The dollar held steady against the euro and the British pound on Friday, maintaining strong gains as investors awaited US consumer spending data, after growth figures came in better than expected, reducing expectations for further Federal Reserve easing this year.

The euro traded near a three-week low at $1.1669, while the pound stabilized at $1.3347 after hitting its lowest in nearly two months on Thursday. The yen traded at an eight-week low after US President Donald Trump announced a new package of tariffs, including a 100% tax on branded pharmaceuticals, 25% on heavy trucks, and 50% on kitchen cabinets.

Limited reaction in currency markets on expectations of exemptions

Shares of major European pharmaceutical companies steadied after an early drop, as analysts noted that exemptions for firms building factories in the United States could mean the impact will be limited for regional giants such as Roche and Novo Nordisk.

Nick Rees, head of macroeconomic research at Monex Europe, said: “It’s not surprising to see the limited reaction in currencies, as markets have already been through several rounds of such measures and tend to view the announcements as positioning by the White House.” He added that bilateral trade deals several countries signed with the Trump administration were not as destabilizing as initially feared, easing market sensitivity.

The dollar index, which measures the US currency against a basket of major peers, was heading toward its biggest weekly gain in two months, after US data on growth, jobless claims, durable goods, and wholesale inventories all exceeded expectations on Thursday.

Rate-cut bets shrink

Attention now turns to the release of US consumer spending data later on Friday for further clues on whether the economy needs additional Fed stimulus.

According to the CME FedWatch tool, investors are now pricing a 12% chance of no rate change next month, up from 8.1% the previous day. Total easing priced in by year-end has also declined to less than 40 basis points.

On Thursday, the US Commerce Department reported that GDP growth was revised up to 3.8% for April through June, compared with an initial estimate of 3.3%. Economists polled by Reuters had not expected this upward revision. The Personal Consumption Expenditures (PCE) price index — the Fed’s preferred inflation gauge — is expected to show a 0.3% monthly rise in August and a 2.7% annual increase, according to a Reuters survey.

Bansi Madhavani, senior economist at ANZ, said: “At a time when Fed members are concerned about high inflation, we think such a report would be encouraging.” She added that as long as monthly inflation data continue to signal an upward trend, “we expect the Fed to continue gradual easing with 25-basis-point cuts.”

In Japan, where the central bank is pursuing monetary tightening, data showed Tokyo core inflation in September remained above the 2% target, keeping expectations for an imminent rate hike alive.

In cryptocurrency markets, Bitcoin rose 0.4% to $109,639.28, while Ether gained 1.3% to $3,939.60.

Gold prices rose in the European market on Friday, extending gains for a second straight day and trading near all-time highs, on track for a sixth consecutive weekly advance, supported by the US dollar’s pause against a basket of major currencies.

With Federal Reserve officials striking a more cautious tone and strong US economic data released, the probability of an October rate cut has declined.

To reprice those expectations, investors later today await the US Personal Consumption Expenditures (PCE) report, the Fed’s preferred inflation gauge.

Price Overview

• Gold prices rose by about 0.2% to $3,755.24, from an opening level of $3,749.39, after touching a low of $3,734.58.

• On Thursday, gold settled up 0.35%, resuming gains after a pause the previous day on profit-taking and corrections from the all-time high of $3,791.13 an ounce.

Weekly Trading

Over the course of this week, which officially ends at today’s settlement, gold prices are up about 1.9%, on track for a sixth straight weekly gain, the longest winning streak since late December 2024.

US Dollar

The dollar index fell about 0.1% on Friday, retreating from a three-week high of 98.61 points, reflecting a pause in the US currency’s advance against a basket of global peers.

Beyond profit-taking, the US dollar has retreated in a narrow range as investors avoided building new long positions ahead of the release of the monthly PCE report.

US Interest Rates

• Fed Chair Jerome Powell said on Tuesday that the central bank will continue to balance concerns about a weakening labor market with mounting worries over inflation.

• Data on Thursday showed that the US economy grew in the second quarter at its fastest pace in more than two years, beating market expectations, while jobless claims fell sharply last week.

• Following the comments and data, and according to the CME FedWatch tool, the probability of a 25-basis-point rate cut in October fell from 92% to 88%, while the probability of holding rates steady rose from 8% to 12%.

• To reprice those expectations, investors later today await the August PCE report, heavily relied on by the Fed to gauge inflation trends.

