The U.S. dollar inched up Thursday following a turbulent trading session after the Federal Reserve’s interest rate reduction, while the British pound weakened as investors awaited the Bank of England’s policy announcement.
At 04:05 ET (08:05 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, was up 0.1% at 96.605, rebounding from Wednesday’s slide to its lowest point since February 2022.
Dollar rebounds after sharp moves
The dollar initially dropped to a three-and-a-half-year low after the Fed cut rates by 25 basis points on Wednesday, in line with market expectations, signaling a gradual path of easing for the remainder of the year.
However, the currency bounced back strongly after Fed Chair Jerome Powell described the move as a “risk-management cut” responding to the softening labor market, adding that the central bank does not need to rush further easing.
The Fed’s widely watched dot plot indicated a median of 50 additional basis points in cuts over the remaining two meetings of 2025, but only a single reduction projected in 2026.
Analysts at ING noted: “Regardless of the market’s hectic reaction, we read this as a negative event for the dollar. Despite Powell’s cautionary tone, the FOMC has clearly shifted to a dovish stance where it sees multiple cuts, and the focus is now firmly on the employment side of the mandate.”
With employment remaining the Fed’s priority, market attention Thursday will turn to the weekly initial jobless claims data, especially following last week’s spike.
Sterling eases ahead of BoE announcement
In Europe, GBP/USD slipped 0.1% to 1.3610 after briefly surging to its highest level since July 2 in the prior session.
The Bank of England is set to announce its policy decision later Thursday and is widely expected to hold rates at 4%, amid inflation at an annual 3.8% in August — the highest in 19 months and nearly double the central bank’s 2% target.
The BoE cut rates last month, marking its fifth reduction since August 2024, and economists anticipate one more cut before year-end.
EUR/USD climbed 0.2% to 1.1837, after touching 1.1918 on Wednesday — its highest since June 2021 — reacting to the Fed’s decision. The European Central Bank left rates unchanged last week but signaled it is prepared for potential future cuts due to uncertainty around trade, energy costs, and currency fluctuations.
ING commented: “We expect a return to 1.185 in EUR/USD over the coming days, and continue to target 1.20 in the fourth quarter.”
Yen, yuan, and antipodean currencies under scrutiny
USD/JPY rose 0.1% to 147.07 after sliding as much as 0.7% on Wednesday to its lowest since July 7. The Bank of Japan is widely expected to maintain rates at the conclusion of its two-day meeting on Friday, amid heightened political uncertainty following Prime Minister Shigeru Ishiba’s sudden resignation in early September.
August Japanese CPI data is expected before the BoJ’s decision, with forecasts pointing to persistent price pressures. Core inflation is also anticipated to remain well above the BoJ’s 2% annual target.
USD/CNY gained 0.1% to 7.1073, with the yuan easing slightly after rallying to near 10-month highs, supported by ongoing policy measures from Beijing. China has committed this week to additional stimulus aimed at boosting private consumption after a series of disappointing economic readings.
AUD/USD fell 0.1% to 0.6642, while NZD/USD dropped 0.9% to 0.5910 after GDP data showed New Zealand’s economy contracted in Q2, fueling expectations of steeper rate cuts later this year.
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