Dollar Finishes the Week on Stronger Ground as Markets Weigh Inflation Signals

The U.S. dollar closed the week with renewed strength, advancing against all major currencies as global markets moved into a cautious, holiday-season mindset. Despite a brief setback earlier in the week, the greenback regained momentum as investors reassessed the broader economic picture and adjusted positions ahead of thinner trading conditions.

A softer-than-expected U.S. inflation reading initially pressured the dollar, sparking hopes that price pressures were easing more decisively. However, that optimism quickly faded as markets looked beyond the headline numbers. Persistent increases in everyday costs, particularly food prices, raised doubts about how meaningful the slowdown in inflation really is for households and long-term policy decisions. As a result, confidence in a sustained weakening of the dollar remained limited.

Currency markets also reflected uneven global performance. The Japanese yen stood out as the weakest major currency, slipping sharply even after a long-anticipated policy move by Japan’s central bank. This reaction suggested that investors were unconvinced the shift would be enough to change the broader outlook for the yen, especially in an environment where the dollar continues to benefit from relative stability.

As the week progressed, the dollar’s recovery gained support from defensive positioning and reduced liquidity typical of the pre-holiday period. With fewer participants willing to take bold bets, the U.S. currency benefited from its role as a perceived safe and liquid option, allowing it to hold onto gains even as broader risk sentiment fluctuated.

Looking ahead, the dollar’s near-term direction remains uncertain. While the latest inflation data may be used to argue for a more accommodative policy stance in the future, markets appear cautious about drawing strong conclusions from a single report. For now, the dollar ends the week on firmer footing, supported by lingering inflation concerns, cautious trading conditions, and a lack of compelling alternatives among major currencies.