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The dollar hovered near a two-week high on Friday and was heading for its strongest weekly performance since November, as a sharp decline in stock markets driven by concerns over artificial intelligence spending rattled investor confidence. Meanwhile, the Japanese yen strengthened ahead of national elections scheduled for Sunday, adding to currency market volatility.
According to market data, the dollar index, which measures the U.S. currency against six major counterparts, reached 97.961, hovering close to its highest level since January 23. The index was on track to gain one percent for the week, marking its largest increase since mid-November.
Dollar Strength Amid Market Uncertainty
The surge in dollar strength came as investors sought safe-haven assets following turbulence in equity markets. Concerns about corporate spending on artificial intelligence technologies triggered widespread selling across global stock markets, prompting a flight to the perceived safety of the U.S. currency.
However, this shift in investor sentiment has had significant implications for other major currencies. The currency fluctuations reflect broader anxiety about the sustainability of AI-related investments and their impact on corporate earnings.
Yen Gains Before Japanese Elections
The Japanese yen appreciated to 156.74 against the dollar as traders positioned themselves ahead of national elections early in the week. Political uncertainty in Japan has historically influenced yen movements, with investors typically seeking clarity on fiscal and monetary policy directions.
Additionally, the yen’s performance reflects ongoing concerns about the Bank of Japan’s monetary policy stance and its divergence from other major central banks. The currency has been under pressure for months due to interest rate differentials with the United States.
European Central Bank Holds Rates Steady
The euro traded at 1.1784 dollars after the European Central Bank maintained interest rates unchanged on Thursday, in line with market expectations. The central bank downplayed the influence of dollar movements on its future policy decisions, emphasizing its focus on eurozone economic conditions.
In contrast, the British pound experienced sharp losses, stabilizing at 1.3520 dollars after falling approximately one percent in the previous session. The pound’s weakness against the dollar underscores the broad-based strength of the U.S. currency across foreign exchange markets.
Cryptocurrency Markets Face Steep Declines
Meanwhile, the cryptocurrency market experienced significant turbulence alongside traditional currency movements. Bitcoin rose 1.5 percent to 64,158 dollars in volatile trading, according to market data, after earlier hitting its lowest level since October 2024 at 60,017 dollars.
The digital currency was heading for a 16 percent weekly decline, representing its largest drop since November 2022. The cryptocurrency sell-off mirrors broader risk-aversion trends affecting financial markets globally, as investors reassess exposure to speculative assets.
Implications for Global Markets
The dollar’s rally has important implications for emerging markets and commodities priced in the U.S. currency. A stronger dollar typically puts pressure on commodity prices and increases debt servicing costs for countries with dollar-denominated obligations.
Furthermore, the divergence in central bank policies continues to drive currency movements, with the Federal Reserve maintaining a relatively hawkish stance compared to other major central banks. This interest rate differential supports dollar strength in forex markets.
Market participants will closely monitor upcoming economic data releases and central bank communications for signals about future currency direction. The outcome of Japan’s national elections may also influence yen trading patterns in the coming sessions, though the extent of any policy changes remains uncertain.
