The U.S. dollar softened broadly on Thursday, though it remained above recent multi-year lows, as investors stayed cautious amid ongoing uncertainty around U.S. policy. A mildly hawkish tone from the Federal Reserve helped limit losses, offering some support to the currency.
The greenback has faced sustained pressure from several fronts, including expectations of future interest rate cuts by the Fed, ongoing tariff uncertainty, and heightened volatility tied to U.S. political decisions. Last week, the dollar recorded its sharpest weekly decline since April, partly fueled by investor unease over U.S. policy rhetoric related to Greenland.
Concerns over trade and geopolitical policy remain a key drag on the currency.
“Investors’ worries about the direction of U.S. trade and geopolitical policies have been broadly negative for the dollar,” said Shaun Osborne, chief currency strategist at Scotiabank, adding that recent price action signals notable weakness.
The euro edged 0.1% higher to $1.19655, while the dollar slipped 0.2% against the Japanese yen to 153.185.
Fed stance offers limited relief
The dollar found some footing after the Federal Reserve kept interest rates unchanged on Wednesday. Fed Chair Jerome Powell described the U.S. economy as solid, noting reduced risks to both inflation and employment.
Supporting data released Thursday showed that new U.S. unemployment claims fell slightly last week, consistent with low layoffs. However, subdued hiring continues to weigh on household confidence in the labor market.
Despite the Fed’s steady stance, Donald Trump reiterated his view that U.S. interest rates should be substantially lower and among the lowest globally.
Some economists remain unconvinced that rate cuts are imminent. David Doyle, head of economics at Macquarie Group, said the firm believes the rate-cutting cycle is likely over, with improving labor conditions ahead. He added that the next policy move could be a rate hike, potentially in the fourth quarter of 2026.
Mixed signals from U.S. officials have added to investor unease. While Treasury Secretary Scott Bessent reaffirmed support for a strong dollar, conflicting messages from the White House and Treasury have kept markets on edge.
Euro strength draws ECB attention
The euro’s recent climb above the $1.20 level has caught the attention of policymakers at the European Central Bank, who warned that rapid currency appreciation could create deflationary pressures.
Analysts noted that a strong euro could amplify the deflationary impact of China’s exports and potentially prompt the ECB to reconsider its policy outlook. ECB board member Isabel Schnabel said monetary policy remains in a “good place,” with interest rates expected to stay steady for an extended period. Markets are currently pricing unchanged ECB rates into early 2027.
Yen stabilizes, Aussie dollar surges
The dollar’s pullback has offered some relief to the yen, which has traded mostly between 152 and 154 per dollar this week. Talk of coordinated rate checks between U.S. and Japanese authorities has raised speculation about potential intervention.
Goldman Sachs said the possibility of joint action by Japan’s Ministry of Finance and the U.S. Treasury could help limit near-term yen weakness. However, the bank cautioned that lasting support would require fundamentals such as faster tightening by the Bank of Japan or stronger fiscal discipline.
Meanwhile, the Australian dollar climbed to a three-year high, rising 0.4% to $0.7069, supported by expectations that the Reserve Bank of Australia could raise interest rates as soon as next week.
