Dollar set for strongest week since November, yen steadies before polls

SINGAPORE – The US dollar steadied near a two-week high on Friday, poised for its strongest weekly performance since November as a rout in stocks driven by AI-spending concerns rattled investors, while the yen firmed ahead of a national election on Sunday.

The dollar has strengthened since President Donald Trump nominated Kevin Warsh as the next Federal Reserve Chair last week as markets expect him not to push a lot for rate cuts, easing some worries about central bank independence.

The sharp selloff in technology stocks this week comes as investors fret about the massive spending on artificial intelligence as well as the cascading impact of fast-advancing AI tools that could upend various sectors.

The risk aversion has helped the dollar despite US Treasury yields sliding after economic data pointed to a weaker-than-expected jobs market ahead of next week’s highly anticipated payrolls report for January.

The dollar index, which measures the US currency against six other units, was at 97.961, hovering near the highest since January 23. The index is set for a 1% increase for the week, its steepest rise since the middle of November.

ING economists said an apparent slowdown in hiring suggests the Fed may have acted a little prematurely in downplaying the risks to the jobs aspect of its mandate at its January policy meeting.

“Major downward revisions to payrolls next week would add to the pressure to eventually resume rate cuts,” they said in a note. Traders are still pricing in two cuts for the year, but the possibility of a move in June has inched up.

The euro was at USD 1.1784 after the European Central Bank left interest rates on hold as expected on Thursday and played down the impact of dollar moves on its future decisions.

Sterling was nursing steep losses in early Asian hours and stood at USD 1.3520 after dropping nearly 1% in the previous session.

The Bank of England kept interest rates on hold on Thursday, but only after an unexpectedly narrow 5-4 vote, and said borrowing costs are likely to fall if an expected drop soon in inflation is sustained.

The yen JPY= was a shade stronger in early trading at 156.74 ahead of a national election over the weekend, where a victory for Prime Minister Sanae Takaichi could be on the cards.

The vote has investors on edge because fiscal worries have sparked a stomach-churning selloff in the currency and bond markets, and a further leg lower would likely reverberate globally.

“An outsized victory will reduce near-term constraints on Takaichi’s fiscal policy goals, including reducing the consumption tax,” said Samara Hammoud, a currency strategist at CBA.

“Importantly, it still remains unclear how Takaichi plans to pay for expansionary fiscal policy. Renewed concerns about Japan’s burgeoning government debt will weigh on Japanese government bonds and the JPY.”

Gold and silver, which have become more volatile as a result of leveraged buying and speculative flows, have been rocked by steep selloffs this week. Silver was down 3% in early trading, on course for an 18% decline for the week.

In the crypto market, Bitcoin was choppy after hitting its lowest since October 2024. It was last at USD 63,273 after dropping to as low as USD 60,017.

(Reporting by Ankur Banerjee in Singapore; Editing by Jacqueline Wong)