The U.S. dollar edged higher on Friday, supported by firmer Treasury yields and a cluster of stronger economic indicators, while gold and silver fell as the dollar strengthened and bond yields rose.
Against the euro and yen, currency moves reflected diverging central-bank expectations: markets leaned toward tighter policy from both the Fed and the ECB, while the yen gained traction on speculation about possible currency intervention and on more hawkish signals from Japan’s central bank.
Key takeaways
- Dollar index rose (+0.04%) as higher U.S. Treasury yields and strong data supported interest-rate differentials.
- Rates expectations shifted after stronger U.S. inflation-related and activity indicators, reinforcing a backdrop of Federal Reserve tightening.
- EUR/USD edged up (+0.03%) after France’s CPI beat expectations, though gains were capped by weaker German labor data.
- USD/JPY fell (-0.26%) as the yen recovered on yen-undersvaluation comments and signals from the BOJ, despite early pressure from higher yields.
- Gold and silver dropped as a stronger dollar and higher bond yields weighed on precious metals.
What drove the dollar higher
The U.S. dollar index rose by 0.04% on Friday, recovering from a six-week low. The move was tied to higher Treasury note yields, which strengthen the dollar by widening U.S. rate differentials.
Economic releases also helped. The U.S. Q2 employment cost index increased 0.9%, topping expectations of 0.8%. The July MNI Chicago PMI unexpectedly rose to 57.6 from expectations of 56.0. The University of Michigan’s July consumer sentiment index was revised up to a five-month high of 55.2, rather than a potential downward revision.
Markets are pricing a policy outcome at the next Federal Open Market Committee meeting on September 15–16, with a 67% probability of a 25 basis-point hike.
Oil also added a policy-relevant inflation signal. Friday’s WTI crude increase of 1% can feed inflation expectations, which would be consistent with a more hawkish Fed stance. This narrative was reinforced by Dallas Fed President Lorie Logan, whose comments supported the dollar by emphasizing that inflation may remain above target without policy restraint and that modest near-term action could reduce the need for sharper later moves.
Euro gains, but limited by Germany’s labor data
EUR/USD rose 0.03% on Friday. The euro’s uptick followed France’s July CPI print, which came in above expectations and added to expectations for a more hawkish ECB bias.
However, the euro’s upside was constrained by labor-market weakness in Germany. German July unemployment increased by 6,000, versus expectations of 5,000, and the unemployment rate rose unexpectedly by 0.1 to 6.4%, compared with expectations of no change at 6.3%.
On the ECB side, markets were pricing a 90% chance of a 25 basis-point rate hike at the September 10 policy meeting.
Energy prices also mattered for the broader Eurozone picture. Friday’s 1% rise in crude oil is generally a headwind for an economy that imports most of its energy, which can weigh on the euro.
Yen steadies as BOJ signals and intervention chatter take hold
USD/JPY fell 0.26% on Friday. The yen recovered from earlier losses as speculation grew that the United States could join Japan in intervening in foreign exchange markets to support the yen, after U.S. Treasury Secretary Bessent said the yen appears “very undervalued” and that excess volatility is unhealthy.
Support for the yen also came from Japan’s central bank. After the BOJ kept interest rates unchanged, the yen initially softened, partly because higher U.S. Treasury yields are typically bearish for the yen. But the currency later firmed as the BOJ raised its 2026 Japan GDP forecast and lowered its core CPI forecast. Friday’s Tokyo July CPI was also described as hawkish for policy given its inflation profile.
Markets continued to price a more gradual BOJ path, with only a 42% chance of a 25 basis-point hike at the September 18 meeting. The gap in policy rates remains wide: the BOJ’s current policy rate is 1.00%, below the Federal Reserve’s target range of 3.50%–3.75%.
Japan’s macro data were mixed. June industrial production rose 1.3% month-on-month, exceeding expectations of 1.0% and marking the largest increase in five months. By contrast, June retail sales fell 4.1% month-on-month, weaker than expectations of -1.6% and the steepest decline in six years. Inflation data showed resilience: Tokyo July CPI rose 2.0% year-on-year, above expectations of 1.8%, while the measure excluding fresh food and energy matched expectations at 2.0%.
As expected, the BOJ kept its target interest rate unchanged in an 8–1 vote and said CPI risks are skewed to the upside. The BOJ also indicated that it could accelerate the pace of rate increases if financial conditions become too easy and as inflation surprises become more costly near the 2% target. The statement also noted that the impact of yen moves on prices is larger than before.
In forecasts, the BOJ lifted its 2026 GDP outlook to 0.6% from 0.5% and reduced its 2026 core CPI ex-energy projection to 2.5% from 2.6%.
Precious metals slide as dollar firms and yields rise
Comex gold for August fell 1.24% to close down 51.00, while Comex silver for September declined 2.09% by 1.231.
Gold and silver settled lower on a stronger dollar and higher global bond yields, which tend to reduce the appeal of non-yielding metals. Friday’s 1% rise in crude also boosted inflation expectations, supporting tighter monetary-policy expectations—typically a headwind for precious metals.
The direction was further influenced by hawkish Fed messaging, including Dallas Fed President Lorie Logan indicating she favors tighter Fed policy to bring inflation down. While the BOJ’s decision to keep rates steady can be supportive for metals, the broader rate-and-dollar environment dominated.
Flows also weighed. The report cited recent fund liquidation in precious metals, with gold ETF holdings falling to a 10-month low after reaching a 3.5-year high on February 27, and silver ETF holdings falling to a one-year low on July 14 from a 3.5-year high posted on December 23.
Still, longer-term demand signals remained supportive. The article noted that China’s PBOC increased bullion holdings by 480,000 ounces to 75.44 million troy ounces in June, marking the 20th consecutive month of purchases. The piece also referenced geopolitical risk in the Middle East as a factor that can sustain safe-haven demand, even as near-term flows and rates pressure prices.
Looking ahead, investors will likely focus on upcoming central-bank communication and inflation-sensitive data as markets continue to price policy moves across the Fed and ECB. With the next FOMC meeting on September 15–16 and the ECB’s September 10 decision in view, further updates on U.S. labor and inflation, European growth and employment, and Japan’s rate path will be key for FX and metals.
