Dollar Rebounds After Fed Cut as Kiwi and Aussie Slide

The U.S. dollar regained ground on Thursday, stabilizing after a sharp drop to multi-year lows in the wake of the Federal Reserve’s policy decision. Traders digested the Fed’s measured approach to further easing while shifting focus to other major central banks and weak economic data abroad.

Fed’s Cautious Cut

The Federal Reserve trimmed rates by 25 basis points on Wednesday, bringing the federal funds rate to 4.00%–4.25%. Chair Jerome Powell described the move as a “risk-management cut” to address labor market weakness but emphasized there was no need to rush easing. The Fed’s dot plot projected another 50 bps of cuts this year, though policymakers signaled only one additional reduction in 2026.

The dollar index plunged to 96.224 — its lowest since February 2022 — immediately after the decision but rebounded sharply to 97.163 by Thursday, up 0.44% from the prior day. Analysts noted the revised forecasts underlined lingering uncertainty over inflation risks despite the easing bias.

Euro, Sterling, and Yen Moves

The euro slipped 0.2% to $1.1791 after spiking to $1.19185, its highest since June 2021, in a knee-jerk reaction to the Fed’s announcement. Sterling also eased 0.2% to $1.3604, retracing from a July peak of $1.3726. The Bank of England is expected to keep its policy rate steady at 4% later Thursday following August inflation data at 3.8%.

Against the yen, the dollar rose 0.2% to 147.25 after dropping as low as 145.50 overnight. The Bank of Japan is likely to hold policy steady on Friday, though markets assign a 50% probability of a quarter-point hike before year-end.

Kiwi and Aussie Weaken on Soft Data

The New Zealand dollar fell 0.9% to $0.5909, hitting its lowest since September 8, after data showed GDP shrank 0.9% in Q2, far worse than forecasts for a 0.3% drop. Westpac now expects a half-point cut at the Reserve Bank of New Zealand’s October meeting.

The Australian dollar dropped 0.4% to $0.6628 after employment unexpectedly declined by 5,400 in August, compared with expectations of a 21,500 gain.

Other Central Bank Moves

The Canadian dollar slipped slightly, with USD/CAD at 1.3790, after the Bank of Canada cut rates by 25 bps to 2.75% on Wednesday, citing labor market weakness and easing inflation pressures.