The U.S. dollar edged slightly lower on Thursday but remained on course for its first monthly advance of the year, buoyed by Federal Reserve Chair Jerome Powell’s hawkish comments following the central bank’s latest policy decision.
As of 03:00 ET (08:00 GMT), the Dollar Index—measuring the greenback against six major peers—dipped 0.1% to 99.550. Despite the minor drop, the index hovered near a two-month peak and was poised to end the month with a gain of over 3%.
Powell’s Comments Push Dollar Higher
On Wednesday, the Federal Reserve opted to leave interest rates unchanged at the conclusion of its two-day meeting. The decision reflected ongoing strength in the labor market, low unemployment, and lingering inflationary pressures, according to the Fed’s statement.
Chair Powell remained noncommittal on the timeline for potential rate cuts, opting for a cautious tone despite pressure from President Donald Trump to ease monetary policy.
“Chair Powell’s press conference was hawkish,” analysts at ING noted. “He reiterated expectations for a short-lived inflationary impact and said a modestly restrictive policy was appropriate. He seemed to put himself on a collision course with President Trump by claiming the Fed was looking through inflation by not hiking.”
Market expectations for a September rate cut have now declined, with CME Fed Fund futures showing a 45.7% probability—down from 63.4% before Powell’s remarks.
However, not all voices within the central bank were aligned with Powell. Fed Governors Christopher Waller and Michelle Bowman, both appointed by Trump, supported a 25 basis point cut, citing signs of softening in the labor market.
Private payroll data released on Wednesday surprised to the upside, signaling continued labor market resilience. Investors will be watching Friday’s U.S. nonfarm payrolls report for July for further clarity.
“Another data point worth noting is jobless claims, which have recently caught our attention after an unexpected six-week streak of declines. That’s the longest run since August-September 2022, and may be contributing to expectations of a resilient labour market,” ING added.
Euro and Pound Struggle in July
The euro rebounded slightly, with EUR/USD up 0.4% to 1.1447 after hitting a seven-week low the day before. Nonetheless, the common currency remained on track for a nearly 3% decline in July.
In France, harmonised consumer prices rose by 0.9% year-over-year in July—slightly above the 0.8% consensus forecast.
While eurozone GDP figures showed marginally better-than-expected growth in the second quarter, broader economic momentum remains sluggish. The region also faces increasing headwinds from newly imposed U.S. tariffs.
“If the first leg of the EUR/USD correction was driven by the grim growth prospects for the eurozone after the EU-US trade deal, the drop to 1.14 was led by the Fed’s hawkish repricing,” said ING.
“In our view, risks remain on the downside for EUR/USD, even though positioning is now looking considerably less stretched after the squeeze of dollar shorts since the start of the week.”
Meanwhile, GBP/USD ticked up 0.1% to 1.3253. Despite the modest gain, sterling was still near a 2.5-month low and facing a monthly loss of nearly 3%.
Yen Dips After BOJ Holds Rates, But Raises Forecasts
In Asia, USD/JPY slipped 0.2% to 149.28 after the Bank of Japan left its interest rates steady, as widely anticipated.
The BOJ also upgraded its inflation and GDP forecasts, expecting stronger price growth and economic expansion.
Despite the upgrades, the central bank acknowledged that real interest rates remained low and signaled further hikes if inflation and output continue to rise in line with projections.
Elsewhere, AUD/USD gained 0.5% to 0.6466, recouping some of the previous session’s losses. USD/CNY was largely flat at 7.1931 after disappointing July PMI data.
Chinese manufacturing and non-manufacturing PMIs both contracted more than expected, with analysts attributing the declines to severe weather conditions.
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