The US dollar held steady on Thursday as investors awaited US consumer inflation data for clearer signals on the Federal Reserve’s rate-cut path, while the euro remained unchanged ahead of the European Central Bank meeting.
Michalis Rousakis, G10 FX strategist at Bank of America, said: “The main event is the US CPI data… the market is looking for justification to reprice Fed expectations toward a larger cut, which could push the dollar lower.”
He added that the question is whether the Fed can be repriced for more easing, “given that markets are already pricing in a cut in September, and nearly three cuts by year-end.” He explained that Bank of America’s baseline expectation is for two additional cuts this year.
The dollar index rose 0.1% to 97.91, with the US currency largely stable against major counterparts.
This came after data on Wednesday showed an unexpected decline in US producer prices, strengthening expectations of a Fed rate cut next week. It followed Tuesday’s revision to payroll figures, which revealed the US created 911,000 fewer jobs in the 12 months through March than previously estimated.
In Europe, the ECB is expected to keep rates unchanged at its meeting later today. The euro was steady at $1.169225 before the decision. Analysts said policymakers may adopt a more dovish tone to address trade and political uncertainty across the continent.
The single currency stabilized after two days of losses, while geopolitical tensions on the EU’s eastern flank continued. Poland said Wednesday it shot down suspected Russian drones in its airspace with NATO support — the first known instance of a NATO member using direct military force since the Russia-Ukraine war began.
In a note, Commerzbank analysts said hopes that the ECB meeting might spark a bigger EUR/USD move could be disappointed, given the lack of expected new information. They added: “If there are any hopes, they may rest with ECB President Christine Lagarde, who appeared surprisingly hawkish in her last two press conferences.”
But they emphasized that with no rate cut expected until June next year, Lagarde is unlikely to reveal her stance at this early stage.
Focus on the Fed
Market attention remains centered on the Fed’s easing path. Investors view rate cuts as a given, but the question remains: how large?
According to the CME FedWatch tool, traders price an 8.9% chance of a larger 50-basis-point cut at the September 16–17 meeting, while a 25-basis-point cut is fully guaranteed.
At the same time, the Fed’s policymaking committee has remained in focus, after the Trump administration on Wednesday moved to appeal a court ruling that temporarily blocked his unprecedented attempt to dismiss Fed Governor Lisa Cook. The White House seeks to remove her ahead of next week’s meeting.
Meanwhile, Stephen Miran moved a step closer to joining the Fed Board of Governors, part of Trump’s efforts to expand his direct influence over monetary policy. The Senate Banking Committee voted to advance his nomination, although lawmakers noted it remains uncertain whether the process will be completed in time for him to participate in the upcoming meeting.
Other Currencies
The dollar rose 0.2% to ¥147.80 after data showed Japan’s wholesale prices increased 2.7% year-on-year in August, accelerating from the previous month and reflecting continued inflationary pressures in the world’s fourth-largest economy.
The Australian dollar fell 0.1% to $0.66095, retreating after hitting its highest since November on Wednesday as commodity prices, including oil and gold, weakened.
The offshore yuan traded at 7.1216 per dollar, up 0.04%. The New Zealand dollar dropped 0.2% to $0.59290, while sterling slipped 0.1% to $1.35195.
