The dollar index edged lower on Friday after briefly nearing a one-year high, driven by a mix of stronger-than-expected U.S. retail sales, rising import prices, and a sharp jump in the New York Fed manufacturing index. These factors briefly lifted Treasury yields before profit-taking set in. Federal Reserve officials, including Boston Fed President Susan Collins and Chicago Fed President Austan Goolsbee, emphasized caution on future rate cuts. Fed Chair Jerome Powell reaffirmed that the Fed is in no rush to ease policy, which tempered earlier expectations for aggressive rate reductions.

Global Risks Add to Market Uncertainty

Broader market sentiment remains cautious, influenced by geopolitical tensions as Russia suspended gas deliveries to Austria and conflict escalated in Ukraine. Weak Chinese demand and global economic uncertainties drove significant declines in oil prices. Meanwhile, gold was poised for its steepest weekly decline in three years as haven demand faded. Equity markets also struggled, with steep losses in the technology and consumer sectors dragging U.S. indexes lower.

Currency Markets: Yen Surges While Pound Weakens

• Euro: The euro inched higher against the dollar, supported by short-covering and activity around the 1.05 level, though geopolitical risks and cautious European sentiment capped gains.
• Pound: Sterling slipped after weaker-than-expected U.K. growth data for September showed an economic contraction. Profit-taking following recent gains added to the downside pressure.
• Yen: The yen experienced its largest rally in six weeks as equity market weakness drove haven flows, with additional support from short-covering.
• Australian Dollar: The Aussie saw modest gains, bolstered by commodity-linked sentiment despite ongoing concerns over China’s economic slowdown.

Commodities Under Pressure Amid Demand Concerns

• Oil: Prices dropped significantly, driven by subdued demand from China and easing geopolitical supply fears.
• Gold: The precious metal headed for a sharp weekly loss as haven demand diminished.
• Copper: Industrial metals, including copper, struggled to gain footing as weak Chinese demand weighed on sentiment.

Looking Ahead: Geopolitical and Central Bank Signals in Focus

• Dollar: The greenback’s momentum may slow further as Fed officials adopt a cautious tone on rate cuts, leading to a more measured market outlook.
• Euro: The euro is likely to trade in a range as geopolitical risks and economic concerns in Europe persist.
• Pound: Sterling faces downside risks, with upcoming U.K. economic data and central bank commentary likely to play a critical role in shaping sentiment.
• Yen: Safe-haven flows could keep the yen supported, particularly if global equities remain under pressure. Bank of Japan Governor Kazuo Ueda’s upcoming speech may provide additional policy clarity.
• Commodity-Linked Currencies: The Australian dollar and other commodity-linked currencies are expected to remain sensitive to developments in China’s growth outlook and commodity demand.

With geopolitical uncertainties, U.S. inflation trends, and Fed signals in focus, market participants are bracing for another volatile phase across asset classes.