The U.S. dollar remained stable against the euro on Thursday after the European Central Bank (ECB) held interest rates unchanged, while it fluctuated between the yen and political uncertainty following Sunday’s elections.
The ECB kept rates at 2%, as expected, pausing after a year of rate cuts to assess how future trade relations with the U.S. will unfold. According to Scotiabank’s chief FX strategist Shaun Osborne, market sentiment is shifting toward the ECB keeping rates on hold, and the likelihood of a cut in September is now considered below 50%.
Meanwhile, remarks from Bank of Japan Deputy Governor Shinichi Uchida—highlighting reduced uncertainty after Japan’s recent trade deal with the U.S.—boosted optimism that Japan could resume hiking interest rates. However, concerns remain for the yen, especially as the Japanese opposition may pursue a no-confidence vote after the upper house election.
On the trade front, EU diplomats said the bloc is nearing an agreement to impose a 15% tariff on U.S. goods, potentially including vehicles—mirroring the recent Japan-U.S. agreement.
Macquarie Group’s Thierry Wizman noted that the ECB faces greater pressure than the BoJ, as the euro has appreciated more sharply than the yen in 2025, potentially amplifying disinflationary effects from U.S. tariffs on Europe.
PMI data reflected economic weakness in France following proposed budget cuts, though Germany and other parts of the eurozone showed some resilience. German business activity posted slight growth in July.
Still, according to Jefferies economist Mohit Kumar, tariffs have not yet made a noticeable impact on hard economic data.
Global risk assets rallied following recent trade agreements, easing fears of a full-blown trade war.
Looking ahead, the Federal Open Market Committee (FOMC) meets next week and is expected to keep rates steady as policymakers monitor how tariffs will affect inflation and growth. Several key U.S. economic indicators will be released—including the June payrolls report, the July PCE Price Index, and revised Q2 GDP—which could influence the Fed’s policy direction heading into September.
The euro gained 0.17% to $1.1786, staying close to its highest level in over three years. The dollar slipped 0.07% against the yen to 146.39, after hitting a two-week low of 145.86 earlier in the day.
Societe Generale’s Olivier Korber expects the yen to strengthen further, citing the trade agreement and the potential for higher Japanese interest rates.
Political uncertainty also stirred markets as Japanese politician Shigeru Ishiba denied resignation rumors following his party’s poor election results. Meanwhile, President Donald Trump’s unexpected visit to the Federal Reserve on Thursday raised eyebrows, as he has been openly critical of Fed Chair Jerome Powell.
The U.S. Dollar Index dipped slightly by 0.03% to 97.17.
In crypto markets, Bitcoin rose 0.33% to $118,391.37, while Ethereum climbed 2.14% to $3,647.18.
