US dollar set for best weekly gain as ECB, BOE hold rates

The US dollar eased slightly on Friday but remained on track for its strongest weekly performance in nearly a month, supported by safe-haven demand and shifting expectations around global monetary policy.

The Dollar Index slipped modestly during late trading but was still poised for a weekly gain of roughly 0.6%, marking its best advance since early January. The greenback’s resilience follows renewed investor interest sparked by the nomination of former Federal Reserve Governor Kevin Warsh as the next Fed chair, a move widely interpreted as signaling a potentially more hawkish policy direction.

Market participants expect Warsh’s leadership could favor tighter monetary conditions, including the possibility of balance sheet reductions, which has provided underlying support for the US currency throughout the week.

Tech stock selloff boosts safe-haven demand for the dollar

Volatility across global equity markets has contributed to the dollar’s strength, as investors reacted to a sharp selloff in technology stocks. Concerns over heavy spending on artificial intelligence and its broader economic implications triggered the largest weekly decline in global shares since November.

The shift toward risk aversion encouraged flows into the US dollar as a defensive asset. Analysts noted that elevated valuation metrics in US equities and fully invested positioning among institutional investors have increased market vulnerability to negative surprises.

While the widely anticipated US monthly jobs report was delayed until next week, several weaker labor market indicators released recently added uncertainty to the economic outlook. Market watchers believe any further signs of consumer weakness could influence expectations for future monetary policy and currency movements.

Euro and sterling rebound after ECB and BOE decisions

In Europe, the euro strengthened after the European Central Bank left interest rates unchanged, as expected. ECB President Christine Lagarde indicated that policymakers were not preparing for immediate rate cuts despite recent currency strength, helping support the single currency.

The British pound also rebounded following the Bank of England’s decision to keep rates steady. However, dovish guidance and a closely split vote among policymakers reinforced expectations of a potential rate cut in the coming months, limiting sterling’s upside.

Political uncertainty in the UK also weighed on market sentiment, with concerns about leadership challenges adding to currency volatility.

Yen steady ahead of Japan elections; yuan extends gains

In Asia, the Japanese yen remained relatively stable against the dollar, though the pair posted notable gains over the week. Investors are closely monitoring Japan’s upcoming lower house elections, as a stronger mandate for the current government could lead to expansionary fiscal policies.

The Chinese yuan continued to advance, heading toward its longest weekly winning streak against the dollar in more than a decade. Strong midpoint guidance from the People’s Bank of China has supported the currency and helped keep it near multi-year highs.

Elsewhere, the Australian dollar rallied after hawkish remarks from Reserve Bank of Australia Governor Michele Bullock increased expectations for further rate hikes, alongside stronger economic projections.