Dollar Strengthens on Strong U.S. Data, Yen Slips as Tariffs Stir Market Uncertainty

The U.S. dollar held firm on Friday, extending its recent rally after a series of stronger-than-expected economic reports reduced the likelihood of aggressive Federal Reserve rate cuts this year. The dollar index, which tracks the greenback against major currencies, rose 0.6% in the prior session and remained steady at 98.473, hovering near a three-week high and on pace for a 0.8% weekly gain.

Economic data showed U.S. gross domestic product expanded at an upwardly revised 3.8% in the second quarter, exceeding the initial 3.3% estimate. Additional figures on unemployment claims, durable goods, and wholesale inventories also surpassed forecasts, boosting investor confidence in the U.S. economy. Analysts noted that such numbers ease urgency for the Fed to provide additional stimulus, with futures now pricing in an 87.7% probability of a 25-basis-point cut in October—down from over 90% earlier in the week.

The yen weakened to an eight-week low at 149.81 per dollar, approaching the key 150 level not seen since early August. Market sentiment was further pressured after President Donald Trump unveiled new tariffs, including a 100% duty on branded drugs, 25% on heavy-duty trucks, and 50% on kitchen cabinets, reigniting trade tensions. Meanwhile, the euro fell 0.6% on Thursday, trading at $1.1665.

Attention now shifts to Friday’s release of the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, expected to rise 0.3% month-on-month and 2.7% annually. Economists suggest resilient inflation could justify gradual rate cuts but rule out aggressive easing.

In Tokyo, core inflation stayed above the Bank of Japan’s 2% target in September, fueling expectations of a near-term rate hike. With global monetary policy diverging and trade risks resurfacing, currency markets remain volatile, keeping investors closely focused on U.S. economic indicators and Fed policy signals.