Dollar Slips Slightly, But Set for First Monthly Gain of 2025 Amid Hawkish Fed Stance
The U.S. dollar edged slightly lower on Thursday but remained poised to post its first monthly gain of the year, boosted by hawkish comments from Federal Reserve Chair Jerome Powell following the latest policy meeting.
As of 08:00 GMT, the U.S. Dollar Index fell 0.1% to 99.550, near two-month highs and on track for a monthly rise of over 3%.
Fed Holds Rates, Powell Pushes Back on Trump’s Pressure
The Fed left interest rates unchanged on Wednesday, citing low unemployment, a strong labor market, and still-elevated inflation. Chair Powell maintained a cautious tone, offering no timeline for potential rate cuts, despite President Donald Trump’s repeated calls for monetary easing.
“Powell’s tone was hawkish,” said analysts at ING. “He acknowledged inflation pressures but argued for a mildly restrictive policy stance, resisting political pressure from President Trump.”
Following the Fed’s comments, the probability of a rate cut in September fell to 45.7% from 63.4% earlier, according to CME futures data.
Dissent emerged within the Fed, with Trump-appointed Governors Christopher Waller and Michelle Bowman voting for an immediate 25-basis point rate cut, citing labor market concerns.
Private payrolls data came in stronger than expected, reinforcing signs of job market resilience. Analysts are watching Friday’s nonfarm payrolls report for further clues.
ING also noted that jobless claims have declined for six consecutive weeks — the longest such streak since late 2022 — further supporting expectations of a robust labor market.
Euro, Pound Struggle as Dollar Strengthens
The euro rebounded slightly, with EUR/USD rising 0.4% to 1.1447, though it remained on pace for a nearly 3% monthly drop after hitting a seven-week low. French inflation came in slightly above forecasts, while eurozone growth exceeded expectations but remained sluggish amid looming U.S. tariffs.
“The EUR/USD slide to 1.14 came as markets repriced the Fed outlook,” ING stated. “Downside risks persist, even if speculative positions have now lightened.”
The British pound (GBP/USD) also ticked up 0.1% to 1.3253, but remains near a 2.5-month low and is heading for a nearly 3% monthly decline.
Yen, Aussie Dollar, Yuan Hold Steady
USD/JPY fell 0.2% to 149.28 after the Bank of Japan kept rates unchanged but raised its inflation and GDP forecasts. The central bank said real interest rates are still low and left the door open for more hikes if inflation continues to rise.
AUD/USD rose 0.5% to 0.6466, recovering some earlier losses, while USD/CNY remained mostly flat at 7.1931 following disappointing Chinese PMI data. Both manufacturing and services activity slowed in July, partly due to extreme weather impacts.
