Whether or not ghusl on Friday is obligatory is disagreed upon. The majority of the jurists have adopted the stance that it is Mustahab, Sunnah or Sunnah Mu'akkadah and not Wajib. While some such as the Zahiris and one report from Imam Ahmad is that it is considered Wajib.
The apparent wording of the hadith you have quoted commands performing ghusl on Friday. However this can be countered because a linguistic command to do something does not always imply that the speaker wishes to make it obligatory. Rather it can also indicate that he is making a recommendation or even just making it permissible - when there is evidence or context to support that interpretation. Examples of this include:
فكلوا منها وأطعموا القانع والمعتر
Then eat from them and feed the needy and the beggar
— Quran 22:36
فإذا قضيت الصلاة فانتشروا في الأرض وابتغوا من فضل الله
And when the prayer has been concluded, disperse within the land and seek from the bounty of Allah.
— Quran 62:10
وإذا حللتم فاصطادوا
When you come out of ihram then hunt
— Quran 5:2
إذا تداينتم بدين إلى أجل مسمى فاكتبوه ... واستشهدوا شهيدين
When you contract a debt for a specified term, write it down ... And bring to witness two witnesses
— Quran 2:282
وأنكحوا الأيامى منكم
And marry the unmarried among you
— Quran 24:32
وإذا حضر القسمة أولو القربى واليتامى والمساكين فارزقوهم منه وقولوا لهم قولا معروفا
And when [other] relatives and orphans and the needy are present at the [time of] division, then provide for them [something] out of the estate and speak to them words of appropriate kindness.
— Quran 4:8
All of the above are apparent commands, but are understood by the majority to be mustahab or mubah.
In a similar way, the ahadith on ghusl on Friday are interpreted as a recommendation not an obligation. The evidence which supports that stance includes:
The hadith:
من توضأ يوم الجمعة فبها ونعمت ومن اغتسل فالغسل أفضل
If any one of you performs ablution on Friday that is all right; and if any of you takes a bath, that is better.
— Abu Dawud and Jami at-Tirmidhi
This suggests that the ghusl is recommended but not obligatory, as the hadith says that even just wudu is good and sufficient while ghusl is better.
The hadith:
من توضأ فأحسن الوضوء ثم أتى الجمعة فاستمع وأنصت غفر له ما بينه وبين الجمعة
He who performed ablution well, then came to Friday prayer, listened (to the sermon), kept silence all (his sins) between that time and the next Friday would be forgiven
— Muslim
This hadith speaks in a positive manner and promises a reward to a person who performs only wudu for Friday. This would not be the case if the person had omitted an obligation as that would make him a sinner.
The hadith:
كان الناس أهل عمل ولم يكن لهم كفاة فكانوا يكون لهم تفل فقيل لهم لو اغتسلتم يوم الجمعة
The people (mostly) were workers and they had no servants ill-smell thus emitted out of them. It was said to them: Were you to take bath on Friday.
— Bukhari and Muslim
This indicates that ghusl was not part of the worship rituals rather it was initially recommended for fulfilling a purpose.
The report of what happened between Umar and Uthman when Uthman came to Friday prayers without performing ghusl. Some of the scholars have argued that this indicates that ghusl is a Sunnah and not obligatory, since if it was obligatory Umar would have gone further and enforced it and told Uthman to return and perform ghusl. This happened during the Friday sermon where a group of the Sahaba were present and their silence indicates approval.
فلو علما أن أمره على الوجوب لا على الاختيار لم يترك عمر عثمان حتى يرده ويقول له ارجع فاغتسل ولما خفي على عثمان ذلك مع علمه
For if it was known that the order was one of obligation not preference Umar then would not have left 'Uthmãn alone until he had performed it, and he would have told him to return and perform Ghusl
— Tirmidhi
Some of the sahaba are reported to have explicitly stated that it was sunnah and not obligatory such as Ibn Masud and Ibn Abbas, which indicates that this was their understanding of the hadith.