Gold Outlook

Tim Waterer, chief market analyst at KCM Trade, said that the dollar’s normalization represents a potential barrier for gold and its bid to reach $3,800.

He added that US President Donald Trump’s recent announcement of new tariffs may limit any immediate downside for gold prices.

Waterer also explained that gold is trading somewhat sluggishly, with traders hesitant to buy the precious metal with real conviction, fearing that the core PCE report, even slightly, could mirror the rise in GDP readings.

SPDR Fund

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Thursday, with the total standing at 996.85 metric tons.

The euro rose in the European market on Friday against a basket of global currencies, attempting to recover from a three-week low against the US dollar, supported by notable buying activity from lower levels.

Despite this rebound, the single currency is heading toward its first weekly loss in a month, amid growing negative pressure, especially the broad strength of the US dollar driven by strong economic data and cautious remarks from Federal Reserve officials.

Price Overview

• EUR/USD rose by about 0.15% to $1.1682, from today’s opening level of $1.1665, after touching a low of $1.1657.

• The euro ended Thursday’s session down 0.6% against the dollar, its second consecutive daily loss, hitting a three-week low at $1.1645 following strong US economic data.

Weekly Trading

Over the course of this week, which officially concludes at today’s settlement, the euro is down about 0.55% against the US dollar, on track for its first weekly loss in a month.

US Dollar

The dollar index fell by about 0.1% on Friday, retreating from a three-week high of 98.61 points, reflecting a pause in the US currency’s advance against a basket of major currencies.

Beyond profit-taking and corrective moves, the US dollar is retreating within a narrow range, as investors refrain from building new long positions ahead of the release of the US Personal Consumption Expenditures (PCE) monthly report.

The greenback remains on track for its biggest weekly gain in two months, as it continues to attract strong buying as the best available investment, supported by upbeat US economic data and cautious Fed commentary.

The latest data showed that the US economy grew in the second quarter at its fastest pace in two years, beating market expectations, while weekly jobless claims came in well below estimates.

Following the data, and according to the CME FedWatch tool, the probability of a 25-basis-point Fed rate cut in October fell from 92% to 88%, while the probability of leaving rates unchanged rose from 8% to 12%.

European Interest Rates

• Sources said ECB policymakers believe no further rate cuts are needed to achieve the 2% inflation target, despite new economic forecasts suggesting lower rates over the next two years.

• Sources added that unless the eurozone suffers another major economic shock, borrowing costs are expected to remain at current levels for some time.

• Money market pricing for a 25-basis-point ECB rate cut in October is currently steady at around 10%.

• Traders have scaled back bets on additional ECB easing, indicating the rate-cut cycle may be over for this year.

• To reprice those expectations, investors in the coming period are awaiting a series of European economic data releases, as well as commentary from ECB officials.

The Japanese yen fell in Asian markets on Friday against a basket of major and minor currencies, deepening losses for the third consecutive day against the US dollar and hitting its lowest level in eight weeks. It is heading toward its biggest weekly loss in nearly two and a half months, as selling pressure on the currency continues in the foreign exchange market.

Data showed that core inflation in Tokyo held steady below economists’ expectations in September, underscoring continued easing of inflationary pressures on Bank of Japan policymakers. As a result, the likelihood of a rate hike in October has declined.

Price Overview

• USD/JPY rose by more than 0.1% to ¥149.96, the highest since August 1, from today’s opening level of ¥149.79, after touching a low of ¥149.33.

• The yen ended Thursday down 0.6% against the dollar, its second straight daily decline, as strong US economic data reduced expectations of a Fed rate cut in October.

Weekly Trading

• Over the course of this week, which officially concludes at today’s settlement, the yen is down about 1.35% against the US dollar, on track for a fifth consecutive weekly loss and its biggest weekly drop since early July.

• This worst weekly performance in two and a half months is attributed to political uncertainty in Japan as well as the US dollar’s strength and rising US yields, supported by strong economic data and Federal Reserve commentary.

Tokyo Core Inflation

Data released today in Japan showed Tokyo’s core consumer price index rising 2.5% in September, below market expectations of 2.8%. The index also rose 2.5% in August, the slowest pace since March.

Undoubtedly, stable prices reduce inflationary pressures on Bank of Japan policymakers, lowering the chances of rate hikes in Japan this year.

Japanese Interest Rates

• Following the above data, market pricing for a 25-basis-point rate hike by the Bank of Japan in October fell from 50% to 35%.

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