The dollar index (DXY) fell to a 12-week low on Friday and finished down by -0.5%, extending the broader dollar weakness that has seen the dollar index fall 0.5% for the week, the biggest drop since early April. The euro gained 0.5% on the week to $1.1440 after hitting a nearly two-week high, while GBP/USD firmed to $1.3352 for a 1.1% weekly gain, its best performance in nearly three months. The Japanese yen strengthened to less than 161 per dollar from Thursday's 40-year low of 162.84, though markets remain nervous about intervention risks after the sudden jump. USD/JPY was last at 161.25 as the yen recovered from historic lows, with August COMEX gold (GCQ26) closed up +43.30 (+1.06%) and September COMEX silver (SIU26) closed up +0.553 (+0.91%) on Thursday, with gold and silver prices climbing to 1-week highs as the dollar's weakness supported precious metals prices.
US June nonfarm payrolls rose +57,000, weaker than expectations of +113,000, with May nonfarm payrolls revised lower to +129,000 from the originally reported +172,000. The disappointing employment data has markets pricing in a 45% chance for a +25 bp rate hike at the September meeting, down from previous expectations. US June unemployment rate unexpectedly fell -0.1 to a 1-year low of 4.2%, showing a stronger labor market than expectations of no change at 4.3%. US weekly initial unemployment claims unexpectedly fell -1,000 to 215,000, showing a stronger labor market than expectations of an increase to 218,000. US January average hourly earnings rose +0.3% m/m and +3.5% y/y, right on expectations. US May factory orders fell -1.3% m/m, a smaller decline than expectations of -2.0% m/m, while May factory orders ex-transportation rose +1.9% m/m, stronger than expectations of +1.0% m/m and the biggest increase in more than 4 years.
The euro also received support from Thursday's Eurozone economic news, which showed Eurostat reported that the Euro area Unemployment Rate stood at 6.2% in May, stable from April, with the broader EU Unemployment Rate at 5.9%, also stable on the month and down from 6.0% in May 2025. The data showed that labor conditions remain resilient, supporting the Euro despite still-soft growth momentum. GBP/USD is trading higher near 1.3350, benefiting from a softer USD tone, although upside remains limited as investors continue to assess the Bank of England's outlook. With United Kingdom inflation risks still present and growth signals uneven, the Pound remains sensitive to incoming domestic data and central-bank comments.
Japan issued a warning to currency markets on Friday as Finance Minister Satsuki Katayama said Tokyo was in regular contact with Washington on foreign exchange issues and remained ready to support the yen. Japan's Chief Cabinet Secretary Minoru Kihara said they were closely monitoring market movements with a sense of urgency. SEB's Karl Steiner noted that "You have to have it on the radar" referring to the possibility of intervention, adding "Historically they have preferred to do it whenever there is lower liquidity". Markets are concerned about Japanese officials abandoning their habit of telegraphing risks, instead signalling a more targeted campaign to squeeze speculators and raise the cost of betting against the yen. Tony Sycamore from IG said the recent 40-year peak in dollar-yen has become a short-term top, with the bigger question being what comes next depending on incoming US data and Japanese government bond market developments.
On the monetary policy front, the markets are discounting a +2% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31. The Bank of Japan's dovish stance continues to support the yen's appeal in the current market environment, with the Bank of Japan's dovish stance helping to ease concerns about labour market overheating and the need for more aggressive policy tightening, as noted by OCBC FX strategist Sim Moh Siong. US Treasuries were closed on Friday for the Independence Day holiday, with the dollar index roughly 0.2% lower at 100.83 after a 0.5% dip on Thursday.
