The dollar was softer on Thursday after the Federal Reserve indicated interest rate cuts were likely later this year even as uncertainty around U.S. tariffs weighed, while the pound hit a four-month high ahead of the Bank of England’s policy decision.
U.S. policymakers projected likely two quarter-point interest rate cuts later this year, the same median forecast as three months ago, even as they expect slower economic growth and higher inflation. On Wednesday, the Fed held its benchmark overnight rate steady in the 4.25%-4.50% range.
”We’re not going to be in any hurry to move,” Fed Chair Jerome Powell said. ”Our current policy stance is well-positioned to deal with the risks and uncertainties we face … The right thing to do is to wait here for greater clarity about what the economy is doing.”
Powell’s comments and the Fed statement underscored the challenge faced by policymakers as they navigate President Donald Trump’s plans to levy duties on imports from U.S. trading partners and the impact on the economy.
”The fact that the economy is growing, unemployment is low and inflation is still tracking hot means interest rates will be on hold through to late summer,” ING economists said in a note.
”The Fed will be wary of moving too soon though given the prospect of higher inflation rates.”
Traders are pricing in 66 basis points of easing this year from the Fed, about two rate reductions of 25 bps each, with a cut in July fully priced in, LSEG data showed.
Kyle Rodda, senior financial markets analyst at Capital.com, said Powell did well in emphasising the Fed intends to look through the one-off price shock caused by tariffs and will remain attentive to the downside risks to growth and the labour market.
”I think that messaging is why we saw stocks climb and the dollar fall – effectively saying rates still ought to be cut despite an expected jump in inflation this year.”
Japan is closed for a holiday on Thursday, leading to a quiet morning in Asia for currency markets.
The dollar index, which measures the U.S. currency against six rivals, was steady at 103.41 in early trading but hovering close to the five-month low touched earlier this week. The euro was last steady at $1.09085.
The yen was a bit stronger at 148.36 per dollar, a day after the Bank of Japan kept rates steady and warned of heightening global economic uncertainty, suggesting the timing of further rate hikes will depend largely on the fallout from U.S. tariffs.
Sterling touched a four-month high of $1.3015 ahead of the BoE policy decision, where the central bank is expected to keep rates on hold, awaiting the impact on the economy of Trump’s tariff onslaught.
With UK inflation stuck firmly above its 2% target, the BoE has cut borrowing costs by less than the European Central Bank and the Fed since last summer, contributing to the country’s sluggish growth rate.
Elsewhere, Turkey’s lira tumbled to a record low of 42 per dollar before recouping most of the day’s losses on Wednesday, after authorities detained President Tayyip Erdogan’s main political rival.
After weakening to a record low of 42 per dollar on Wednesday, the lira closed at 37.665 per dollar, a 2.6% decline. In early Asian hours on Thursday, it was bid at 38 per dollar.
The Australian dollar fell 0.35% to $0.6335 after Australian employment posted a surprise fall in February, ending a strong run of impressive gains, as the red-hot labour market loosened a little, although the jobless rate stayed steady.
The Reserve Bank of Australia cut interest rates last month for the first time in four years, but cautioned further easing could not be guaranteed given the surprisingly strong labour market could risk stoking inflation.
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