The dollar maintained its strength on Friday, bolstered by elevated U.S. Treasury yields, which reached multi-month highs. U.S. durable goods orders for November fell short of expectations, but robust new home sales and resilient consumer spending offset the weaker data. Japan’s yen faced selling pressure, even as verbal intervention by Finance Minister Shunichi Kato curbed its decline. Rising U.S.-Japan yield differentials kept the yen under pressure, despite Tokyo inflation accelerating and speculation of a Bank of Japan (BOJ) rate hike persisting amid divided BOJ policy board minutes. Risk sentiment was further dampened by weak Chinese industrial profits and renewed concerns over Trump-era trade policies, which added pressure on commodity-linked currencies like the Australian dollar.

Market Outlook: Dollar Retains Edge Amid Global Headwinds

• Dollar: Supported by the U.S.'s rate advantage and resilient Treasury yields, the dollar is expected to remain strong in the near term. However, domestic economic risks and geopolitical uncertainties could temper gains in the medium term.
• Yen: Likely to stay vulnerable unless the BOJ signals decisive policy adjustments. Verbal interventions may provide temporary stability, but the yen remains under pressure from wide U.S.-Japan yield differentials.
• Euro: Faces mixed prospects as inflation approaches target levels, but persistent economic headwinds may limit gains unless eurozone sentiment improves.
• Australian Dollar: Could test multi-year lows unless China’s economy recovers or the Reserve Bank of Australia (RBA) adopts a more hawkish stance.
• Commodity-Linked Currencies: Canadian and Australian dollars remain under pressure from weaker energy markets and global risk aversion unless a significant recovery in demand emerges.

Currency Market Summary: Volatility Across Major Pairs

• USD/JPY: Reached 158.09 in New York trading before retreating into Asia after Japan’s verbal intervention. The pair remains buoyant on strong U.S. yields, though capped near key resistance levels.
• EUR/USD: Edged higher, paring earlier losses, but struggled to sustain momentum as the dollar remained firm. Options expiries in the 1.0400-1.0500 range contained volatility.
• GBP/USD: Stayed soft, trading near 1.2510-1.2536, pressured by dollar strength and uncertainties surrounding the U.K.’s 2025 economic outlook.
• AUD/USD: Remained offered, reflecting concerns over Fed-RBA policy divergence and risks stemming from China’s weak economy and renewed tariff threats.
• Yen Crosses: EUR/JPY and GBP/JPY mirrored USD/JPY trends, while AUD/JPY faced additional pressure from risk-off sentiment and technical resistance.

Currency Outlook: Dollar Strength Dominates Amid Rate Differentials

• Dollar: Poised to retain its strength if Treasury yields remain elevated. However, geopolitical risks and Fed commentary on 2025 rate adjustments could introduce volatility.
• Yen: Downside risks persist unless BOJ policy shifts or further verbal interventions limit declines. Yield differentials favor continued dollar strength against the yen.
• Euro: Struggles for traction unless eurozone growth sentiment improves or inflation supports ECB hawkishness. Key technical levels may offer near-term support.
• Pound: Remains cautious, with upside limited by weak U.K. growth prospects and Fed-BOE policy divergence.
• Australian Dollar: Likely to stay under pressure amid weak global risk sentiment, with key support levels vulnerable if Chinese demand fails to rebound.

Conclusion: Volatility Ahead as Markets Balance Rates and Growth Risks

Currency markets are expected to remain volatile as investors weigh central bank signals, geopolitical developments, and macroeconomic trends. The dollar is well-supported by elevated yields, while the yen and commodity-linked currencies face headwinds from global growth concerns and diverging monetary policies. Safe-haven assets like gold and the yen will remain sensitive to geopolitical risks, while the euro and pound navigate regional challenges and global uncertainties. As rate expectations and growth risks converge, markets brace for further turbulence heading into 2025.