The US Dollar struggled to keep buyer interest on Friday, following a strong performance on Thursday. The Bureau of Economic Analysis published the Personal Consumption Expenditures Price Index for September, an important inflation measure favored by the Federal Reserve. Attention later in the day was expected to turn to the University of Michigan Consumer Sentiment Index for December.

US Dollar Performance

This week, the US Dollar weakened, especially against the Australian Dollar. Positive US data showed job cuts dropped by 53% in November, and initial jobless claims fell to 191,000, below the expected 220,000. Even with these strong numbers, the chance of a 90% rate cut by the Fed in December limited any recovery in the Dollar. By Friday morning in Europe, the US Dollar Index remained below 99.00. The USD/CAD pair saw a slight increase on Thursday but pulled back early Friday. Canadian employment data, which predicted a rise in the unemployment rate, was on the radar. The USD/JPY pair continued to decline as Japan’s Finance Minister addressed issues affecting interest rates. The EUR/USD pair gained some momentum on Friday morning, while GBP/USD experienced a slight correction on Thursday. Gold remained stable, trading just above $4,200. High inflation often boosts a country’s currency by leading to higher interest rates and attracting investment. In contrast, high inflation negatively affects Gold due to increased opportunity costs, whereas low inflation makes Gold more appealing.

Inflation Impact

Reflecting on a similar situation from this day in 2023, the market expected the Fed to cut rates, despite positive economic signs. Today, the scenario has changed, with the Federal Reserve keeping interest rates steady at 4.50% to combat persistent inflation. The latest Core PCE data from October 2025 revealed inflation still stubbornly high at 2.8%, well above the target. This difference in policy has significant effects on the US Dollar, which was struggling below 99 on the DXY index back then. Now, in December 2025, the index is firmly around 106.50 as capital flows to the US for higher yields. Traders in derivatives should expect the Dollar to remain strong, especially against currencies from central banks that have begun easing. Looking back, we saw USD/JPY declining towards 154 despite a significant interest rate gap. That trend has now fully developed, with the pair trading near 162 as the carry trade influences market movements. Betting strategies on sustained highs, or potential further increases, may be beneficial unless the Bank of Japan takes strong action. Gold traded above $4,200 at that time but has struggled to maintain that level throughout 2025. The non-yielding metal’s price has been capped near $3,950 an ounce due to the high opportunity cost of holding it, given the firm US interest rates. Future signals of a potential Fed policy shift could spark a sharp rally, making long-dated call options a strategy to watch for a sudden change in market sentiment. Create your live VT Markets account and start trading now.

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