Published by Global Banking & Finance Review®
Posted on February 6, 2026
4 min readLast updated: February 6, 2026
Add as preferred source on GoogleThe dollar is poised for its strongest weekly gain since November, driven by market turmoil and AI concerns, while the yen steadies before Japan's election.
By Laura Matthews
NEW YORK, Feb 6 (Reuters) - The dollar slipped from two-week highs on Friday, returning some safe-haven gains as risk assets rebounded from a deep rout driven by concerns over a surge in AI-related spending this year.
Even so, the buck remained on track for a weekly rise and trimmed earlier losses against the Japanese yen after U.S. data showed consumer sentiment improving in February, despite lingering concerns about jobs and rising costs of living.
Meanwhile, the yen is headed for its worst week against the dollar since October, wiping out most of January's hefty gains as traders await Sunday's national election.
"What we are seeing is some correlation reversals," said Dan Tobon, head of G10 FX strategy, Citi in New York. "Equities are up today, and so, as a result, you’re seeing a bit of dollar decline as all the high beta currencies really come back."
Global shares have seen their biggest weekly selloff since November, as investors fret about the massive spending on artificial intelligence as well as the cascading impact of fast-advancing AI tools that could upend various sectors.
The dollar index, which tracks the performance of the U.S. currency against six others, was down 0.34% after earlier hitting a two-week peak. It was still up 0.5% on the week, on pace for its largest weekly rise since early January.
The catalyst for this week's gain was President Donald Trump's nomination last Friday of Kevin Warsh, who is not seen as a big advocate of steep rate cuts, as the next Federal Reserve chair.
Fed Vice Chair Philip Jefferson said on Friday that he is "cautiously optimistic" about 2026, expecting slightly above-trend growth, a steadying job market, and inflation continuing toward 2%, with current policy positioned to respond to both sides of the Fed's mandate.
Meanwhile, San Francisco Fed President Mary Daly sees the economy in a "precarious" spot.
"Maybe the Fed is seeing something that we're not. Maybe he (Jefferson) might be forced to change his tune in the next couple of months here," said Matt Weller, global head of market research at StoneX, in Michigan. "If the NFP report confirms weakness in the labor market, I think that March could well be live for the Federal Reserve."
Traders are eyeing the delayed release of the U.S. nonfarm payrolls report for January, expected next week. Various measures of labour market strength this week have suggested the world's largest economy is losing some momentum and traders are now pricing in a higher chance that interest rates will be cut within the first half of this year, rather than in the second.
YEN SOFTENS AHEAD OF ELECTION
The yen slipped 0.04% to 157.1 per dollar ahead of Sunday's vote where a victory for Prime Minister Sanae Takaichi could be on the cards.
The vote has investors on edge because fiscal worries have sparked a stomach-churning selloff in the currency and bond markets, and a further leg lower would likely reverberate globally.
For StoneX's Weller, the big question is whether the election will be seen as a mandate for aggressive fiscal spending.
"If it is indeed what we see, it's likely that we'll see continued gains in the Nikkei, continued weakness in the yen," said Weller.
"The relative weakness of the U.S. dollar over the past few weeks masks the even greater weakness that we are seeing in the yen. So, it seems like one of those trends that could accelerate into next week and beyond. And it will likely, at some point, in my view, force some direct action from authorities in terms of potentially intervening to buy some time."
The euro rose 0.37% to $1.1822 after the European Central Bank left interest rates unchanged as expected on Thursday and played down the effect of currency fluctuations on its future decisions.
Sterling recouped some of Thursday's near 1% slide and rose 0.65% to $1.3614 and was headed for its worst weekly drop against the greenback since October 27.
The Bank of England also kept rates on hold on Thursday in an unexpectedly narrow vote and said borrowing costs are likely to fall if an expected drop soon in inflation is sustained.
In the crypto market, bitcoin rose 11.77% to $70,547.28 after hitting its lowest since October 2024 at $60,017. It was still set for a decline of 7.5% for the week.
(Reporting by Laura Matthews in New York; Additional reporting by Amanda Cooper in London and Ankur Banerjee in Singapore; Editing by Emelia Sithole-Matarise, Gareth Jones and Andrea Ricci )
The U.S. dollar is the official currency of the United States and is widely used as a global reserve currency.
Foreign exchange, or Forex, is the global market for trading national currencies against one another.
A central bank is a financial institution that manages a country's currency, money supply, and interest rates.
Currency movements refer to the fluctuations in the value of one currency relative to another in the foreign exchange market.
Economic growth is an increase in the production of goods and services in an economy over a period of time.
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