The U.S. dollar extended gains in early Thursday trade, buoyed by cautious commentary from the Federal Reserve and lingering uncertainty over global trade dynamics, while the British pound faltered despite optimism over a potential trade agreement with the United States.
At 04:10 ET, the U.S. Dollar Index was up 0.4% at 99.877, following a similarly strong session the day before.
Fed Holds Rates, Warns of Economic Crosscurrents
The Federal Reserve held interest rates steady in its latest policy meeting, maintaining the benchmark range at 4.25%-4.50%. While no immediate policy changes were made, the central bank’s tone rattled markets. Chair Jerome Powell acknowledged increasing risks of both rising inflation and slowing economic growth a combination seen by many as a potential precursor to stagflation.
Analysts at ING noted, “The Fed’s statement was interpreted as a warning about stagflation, which reinforces expectations that rate cuts will be delayed.” Markets responded by pushing the likelihood of a June rate cut down to 20%, from 30% just a day prior. July remains the more probable option, but confidence has weakened since last week.
Trump Teases Major Trade Deal
Further boosting the dollar’s appeal, President Trump hinted at a “major trade deal” announcement during a press conference later in the day. While details remained scarce, The New York Times suggested the deal involved the United Kingdom. Talks between Washington and Beijing are also scheduled this weekend in Switzerland, adding to investor hopes of easing global trade tensions.
Sterling Struggles to Capitalize on Trade Buzz
Despite the promising headlines, sterling edged down 0.1% to 1.3291 against the greenback. Traders appear hesitant to price in optimism ahead of the Bank of England’s policy decision, where a 25-basis-point cut to 4.25% is widely expected.
“In focus will be whether the 10% baseline U.S. tariffs can be rolled back,” said ING. “Should those be removed, it could lift risk assets and trigger further dollar strength.”
Euro Slips Despite Solid German Data
The euro was also on the back foot, down 0.1% to 1.1292. This came despite German data showing a 1.1% rise in exports for March and a 3% month-over-month increase in industrial production, with U.S.-bound shipments jumping 2.4% amid tariff concerns.
Yen Weakens as Risk Appetite Improves
In Asia, the yen slipped as the dollar climbed 0.4% to 144.36. The move reflected a broader shift away from safe-haven assets amid renewed optimism about global trade. Japan’s March wage data, due Friday, could influence future Bank of Japan policy moves.
Meanwhile, the Chinese yuan saw limited traction, with USD/CNY up 0.2% to 7.2368. Although U.S. and Chinese officials are set to meet this week, markets remain doubtful about a near-term breakthrough unless the U.S. eases tariffs.
Outlook: Dollar Strength to Persist?
With the Fed signaling caution, the dollar appears poised to retain strength in the short term. However, traders will be closely watching upcoming economic data and central bank decisions including those from Sweden’s Riksbank and Norway’s Norges Bank for further direction.
