The U.S. dollar was mostly flat against peer currencies on Friday after data showed a less-than-expected increase in inflation in January, suggesting the Federal Reserve could continue to hold rates steady in the near term.

The Japanese yen was set for its strongest weekly gain in about 15 months.

U.S. Labor Department data on Friday showed that the consumer price index rose 0.2% last month compared with an estimate of 0.3% from economists polled by Reuters.

The euro was 0.02% higher at $1.1873 against the dollar, but was set to gain 0.5% this week. Against the Swiss franc, the dollar weakened 0.22% to 0.76785 and was on course for a weekly loss of 1%.

The dollar’s behavior reflects market positioning as it awaits fresh central bank signals on the direction of interest rates, said Olivier Bellemare, senior derivatives trader at Monex Canada in Montreal.

Market Reaction Is ‘Timid’

Earlier this week, data suggested the U.S. labor market was stabilizing with a drop in the U.S. unemployment rate amid strong jobs growth in January and a less-than-expected decrease in the number of Americans filing new applications for unemployment.

“The market reaction to the data was timid at best and the moves were mostly tactical,” Bellemare said.

The dollar index edged lower by 0.07% to 96.85, on track to shed 0.84% for the week.

The dollar’s relative weakness is partly driven by volatile U.S. policymaking in January, recent software sector selloff that has reduced U.S. equity market outperformance, and “idiosyncratic” developments in Asia, especially a steadily strengthening Chinese yuan, said Goldman Sachs analysts including Alexandra Kanter in an investor note.

Yen’s Strong Performance

The yen has dominated activity in the foreign exchange market this week, after Japanese Prime Minister Sanae Takaichi’s historic election win allayed some investor worries about the government’s finances.

The yen was still headed for a gain of nearly 3% for the week, its largest rise since November 2024, and was up 0.08% on the day at 152.67.

The yen was up 0.02% against the euro at 181.29 and was headed for a 2.37% weekly jump against the single currency, its strongest performance in a year.

“Over the longer term, yen‑weakening risks remain firmly in place,” said Bank of America Global Research analysts led by Claudio Piron in an investor note. “But in the near term, the combination of potential intervention and scope for the market to further price-in Bank of Japan hikes at the March and April meetings skews the risk‑reward for USD/JPY to the downside.”

The Australian dollar, the top-performing major currency of 2026 so far after soaring in recent weeks on a hawkish Reserve Bank of Australia, was down 0.20% at $0.70765, but still headed for a nearly 1% gain this week.

The Canadian dollar strengthened 0.10% versus the greenback to C$1.361 per dollar, still set to drop 0.45% for the week.

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(Reporting by Chibuike Oguh in New York; Additional reporting by Amanda Cooper; Editing by Barbara Lewis, David Holmes and Diane Craft)