The U.S. dollar slipped slightly on Thursday, paring some of its overnight gains as investors processed the Federal Reserve’s latest rate move and developments from U.S.-China trade discussions.
At 05:20 ET (09:20 GMT), the U.S. Dollar Index, which measures the greenback against six major peers, edged down 0.1% to 98.950, retreating after touching a two-week high late Wednesday.
Fed Cut Supports Dollar, but Future Easing in Question
The Federal Reserve delivered a 25-basis-point rate cut on Wednesday, bringing its benchmark range to 3.75%–4.00%, a widely anticipated move. However, expectations for another cut this year remain uncertain amid the lack of fresh economic data caused by the ongoing federal government shutdown.
During his post-meeting press conference, Fed Chair Jerome Powell emphasized that another rate reduction of similar size was “far from” guaranteed at the December meeting. Following his remarks, markets lowered the probability of another cut to 71%, down from 90% earlier in the day.
“Last night’s Fed communication makes it harder to sell the dollar now,” noted analysts at ING. “We will really need to see some soft U.S. jobs data to firm up views of another 75bp of easing from the central bank into next summer. Otherwise, 25bp could easily be priced out of that cycle.”
The dollar’s safe-haven appeal was further supported by uncertainty surrounding trade talks between President Donald Trump and Chinese President Xi Jinping.
Trump described their first in-person meeting in six years as “amazing,” saying that the U.S. would immediately lower tariffs on Chinese imports. In return, Trump said Beijing had agreed to help curb the flow of chemicals used to make fentanyl and to pause restrictions on exports of rare earth minerals.
Still, Vital Knowledge analysts commented that “the deliverables don’t really alter the status quo” of U.S.-China trade relations “dramatically.”
Euro Gains on Strong French GDP, Awaits ECB Decision
The euro edged higher, with EUR/USD rising 0.2% to 1.1618, after data showed that France’s GDP grew 0.5% in the third quarter, outpacing expectations for 0.2% growth. The French economy had expanded 0.3% in the previous quarter.
The eurozone’s broader GDP report is due later in the day and is projected to show modest growth of 0.1% quarter-over-quarter, translating to 1.2% annual growth.
“Remember that survey data has been encouraging, but the hard data has so far been poor this summer,” ING said. “But unless we get a big upside surprise to eurozone GDP – expected at 0.1% QoQ – it is hard to see EUR/USD getting much of a lift.”
Investors are also focused on the European Central Bank’s policy meeting, with the institution widely expected to keep rates unchanged.
“We doubt President Christine Lagarde will feel the need to rock the boat of market pricing, which very marginally favours another cut sometime over the next nine months,” ING added.
The British pound also inched higher, with GBP/USD up 0.1% to 1.3199, though it remained close to Wednesday’s 5½-month low.
Yen Weakens as BOJ Maintains Cautious Stance
In Asia, the Japanese yen fell after the Bank of Japan kept its interest rates unchanged and reiterated a cautious outlook for the economy. The USD/JPY pair traded 0.7% higher at 153.74.
The BOJ warned of heightened short-term uncertainty but said that accommodative financial conditions would help offset some of the risks. The central bank also reaffirmed that it would consider raising rates if economic growth and inflation evolve as projected.
Meanwhile, USD/CNY rose 0.2% to 7.1089, with the yuan retreating from its strongest level in a year following the Trump-Xi meeting. Trump told reporters afterward that he expected a trade deal with China “pretty soon,” adding that the two leaders had reached agreements on rare earths and agricultural purchases.
Elsewhere, the Australian dollar traded mostly flat, with AUD/USD steady at 0.6575.
