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The U.S. dollar edged lower on Thursday, giving up part of its previous gains following the Federal Reserve’s slightly hawkish stance, as investors turned their attention to the European Central Bank (ECB) meeting.
- Dollar Index (DXY) fell 0.1% to 107.710 at 04:10 ET (09:10 GMT), tracking the greenback against a basket of six major currencies.
Key Market Factors
1. Federal Reserve Holds Rates, Stays Cautious on Cuts
- The Fed kept interest rates unchanged as widely expected.
- Fed Chair Jerome Powell indicated that it is too soon to assess the impact of Trump’s policies on monetary decisions.
- Powell reiterated the 2% inflation target, providing no clear guidance on rate cuts for this year.
- The U.S. dollar had strengthened on Wednesday, rebounding from Monday’s one-month low and maintaining a 4% gain since Trump’s election victory in November.
2. Euro Awaits ECB Decision Amid Weak Growth
- EUR/USD dropped 0.1% to 1.0424, as traders braced for the ECB’s policy decision.
- Markets anticipate a 25 basis point rate cut, despite recent signs of rising inflation in the eurozone.
- Economic concerns weigh on the euro, with:
- France’s GDP shrinking 0.1% in Q4 2024 after a 0.4% Q3 expansion.
- Germany’s economy also contracting, signaling broader eurozone weakness.
3. GBP Struggles After UK Economic Plans
- GBP/USD slipped slightly to 1.2449.
- UK Chancellor Rachel Reeves’ economic plans aimed at boosting growth failed to ease market concerns about Britain’s slow recovery and rising public debt.
4. Yen Strengthens Amid Safe-Haven Demand
- USD/JPY fell 0.4% to 154.52, as investors sought safety amid risk-off sentiment.
5. Yuan and Aussie Dollar Show Limited Moves
- USD/CNH (offshore yuan) traded slightly lower at 7.2613, with thin trading volumes due to the Lunar New Year holiday.
- AUD/USD held steady at 0.6230, amid expectations of an RBA rate cut following soft inflation data.
Market Outlook
The dollar’s near-term trajectory will depend on the ECB’s rate decision and any further signals from the Fed on policy easing. Meanwhile, safe-haven flows into the yen and weak eurozone data could drive currency volatility in the coming sessions.
