The Dollar remained stable on Friday but was set to close the week lower after six consecutive weeks of gains, as investors shifted their attention to Donald Trump's presidential inauguration and anticipated the new administration's policy moves.

Meanwhile the Japanese Yen was on track for its best weekly performance in more than a month, driven by growing expectations that the Bank of Japan will increase rates next week, which has put pressure on the Dollar.

Recently, the Dollar had strengthened due to rising Treasury yields, driven by the belief that President-elect Trump's policies could accelerate inflation in an already robust US economy, Reuters reports.

Yet bond markets found some relief from a continuous sell-off following softer US core inflation data on Wednesday, along with comments from Federal Reserve Governor Christopher Waller on Thursday.

Waller suggested that three or four interest rate cuts could still be possible this year if the data justified them.

As a result, markets increased their expectations for Fed rate cuts this year, which put some downward pressure on the Dollar ahead of Trump's return to the White House next week.

As it stands, money markets are pricing in approximately 43 basis points of US rate cuts for 2025. Investors are now looking ahead to Trump's inauguration speech on Monday, hoping to gain more insight into his policy direction, as a period of market volatility is anticipated in the coming days.

“What happens next is just so dependent on what we hear from Trump, what he does and the policies that he implements in his first couple of days and weeks,” stated Fiona Cincotta, senior market analyst at City Index.

However, Cincotta added that she would be looking to assess market sentiment later in the session.

“It'll be interesting to see what happens towards the end of the session today... Whether investors are prepared to hold risk going into next week, or whether we see a little bit of a sell-off heading into the weekend.”

In addition, the Yen has risen more than 1% against the Dollar this week, recovering from last week's loss. At the time of writing, it was 0.45% weaker at 155.8 per Dollar, after reaching a one-month high of 154.98 per Dollar earlier on Friday.

Elsewhere, Sterling dropped 0.45% to $1.21845, staying close to the 14-month low it reached on Monday. 

Data released on Friday showed that British retail sales unexpectedly declined in December, increasing the likelihood of an economic contraction in the fourth quarter.

Meanwhile, the Euro remained flat at $1.03025.

Consequently, the Dollar index, which tracks the greenback against six other currencies, rose by 0.1% to 109.08, moving further away from the more than two-year high it reached earlier in the week.