The dollar index rose by +0.15% on Friday, driven by weakness in the euro and yen. T-note yields also increased, boosting the dollar’s interest rate differentials. Markets anticipate a 15% chance of a -25 bp rate cut at the FOMC’s next meeting. The dollar is expected to see continued weakness as the FOMC considers -50 bp rate cuts in 2026, while the BOJ may raise rates by +25 bp. The ECB is expected to keep rates unchanged.

EUR/USD fell to a 1.5-week low on Friday, down -0.22%, due to the dollar’s strength and negative economic data. The Eurozone Dec S&P manufacturing PMI was revised downward to 48.4, and Nov M3 money supply rose +3.0% y/y, beating expectations. Swaps indicate a 0% chance of a +25 bp rate hike by the ECB on February 5.

USD/JPY rose by +0.08% on Friday, as the yen slid to a 1.5-week low against the dollar. Markets are not expecting a BOJ rate hike on January 23. Gold closed down -11.50 (-0.26%) on Friday, while silver closed up +0.412 (+0.58%), with mixed price movements affected by the dollar’s strength and higher bond yields.

Precious metals face challenges from the dollar’s strength and higher bond yields but are supported by safe-haven demand amid geopolitical risks. The Fed’s potential easier monetary policy and increased liquidity boost demand for precious metals. Central bank demand for gold remains strong, with China’s PBOC and global central banks increasing their gold reserves. Fund demand for precious metals is also high, with long holdings in gold and silver ETFs reaching multi-year highs.

Read more at Yahoo Finance: Dollar Pushes Higher as Bond Yields Rise