U.S. Dollar Holds Steady After Rally as Traders Focus on Fed’s Next Move

Dollar Holds Steady After Strong Rally as Traders Await Fed Policy Clues

The U.S. dollar remained firm on Thursday, following its strongest rally since early June. Traders are closely watching upcoming speeches from Federal Reserve policymakers for insights into the pace of future interest rate cuts.

Dollar Rebounds Amid Uncertainty Over U.S. Rate Cuts

Overnight, the dollar rebounded sharply, recovering from a more than one-year low against the euro and a 2.5-year low versus the British pound. Despite no clear catalyst, investors reassessed the likelihood of aggressive rate cuts, with Fed officials expressing mixed opinions on the path forward.

Earlier this week, Federal Reserve Governor Adriana Kugler voiced her support for the recent half-point rate cut that initiated the easing cycle but did not comment on the pace of future reductions. Meanwhile, Chicago Fed President Austan Goolsbee emphasized the importance of staying ahead of economic challenges to ensure a soft landing. Atlanta Fed President Raphael Bostic also cautioned against rushing into rate cuts, stating there was no need for a “mad dash.”

Fed Speeches and U.S. Employment Data in Focus

Later on Thursday, traders will be eyeing remarks from Fed Chair Jerome Powell, who will speak at a conference in New York. Additional insights are expected from New York Fed President John Williams, Boston Fed President Susan Collins, and Governors Michelle Bowman and Lisa Cook at other events.

Weekly U.S. jobless claims data will also be under scrutiny, as the Federal Reserve shifts its focus toward employment metrics. Kenneth Crompton, Chief Rates Strategist at National Australia Bank, noted that labor market data is now a critical indicator in determining whether another 50-basis point rate cut is on the horizon.

Currently, traders are pricing in a 57.4% chance of a second 50-basis point reduction at the November Fed meeting, according to the CME Group’s FedWatch Tool.

Currency Movements Following the Dollar Rally

The U.S. dollar index, which tracks the currency against a basket of peers including the euro, pound, and yen, eased slightly by 0.10% to 100.84 as of 0444 GMT. This followed a 0.57% surge on Wednesday, marking its largest one-day gain since June 7.

The euro was flat at $1.1143 after a sharp pullback from $1.1214, its highest level since July 2022. Sterling also remained steady at $1.33425, after briefly touching $1.3430 on Wednesday, the highest level since February 2022.

The Japanese yen dipped to a three-week low of 145.04 per dollar, settling at 144.77. Minutes from the Bank of Japan’s July meeting revealed divisions among policymakers on the pace of future rate hikes.

The Australian dollar saw a 0.37% rise to $0.6848 after Wednesday’s drop from a 19-month high of $0.6908. Meanwhile, the offshore Chinese yuan edged up to 7.0149 per dollar after falling back from its May 2022 high of 6.9952.

Swiss Franc and Central Bank Decisions

The Swiss franc remained stable at 0.8498 per dollar, ahead of a policy announcement from the Swiss National Bank. A third consecutive quarter-point rate reduction is widely anticipated.