U.S. Dollar Holds Most Gains After Fed Minutes Signal Fewer Rate Cuts
The U.S. dollar edged slightly lower on Thursday but retained most of the previous session’s strong gains after the Federal Reserve’s latest meeting minutes suggested that interest rate cuts may not come anytime soon.
At 04:55 ET (09:55 GMT), the Dollar Index — which measures the greenback against a basket of six major currencies — slipped 0.1% to 97.535. Despite the modest decline, the index remained near recent highs after surging roughly 0.6% overnight and rebounding from recent lows.
Fed Minutes Support a Stronger Dollar
Minutes from Wednesday’s Federal Reserve meeting revealed a divided policy outlook among officials. Several policymakers signaled that interest rates may need to stay higher for longer, while some indicated they would consider additional rate hikes if inflation remains persistent.
Overall, the minutes reinforced expectations that U.S. monetary policy will remain restrictive in the near term.
According to analysts at ING, attention may now shift away from the labor market and back toward inflation data. They noted that inflation readings will need to decline further to justify the two rate cuts still priced into money markets this year. ING maintains its view that the Fed will likely proceed with two rate reductions.
Investors are also watching upcoming economic data, including weekly initial jobless claims and the December trade balance report. A narrower-than-expected trade deficit could strengthen expectations of solid fourth-quarter GDP growth and offer the dollar short-term support.
Euro Remains Under Pressure
In Europe, EUR/USD rose 0.1% to 1.1800, as the euro stabilized after falling sharply following the release of the FOMC minutes.
The single currency also faced pressure from reports that European Central Bank President Christine Lagarde may step down before the end of her term next October. However, Lagarde reportedly reassured colleagues that she remains focused on her role and would communicate directly if she intended to resign.
ING analysts do not believe the Fed minutes justify EUR/USD trading significantly below 1.18. They continue to forecast the pair could approach 1.19 by the end of March.
Meanwhile, GBP/USD slipped 0.1% to 1.3498. The British pound is on track for weekly losses of around 1% after softer inflation data earlier this week increased expectations that the Bank of England could cut rates next month.
Asia Markets: USD/JPY Steady, Aussie Dollar Gains
In Asia, USD/JPY rose 0.1% to 154.94. Trading volumes remained thin due to Lunar New Year holidays across several regional markets.
The Fed minutes also confirmed that the New York Fed reviewed USD/JPY levels in January on behalf of the U.S. Treasury, acting in its capacity as fiscal agent.
ING analysts suggested that, with the Fed easing policy and the Bank of Japan gradually tightening, asset managers may look to sell USD/JPY in the 156–158 range.
Elsewhere, USD/CNY was largely unchanged at 6.9087, hovering near three-year lows as Chinese markets remain closed for the week.
The Australian dollar outperformed. AUD/USD climbed 0.4% to 0.7074 after data showed Australia’s unemployment rate held steady at 4.1% in January. Although employment growth slowed, the labor market remains relatively tight.
The data supported the Reserve Bank of Australia’s hawkish stance after it raised its cash rate earlier this month, citing persistent inflation and resilient employment conditions.
