonwealth Bank of Australia, said that a strong performance by the Liberal Democratic Party would encourage Takaichi to proceed with economic stimulus plans, increasing the risk of a heavier government debt burden and weighing on Japanese government bonds and the yen.

Samara Hammoud, also a currency strategist at Commonwealth Bank of Australia, said that a landslide victory for the ruling party would ease short-term constraints on Takaichi’s fiscal policy goals, including cutting the consumption tax.

She added that it remains unclear how Takaichi plans to finance expansionary fiscal policy, and renewed concerns over rising government debt would negatively affect Japanese government bonds and the yen.