Dollar Holds Steady Ahead of Labor Report as Yen Rallies on Inflation

The US dollar remained steady near its multi-month highs on Friday as investors waited for the highly anticipated U.S. labor market report, while the Japanese yen gained ground following a hotter-than-expected Tokyo inflation reading.

The greenback held firm near its highest levels since April 2025, backed by signs of economic resilience that give the Federal Reserve leeway to maintain a hawkish stance. However, recent U.S. personal consumption expenditures (PCE) data showed a slight cooling, though core inflation remains above the Fed's 2% annual target.

The Japanese yen surged after Tokyo consumer price data revealed both headline and core inflation climbing to their highest levels since November 2025, well clear of the Bank of Japan's 2% target. This reinforced market bets that the BOJ will follow up its 25-basis-point rate hike in September with additional tightening in the months ahead.

In Europe, euro zone headline inflation jumped to 3.8% in September from 3.2% a month earlier, topping expectations for 3.6%. The spike was driven primarily by natural gas and fuel costs. While the ECB may draw some comfort from core inflation remaining relatively contained, the sharp acceleration in headline prices well above its 2% target presents a complex picture.