Dollar Performance

The dollar strengthened against major currencies on Friday, driven by U.S. PMI data that reinforced the perception of stronger U.S. economic growth compared to other key economies. Despite signs of reduced inflation pressures in the S&P Global U.S. PMI report, with input prices falling and output prices reaching a five-month low, political uncertainty ahead of French elections supported the safe-haven dollar. This environment led to losses for EUR/USD, pushing it further below previously surrendered moving averages, though it stayed above the June 14 low, its weakest since May 1.

USD/JPY Movements

USD/JPY surged to 159.625, its highest since the 34-year peak reached in late April, which had prompted Japanese intervention to support the yen. The U.S.-Japan interest rate differential continues to drive dollar gains, while recent intervention warnings pose potential limits as USD/JPY approaches 160. Considering the last intervention led to a drop to 151.86, the 160 mark could be crucial for the Ministry of Finance.

GBP/USD Dynamics

GBP/USD hit a five-week low of 1.2622 in early U.S. trading and stayed near this level in the afternoon, impacted by weaker-than-expected UK PMI data that highlighted the divergence in expectations between the Federal Reserve and the Bank of England. Support was found just ahead of the 55-day moving average at 1.2619, with a close below this level potentially leading bears to target the daily cloud top at 1.2596 and then the 200-day moving average at 1.2557.

Broader Market Trends

The S&P 500 saw slight declines in afternoon U.S. trade, while WTI oil fell 0.82% but was set to rise for the second consecutive week due to signs of improving demand and decreasing oil and fuel inventories in the U.S. Copper dropped 2.74% due to concerns over surplus supplies and weak demand in China, the top metals consumer, where the currency is also weakening. Gold declined 1.77%, reflecting broader market trends and investor sentiment. Heading into the close, EUR/USD was down 0.08%, USD/JPY up 0.4%, GBP/USD down 0.11%, and AUD/USD down 0.23%, highlighting a mixed but overall stronger dollar landscape.

Market Outlook

The market's focus will be on upcoming economic data and geopolitical events. In the U.S., attention will remain on inflation metrics and labor market indicators to gauge the Federal Reserve's future policy direction. The European Central Bank's response to euro zone economic data and the Bank of England's stance amid divergent PMI readings will also be closely monitored. Political developments, particularly in France, add uncertainty that could impact safe-haven flows into the dollar. Commodity prices will remain sensitive to demand forecasts, especially from China, affecting currencies tied to resource economies.

Summary

The dollar's strength is supported by relatively stronger U.S. economic data and safe-haven flows amid global uncertainties. EUR/USD faces pressure from weaker euro zone data and political risks, while USD/JPY is driven higher by interest rate differentials but limited by intervention risks. GBP/USD encounters downside risks from weaker UK economic data and diverging central bank policies. Commodity currencies like the AUD are influenced by global demand trends and commodity price movements. The broader market will continue to navigate economic indicators and central bank policies, with a cautious eye on geopolitical developments.

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