The U.S. dollar found footing on Thursday, advancing modestly as the market moved past a turbulent start to the week and shifted away from anticipating near-term interest rate cuts from the Federal Reserve. The Dollar Index, which evaluates the greenback's performance against a basket of six major currencies, rose slightly by 0.1% to 98.980 at 03:00 ET (08:00 GMT), positioning itself for a modest weekly gain.
Earlier this week, the dollar faced a sharp decline following Federal Reserve Chair Jerome Powell's revelation that the Trump administration had threatened legal action over his testimony related to renovation activities at the Fed's headquarters, an episode he characterized as an attempt to pressure the Federal Reserve into adopting a more accommodative monetary stance. Despite this unsettling news, the greenback rebounded as investors digested the developments calmly, particularly after President Trump stated on Wednesday that he currently had no intentions to dismiss Powell, though he did not rule out future decisions.
Boosting the dollar's momentum were economic indicators such as a slight rise in U.S. producer prices during November, principally driven by a sharp increase in gasoline prices. Additionally, retail sales outpaced expectations, further indicating economic strength during the month. Analysts at ING noted that the Federal Reserve's Beige Book release showed stable to improving economic activity across eight of the twelve Fed districts with no deterioration evident in the labor market, suggesting the Fed has little impetus to hasten rate reductions.
"Given the recent downgrade in expectations for Fed policy easing toward a cut in June and subsequently December, the next shift in market pricing may be the removal of a forecasted second rate cut this year — a development positive for the dollar," ING analysts explained.
Turning to Europe, the euro edged downward by 0.1% against the U.S. dollar, trading at 1.1633, pressured by remarks from Denmark’s Foreign Minister Lars Lokke Rasmussen describing the recent Greenland-related discussions with the United States as marked by "fundamental disagreement." These exchanges involved Danish and Greenlandic foreign officials meeting with U.S. Secretary of State Marco Rubio and Vice President JD Vance at the White House.
Despite this diplomatic friction, volatility in EUR/USD remains close to multi-year lows, and no immediate catalysts appear poised to reverse its gradual decline toward the 1.1600 level, according to ING's analysis.
The British pound saw minor gains, registering at 1.3440 against the U.S. dollar, sustained by better-than-forecasted economic growth data for November. The UK economy expanded 0.3% month-on-month, surpassing the predicted 0.1% increase. ING noted that the sterling's price correction since November might continue, especially given the possibility of a positive surprise in the upcoming December UK Consumer Price Index data.
In Asian markets, the Japanese yen weakened further, with USD/JPY climbing 0.2% to 158.63, close to an 18-month peak of 159.45 reached the previous day. This depreciation is linked to speculation that Prime Minister Sanae Takaichi could call an early general election in February. Market participants view a potential Takaichi administration as unfavorable for the yen due to her commitment to expansionary fiscal policy, increased public spending, and sustained accommodative monetary conditions.
Such expectations have raised concerns that efforts to stimulate fiscal activity might constrain the Bank of Japan’s ability to normalize monetary policy, widening the yield gap with U.S. assets and exerting downward pressure on the yen.
Other currency movements saw the USD/CNY decline by 0.1% to 6.9700, the AUD/USD rising 0.1% to 0.6686, and the USD/KRW advancing 0.5% to 1469.49. The won’s earlier decline of 0.8% was challenged by a rare public statement from U.S. Treasury Secretary Scott Bessent, who highlighted that the recent depreciation was not consistent with South Korea’s underlying economic fundamentals.