The US dollar rose in European trade on Friday away from two-week lows, after bullish remarks from some Fed officials, which raised doubts about the odds of a March Fed rate cut. 

The gains remain limited as investors shun big positions ahead of the US payrolls report, expected to provide fresh clues on the path ahead for the Fed’s monetary policies.

The Index

The dollar index rose 0.1% today to 107.82, with a session-low at 107.59.

On Thursday, the index rose 0.1%, the first profit in four days away from a two-week trough at 107.30 as US yields stall.

The Fed

Federal Reserve members recently pointed to high uncertainty about tariffs and other issues related to Trump’s early term policies as major challenges for deciding on the path forward for the monetary policy.

Dallas Fed President Lorry Logan said on Thursday she’s willing to maintain interest rates unchanged for “some time” even if inflation approached the 2% target, provided that the labor market remains solid.

US Rates

According to the Fedwatch tool, the odds of a 0.25% March Fed interest rate cut stood at just 14.5%.

Now traders await the crucial US payrolls report later today, with the economy expected to have added 169 thousand new jobs last month, down from 256 thousand in December, while unemployment is expected at 4.1%, with average hourly earnings expected up 0.3%.

Gold prices rose in European trade on Friday, resuming gains and trading near a record high, and about to mark the sixth weekly profit in a row as the US dollar slows down. 

Now traders await the US payrolls report later today, expected to offer fresh pricing for the odds of US rate cuts this year.

Prices

Gold prices rose 0.5% to $2870 an ounce, with a session-low at $2855.

On Thursday, gold lost 0.4%, the first loss in six days on profit-taking away from a record high at $2882.

Weekly Trading

Gold is up over 2.5% this week, about to mark the sixth weekly profit in a row.

US Dollar

The dollar index fell over 0.1% on Friday, resuming losses and about to hit two-week lows against a basket of major rivals.

A weaker dollar makes dollar-denominated gold futures cheaper to holders of other currencies.

Dollar’s decline comes as global trade concerns calm down, while the Fed is expected to conduct more interest rate cuts this year.

US Rates

According to the Fedwatch tool, the odds of a 0.25% March Fed interest rate cut stood at just 14.5%.

US Jobs Data

Now traders await the crucial US payrolls report later today, with the economy expected to have added 169 thousand new jobs last month, down from 256 thousand in December, while unemployment is expected at 4.1%, with average hourly earnings expected up 0.3%.

SPDR

Gold holdings at the SPDR Gold Trust remained unchanged yesterday at a total of 864.19 tons. 

Sterling fell in European trade on Friday against a basket of major rivals, extending losses for the second straight session against the dollar and moving away from a four-week high on profit-taking, after Bank of England’s interest rate cut.

The BOE raised its inflation forecasts for this year while cutting growth forecasts, raising concerns about the UK entering into inflationary recession territory this year.

After the BOE’s last rate cut, the interest rate gap with the US has disappeared completely, with traders now looking for clues in both the US and the UK to gauge the path ahead for monetary policies.

The Price

The GBP/USD fell 0.15% today to $1.2419, with a session-high at $1.2443.

The pound lost 0.55% yesterday, the first loss in four days on profit-taking away from a four-week high at $1.2550.

BOE

The BOE decided to cut interest rates by 25 basis points to 4.5% amid concerns about UK growth.

The bank noted that consumer prices slowed down 2.5% in the fourth quarter of 2024, but inflation overall remains high.

Higher global energy costs are expected to raise UK inflation to 3.7% in the third quarter of this year.

The BOE also expects UK growth at just 0.75% in 2025, down by half from recent November estimates.

Bailey has commented on the weak UK economic growth in the short term, before it’s expected to return to solid growth by mid 2025, noting that cloudiness of the global economic outlook due to trade tensions.

UK Rates

The odds of a BOE 0.25% interest rate cut in March surged to 70%.

UK interest rate futures show the likelihood of 65 basis points of total BOE rate cuts by the end of 2025.

Rate Gap

Following the BOE meeting, the US-UK rate gap vanished completely, with future GBP/USD movements likely dominated by future clues and signals about monetary policies in both decisions.

The Japanese yen rose in Asian trade on Friday against major rivals, expanding gains for the fifth straight session against the US dollar and hitting a two-month high, and on track for the largest weekly profit in 2025 on strong investment. 

Earlier Japanese data showed strength in wages and consumer spending, adding to bullish remarks from BOJ officials, which bolstered the case for a Japanese rate hike in March.

The Price

The USD/JPY fell 0.3% today to 150.95 yen per dollar, the lowest since December 10, with a session-high at 151.59.

The yen rose 0.8% on Thursday against the dollar, marking the fourth profit in a row.

Weekly Trades

The yen is up 2.7% so far this week against the dollar, on track for the fourth weekly profit in a row, and the largest since November 2024.

Strong Data

Official data showed Japan’s full time wages rose 4.8% y/y in December, the best rate since December 2022, and beating estimates of a 3.6% rise.

Japan’s household spending rose 2.7% y/y in December, also the best since late 2022, and hugely beating estimates of a 0.5% rise.

The rise in both wages and household spending would accelerate inflationary pressures in the economy, which would prompt the Bank of Japan policymakers to hike rates quickly this year.

Bullish Remarks 

BOJ member Naoki Tamura said on Wednesday that hiking rates to 1% is necessary by the second half of the 2025 financial year to combat inflation due to higher commodity and labor costs.

Japanese Rates

Following the wages data, the odds of a BOJ rate hike in March rose from 50% to 60%.

Investors expect 50 basis points of BOJ interest rate hikes overall this year.