Investing.com -- The U.S. dollar slipped slightly on Friday, as investors fled a bruising rout on Wall Street and flocked towards safe-haven trades such as Treasury bonds and the Japanese yen. The latter was also boosted after the Bank of Japan (BOJ) kept interest rates steady in a decision that indicated some hawkishness. Meanwhile, the euro ticked lower after data showed a deceleration in economic growth in the eurozone.
The dollar, yen, and euro have been in particular focus this week as the Federal Reserve and the European Central Bank (ECB) have also held interest rates. However, analysts have characterized the move as an uneasy holding pattern rather than a dovish pivot, especially as oil prices remain high amid geopolitical ructions.
The U.S. dollar index, which tracks the greenback against a basket of six major peers, shed 0.2% to 101.88.
According to Thierry Wizman, global FX and rates strategist at Macquarie, artificial intelligence will play a role in determining which of the Fed, ECB, or BOJ hike in December.
"Seeing the size and composition of growth in the three main DM economies (the U.S., Euro area, Japan), it is clear that AI has benefited the U.S. most in 2026. That benefit to growth in 2026, and the promise of productivity gains in 2027-2030, is why Kevin Warsh wants to be 'dovish', and wants AI to plow ahead. It's why he personally won't commit to another rate hike, yet, despite different opinions prevailing at the FOMC," Wizman said.
"For the ECB, too, AI is important, as acknowledged in the ECB statement. But Euro area growth in Q4 is not as dependent on the AI buildout as is the U.S.'s growth, and so the interest in maintaining AI-driven growth is not as great in Europe as in the US. Indeed, that's why the ECB still latches onto energy costs as the key hinge for ECB policy. It's also why the ECB is more likely to hike in December than the Fed, barring a problem in France," he noted.
"For Japan, the U.S.'s AI boom has been a greater growth boon than it has been for Europe. It's why Japan still 'grows' in 2026, despite the large oil price shock. Until public spending kick in or oil prices fall, Japan's growth impulse is still mainly through external demand for tech hardware, and not through domestic demand. If AI stocks falter in the U.S., the Fed may desist, but the BOJ will hike so long as AI-driven investment remains strong," Wizman said.
"Indeed, we see the prospect of a BOJ hike in December being greater than the prospect of an ECB hike, which in turn is greater than a Fed hike," he added.
Dollar heads for positive month
The U.S. dollar index was on track for an October gain of 0.4%, in a month where Federal Reserve rate expectations grabbed a chunk of the spotlight. Hotter-than-expected U.S. consumer and producer price readings, along with elevated readings of the personal consumption expenditures (PCE) price index - the Fed's preferred inflation gauge - had kept traders on edge ahead of the October interest rate decision.
However, the Federal Open Market Committee (FOMC) this week kept rates steady, with Chair Kevin Warsh saying there was a deluge of data still to be released until the December rate decision. The FOMC had hiked rates in September for the first time in over three years, and markets now expect another hike in December. Higher rate environments tend to strengthen the dollar.
The dollar has also been bolstered this month by solid U.S. economic growth and elevated geopolitical risk premiums.
Euro slips after GDP data rebound on Lagarde dissents
Over in Europe, the single currency dipped 0.1% to $1.1164. Earlier, data showed that Q3 GDP growth in the eurozone was 0.4%, lower than the 0.6% improvement in Q2.
The euro was also headed for a 0.7% decline for October, weighed down by widening French sovereign spreads and the drag of elevated energy import bills on the bloc's terms of trade.
Investor sentiment around the shared currency stabilized after ECB President Christine Lagarde confirmed that policymakers held an active debate over whether a rate hike was warranted this week, before deciding to keep the benchmark deposit rate steady at 2.50%.
Lagarde, who unexpectedly announced she will step down as ECB chief in February - eight months ahead of schedule - signaled that higher global bond yields were tightening financial conditions without requiring immediate central bank intervention.
Yen steadies on hawkish BOJ hold
Moving to Asia, the yen firmed modestly against the dollar to 157.62. The currency had weakened toward 157.81 earlier in the session and remained on track for a modest 0.1% monthly retreat against the greenback.
The BOJ held its policy rate at 1.25% in an 8-1 vote, but updated projections showing persistent inflation underscored expectations for further tightening. Board member Hajime Takata broke ranks to cast a dissenting vote, calling for an immediate 25-basis-point hike to 1.50%.
The hawkish dissent reinforced market bets that Governor Kazuo Ueda will pull the trigger on another rate increase as soon as December, with derivatives pricing in approximately an 80% probability of a year-end hike.
Roushni Nair and Pranav Kashyap contributed to this article
