The U.S. dollar showed a slight rise on Thursday as it continued to recuperate from an initially turbulent start to the week, amid indications that additional Federal Reserve interest rate reductions are unlikely in the near term.
At 03:00 ET (08:00 GMT), the Dollar Index, which measures the performance of the greenback against a basket of six major currencies, edged up by 0.1% to 98.980, positioning it for a modest weekly gain.
The dollar’s initial decline earlier in the week was sparked by Federal Reserve Chair Jerome Powell’s revelation regarding threats of legal action from the Trump administration. Powell described these threats as an attempt to intimidate the Fed into adopting easier monetary policies, referencing his testimony about renovation activities at the central bank’s headquarters.
Investor response to this political development has since stabilized following President Donald Trump's indication on Wednesday that he does not plan to dismiss Powell, though he also noted it was premature to speculate on his final decision.
Further bolstering the dollar’s ascent were November economic indicators showing a slight increase in U.S. producer prices driven by higher gasoline costs, and retail sales that exceeded expectations for the same period.
Analysts at ING commented on the Federal Reserve's Beige Book released the prior evening, highlighting that most Fed districts reported steady to increased activity and no signs of weakening in labor conditions. They noted, “Having delayed expectations for Fed policy easing to a rate cut only as late as June or December, the market might now begin to discard the forecast of a second rate cut this year, a development favorable to the dollar.”
Meanwhile, in Europe, the euro fell modestly against the dollar, with EUR/USD down by 0.1% to 1.1633, influenced by Denmark’s foreign minister Lars Lokke Rasmussen's statement regarding a “fundamental disagreement” with the U.S. following discussions over Greenland's future. These talks involved Danish and Greenlandic officials meeting U.S. politicians including Secretary of State Marco Rubio and Vice President JD Vance at the White House.
Despite this, ING analysts observed that volatility for the EUR/USD pair remains near multi-year lows, suggesting no imminent triggers for significant changes. The exchange rate progressing towards 1.1600 looks set to continue without dramatic shifts.
The British pound experienced a slight rise to 1.3440 after November’s economic growth data surpassed forecasts. The UK economy expanded by 0.3% month-on-month, outperforming the anticipated 0.1% increase.
According to ING, the recent correction in sterling since November likely has additional scope, particularly with the potential for an upward surprise in December’s consumer price index data, scheduled for release soon.
In Asian currency markets, the Japanese yen weakened, with USD/JPY increasing by 0.2% to 158.63, remaining near an 18-month high recorded recently. This depreciation follows speculation that Prime Minister Sanae Takaichi might call an early general election in February. Market sentiment perceives a government led by Takaichi as negative for the yen due to her endorsements of expansionary fiscal policies, increased public spending, and sustained accommodative monetary policies.
Investors anticipate that renewed stimulus efforts would restrict the Bank of Japan's capacity to normalize monetary policy, widen the yield gap with the U.S., and consequently place downward pressure on the yen.
Additional currency movements included a 0.1% decline in USD/CNY to 6.9700, a 0.1% rise in AUD/USD to 0.6686, and a 0.5% gain in USD/KRW to 1469.49 following a previous day's decline. U.S. Treasury Secretary Scott Bessent’s comments supported the view that recent depreciation of the Korean won does not align with underlying economic fundamentals.