Dollar Index Stabilises After Volatile Trading

The US dollar index traded with a firm tone last Friday, extending modest gains and briefly approaching the 99.00 level before closing higher by 0.3% at 98.73. Despite earlier pressure from softer US inflation data, the dollar recovered as markets questioned the reliability of recent figures due to disruptions caused by the US government shutdown.

US Treasury yields reflected a similar stabilisation. The benchmark 10-year yield settled at 4.144%, while the policy-sensitive 2-year yield closed at 3.490%. The resilience in yields helped cap further downside in the dollar, reinforcing its short-term support despite growing expectations of Federal Reserve rate cuts in 2026.

Yen Slides Sharply After BoJ Rate Hike Disappoints Markets

The Japanese yen was the weakest performer among major currencies, falling sharply after the Bank of Japan raised its policy rate to 0.75%, in line with expectations. While the rate increase marked continued policy normalisation, investors were disappointed by the lack of clear guidance on the pace and scope of future tightening.

BoJ Governor Kazuo Ueda’s remarks were perceived as cautious rather than hawkish, prompting traders to unwind long yen positions. USD/JPY surged 1.23% to close at 157.535, touching a four-week high. The yen also weakened broadly, with EUR/JPY hitting a record high near 184.71 and GBP/JPY climbing to its strongest level since 2008.

Japan’s Finance Minister warned that authorities are closely monitoring excessive currency volatility and stand ready to respond if speculative moves intensify, highlighting growing official concern over the yen’s rapid depreciation.

Gold Holds Near Highs as Fed Cut Expectations Build

Spot gold closed slightly higher at $4,338.22 per ounce, extending its weekly gain to nearly 1%. Analysts remain constructive on the medium-term outlook, citing a low-rate environment, ongoing currency debasement risks, and rising expectations that the Federal Reserve will ease policy in 2026.

Market pricing now reflects at least two 25-basis-point rate cuts next year, supported by softer US inflation data and a rising unemployment rate, which reached 4.6 in November. These factors continue to underpin demand for non-yielding assets such as gold.

Silver outperformed once again, surging to a fresh all-time high near $67.43 per ounce and ending the session up 2.6%. Strong investment demand and tightening supply conditions have propelled silver sharply higher this year, significantly outperforming gold. Platinum and palladium also advanced, supported by supply concerns and broad strength across precious metals.

Oil Prices Rebound on Geopolitical Supply Risks

Crude oil prices rose as geopolitical developments offset persistent concerns about weak downstream demand. WTI crude climbed to $56.48 per barrel, while Brent settled near $60.65, both posting solid daily gains.

The rebound followed reports that the United States intercepted a Venezuelan oil tanker and imposed fresh sanctions on individuals linked to President Nicolás Maduro. These actions heightened fears of potential disruptions to Venezuelan oil exports. At the same time, markets remain alert to any progress in Russia-Ukraine peace talks, which could significantly alter global supply expectations.

Despite the bounce, oil markets remain cautious. US gasoline futures fell to four-year lows, compressing refinery margins and signalling subdued end-user demand. This demand weakness continues to limit the upside for crude prices, even as geopolitical risks provide intermittent support.

Equity Markets Advance on Risk Appetite

US equity markets closed higher, led by strong gains in technology and semiconductor stocks. The Nasdaq outperformed, supported by sharp advances in major chipmakers, while the S&P 500 and Dow Jones also posted solid gains. European equities followed suit, with major indices ending the session firmly in positive territory.

The broader risk-on tone reflects investor optimism around easing inflation pressures and expectations that global central banks are nearing the end of restrictive policy cycles.

Outlook

Markets remain highly sensitive to central bank guidance, inflation trends, and geopolitical headlines. With delayed US GDP data set to be released and the holiday period approaching, liquidity may thin, increasing the risk of short-term volatility. Precious metals continue to attract strong interest, while currency markets are likely to remain driven by relative policy expectations, particularly between the Federal Reserve and the Bank of Japan.