The US Dollar edged up on Thursday after hitting a 3½-year low and then sharply rebounding, as traders digested the implications of the Federal Reserve’s cautious approach to future rate cuts.
The Fed lowered interest rates by a quarter point on Wednesday, in line with expectations, and signalled a gradual pace of further reductions for the remainder of the year.
Fed Chair Jerome Powell described the move as a risk-management cut in response to a softening labour market, while underscoring that the central bank sees no need to accelerate easing, Reuters reports.
The Dollar fell to its lowest level since February 2022, hitting 96.224 against a basket of major currencies immediately after the Fed’s rate decision, but quickly rebounded, climbing as much as 0.44% to 97.074 during the day. It continued rising on Thursday, reaching 97.163 at the time of writing.
The Fed’s widely watched dot plot projected a median of 50 basis points in further rate cuts across the remaining two policy meetings of 2025, with only a single additional reduction expected in 2026.
The updated forecasts highlight the significant uncertainty that still surrounds the economic outlook. The projected timing and magnitude of the rate cuts also indicate persistent inflationary risks.
In addition, the Euro fell 0.2% to $1.1791, after briefly surging to its highest level since June 2021 at $1.19185 on Wednesday following the Fed announcement.
Meanwhile, Sterling dipped 0.2% to $1.3604, having earlier jumped to its strongest level since 2nd July at $1.3726 in the previous session.
The Bank of England is set to announce its policy decision later on Thursday, with markets widely expecting rates to remain at 4%.
Official data released on Wednesday showed UK inflation at 3.8% year-on-year in August, supporting expectations that further rate cuts are not imminent.
Economists surveyed by Reuters earlier this month anticipate a single additional rate cut before the end of the year.
Elsewhere, New Zealand’s Dollar slid 0.9% to $0.5909, its lowest level since 8th September.
Thursday’s data revealed that GDP dropped 0.9% in Q2 compared with the previous quarter, far exceeding analysts’ and the Reserve Bank of New Zealand’s forecast of a 0.3% decline.
Following this, Westpac revised its call for next month’s RBNZ meeting, now expecting a half-point rate cut instead of a quarter-point reduction.
The Australian Dollar also fell 0.4% to $0.6628 after official figures showed a net employment decrease of 5,400 in August, contrary to market expectations of a 21,500 gain.