The US dollar stabilized on Thursday as markets digested the minutes from the Federal Reserve’s latest meeting, with traders assessing the likely path of interest rate cuts. The dollar had briefly strengthened on Wednesday following the release of the minutes, but that move retraced as investors focused on the overall message of continued data dependence from the central bank.
The Federal Reserve held interest rates steady between 3.50% and 3.75% at its January 27-28 meeting, following three-quarter percentage point reductions throughout 2025. At the time, inflation, as measured by the PCE price index, was running at 2.8% year-over-year, still above the Fed’s 2% target.
According to the minutes, inflation indicators “would need to come down to support the two rate cuts still anticipated by markets this year,” noted Chris Turner of ING. However, Turner believes that inflation will indeed fall, and the Fed will proceed with those cuts, adding that “the dollar’s rise” on Wednesday “seemed premature.”
As of 10:20 GMT on Thursday, the greenback had shed 0.08% against the euro, trading at $1.1793 per euro, and was stable, up 0.02%, against the British pound at $1.3491 per pound. The initial reaction to the Fed minutes saw investors focusing on the cautious tone from Fed officials, some of whom did not rule out the possibility of further rate increases should inflation remain stubbornly high.
Stephen Innes of SPI AM noted that “risks in the labor market have eased” according to Fed members. Market expectations currently do not anticipate any further rate cuts before the June meeting, at the earliest, according to CME FedWatch data.
Later on Friday, the US will release the PCE price index for December, alongside the fourth-quarter US GDP report, both of which were delayed due to the recent government shutdown. These data releases are expected to provide further clarity on the economic outlook and the Fed’s policy trajectory.
The minutes also revealed that the Federal Reserve Bank of New York had checked the dollar/yen exchange rate on behalf of the US Treasury prior to the late January meeting. This intervention, described by Turner of ING as “extremely rare,” reflects a shared desire from Washington and Tokyo to prevent excessive yen weakness against the dollar and could potentially precede direct intervention in the foreign exchange market.
The dollar also benefited on Wednesday from escalating geopolitical risks, specifically concerns about a potential US military strike against Iran, according to Derek Halpenny of MUFG.
Currency Rates
| Thursday 10:20 GMT | Wednesday 22:00 GMT |
|---|---|
| EUR/USD 1.1793 | 1.1783 |
| EUR/JPY 182.56 | 182.41 |
| EUR/CHF 0.9123 | 0.9109 |
| EUR/GBP 0.8741 | 0.8731 |
| USD/JPY 154.80 | 154.81 |
| USD/CHF 0.7736 | 0.7410 |
| GBP/USD 1.3491 | 1.3495 |
The stabilization of the dollar comes amid a broader context of fluctuating market sentiment. While moderating US inflation and robust labor data have tempered expectations for aggressive rate cuts, geopolitical tensions and the potential for further economic surprises continue to weigh on investor confidence. The upcoming data releases – the PCE price index and GDP figures – will be crucial in shaping the narrative and influencing the Fed’s next steps. The unusual intervention in the currency markets by the New York Fed, at the behest of the Treasury, adds another layer of complexity, signaling a willingness from both the US and Japan to manage exchange rate volatility. This intervention, while not unprecedented, is a notable event that underscores the sensitivity surrounding currency valuations and the potential for coordinated policy responses.
The Australian dollar (AUD/USD) is currently holding steady around the mid-0.7000s, awaiting the release of US GDP and PCE data, which are expected to provide further cues about the Fed’s rate-cut path. The Reserve Bank of Australia’s hawkish stance may provide some support for the Aussie, but a softer risk tone could act as a headwind. Similarly, the Japanese yen (USD/JPY) has remained elevated near a one-week high, supported by softer Japanese CPI figures, which have reduced expectations for an immediate rate hike by the Bank of Japan. However, concerns about Japan’s fiscal health and a bullish US dollar continue to exert upward pressure on the pair.
Gold prices have also been influenced by geopolitical tensions, edging higher as escalating conflicts between the US and Iran boost safe-haven demand. The precious metal is currently trading near $5,000, with traders bracing for the release of key economic data later on Friday.
