The U.S. dollar ticked higher Thursday after a period of volatile trading in the wake of the Federal Reserve’s rate cut, while sterling slipped lower ahead of a Bank of England policy meeting.
At 04:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 96.605, bouncing after falling on Wednesday to its lowest since February 2022.
Dollar bounces after volatile session
The dollar initially slumped to a 3-1/2-year low after the Fed reduced rates by a quarter point on Wednesday, as widely expected, and indicated it will steadily lower borrowing costs for the rest of this year.
However, the U.S. currency sprang back vigorously after Fed Chair Jerome Powell called the move a risk-management cut in response to the weakening labor market, and said the central bank does not need to rush easing.
The Fed’s closely watched dot plot of policy expectations predicted a median 50 basis points of additional cuts over the remaining two policy meetings of this year, but only one additional reduction in 2026.
“Regardless of the market’s hectic reaction, we read this as a negative event for the dollar,” said analysts at ING, in a note. “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 the Fed’s focus so clearly on the jobs market, the market’s attention Thursday will turn to the release of the weekly initial jobless claims data due later in the session, especially after the release spiked last week.
Sterling slips ahead of BoE decision
In Europe, GBP/USD traded 0.1% lower to 1.3610, after the pair briefly leaped to the highest since July 2 in the prior session.
The Bank of England announces its own policy decision later on Thursday, and is widely anticipated to keep rates at 4% with the country’s inflation at an annual 3.8% in August, the highest in 19 months and almost double the central bank’s 2% target.
The BoE cut rates last month, its fifth reduction since August 2024, and economists widely expect one more rate cut by the end of the year.
EUR/USD traded 0.2% higher to 1.1837, after climbing as high as 1.1918, the highest since June 2021, on Wednesday in a knee-jerk reaction to the Fed announcement.
The ECB left interest rates unchanged last week, but the policymakers kept their options open about possible future interest rate cuts, flagging an uncertain outlook for trade, energy prices and foreign exchange rates.
“We expect a return to 1.185 in EUR/USD over the coming days, and continue to target 1.20 in the fourth quarter,” ING said.
Yen awaits BoJ meeting
Elsewhere, USD/JPY gained 0.1% to 147.07, after weakening as much as 0.7% to the lowest since July 7 on Wednesday.
The Bank of Japan is widely expected to keep interest rates unchanged at the conclusion of a two-day meeting on Friday, especially in the face of heightened political uncertainty after Prime Minister Shigeru Ishiba’s abrupt resignation earlier in September.
Japanese consumer price index inflation data for August is due before the BOJ’s decision on Friday, and is expected to show price pressures remaining sticky. Core inflation is also expected to remain well above the BOJ’s 2% annual target.
USD/CNY traded 0.1% higher to 7.1073, with the yuan cooling mildly after racing to near 10-month highs on sustained policy support from Beijing.
China this week pledged to roll out more stimulus aimed at boosting private spending, after a series of dismal readings on the economy.
AUD/USD traded 0.1% lower to 0.6642, while NZD/USD dropped 0.9% to 0.5910 after gross domestic product data showed the New Zealand economy shrank in the second quarter, fuelling bets of steeper rate cuts this year.
Source :
https://www.investing.com/news/forex-news/dollar-gains-in-volatile-trade-after-fed-cut-sterling-lower-ahead-of-boe-meeting-4243959
