U.S. dollar set for strongest weekly gain since October, driven by Federal Reserve hawkish signals and escalating U.S.-Iran tensions. The greenback rose 0.1% to 97.920, nearing a one-month high, with markets pricing in over 1% weekly momentum. Analysts cited labor market resilience and inflation data as key catalysts, though geopolitical risks loom large. ING warned that diplomatic progress is needed to temper dollar strength.

Eurozone currencies weakened amid uncertainty over European Central Bank President Christine Lagarde's leadership and mixed economic data. The euro fell 0.1% to 1.1761, with German producer prices plunging 3% year-on-year—surpassing forecasts. Sterling slipped 0.1% to 1.3451, extending weekly losses to 1.5%, despite UK retail sales growth. Bank of England rate-cut bets intensified, with a 20bp cut priced for March.

Japanese yen declined 0.2% to 155.36 after inflation data showed headline rates at 1.5%—the lowest since 2021. Core inflation moderated but remained above the Bank of Japan's 2% target, delaying rate-hike expectations. Aussie dollar retreated to 0.7042 as employment growth slowed, though unemployment held steady at 4.1%. Markets await Eurozone PMI data for further directional cues.

Market strategists emphasized divergent central bank paths: the Federal Reserve's restrictive stance contrasts with the Bank of Japan's dovish pause. ING noted that persistent safe-haven flows could sustain dollar gains, but a shift in geopolitical rhetoric or policy surprises remains critical. Investors are closely monitoring U.S. PCE inflation and Eurozone composite PMI releases this week.