The U.S. dollar experienced a slight dip in early European trade on Thursday following the Federal Reserve’s latest meeting. Meanwhile, the euro showed strength ahead of the European Central Bank’s anticipated rate hike.
At 02:55 ET (06:55 GMT), the Dollar Index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.1% at 100.580. This decline comes after a 0.3% drop on Wednesday.
As expected, the U.S. Federal Reserve raised interest rates by 25 basis points at the conclusion of its two-day policy-setting meeting on Wednesday. Federal Reserve Chair Jerome Powell also indicated the possibility of another hike in September. Powell cited improvements in inflation and stated that the central bank no longer projected a recession for the U.S. economy this year, which boosted risk appetite and weakened the safe haven status of the dollar.
Powell emphasized that future rate decisions would depend on economic data. Before the next policy meeting in September, there will be more reports on inflation and jobs, including the second-quarter gross domestic product due later on Thursday, and the personal consumption expenditures index, which will be released on Friday.
The euro saw a 0.1% increase against the dollar, reaching 1.1097. Investors are now awaiting the European Central Bank’s policy decisions. It is highly anticipated that the ECB will raise rates by 25 bps at its meeting later on Thursday. Consequently, the main focus will be on the bank’s forward guidance.
Although inflation remains high in the eurozone with an annual CPI of 5.5% in June, economic growth is slowing, and recent comments from council members have leaned toward a more dovish stance. Earlier Wednesday, data from the GfK institute revealed a slight improvement in the forward-looking German consumer sentiment index, which rose to -24.4 for August from a slightly revised -25.2 in July. Confidence in the eurozone’s largest economy, however, still remains low.
The USD/JPY pair fell 0.2% to 140.00 as the yen hovered near a one-week high against the dollar. This drop comes ahead of the Bank of Japan’s highly anticipated meeting on Friday. Analysts widely expect the central bank to keep interest rates at record lows and maintain its yield curve control policy. However, with Japanese inflation remaining stubborn, there is potential for a surprise announcement.
In conclusion, the U.S. dollar experienced marginal losses following the Federal Reserve’s meeting, while the euro gained ground ahead of the European Central Bank’s expected rate hike. The focus now shifts to economic data and the performance of the USD/JPY pair ahead of the Bank of Japan’s upcoming meeting.
