The US dollar rose in European trade on Thursday against a basket of major rivals, expanding the gains for the second straight session as concerns about a US recession receded while Trump announced a major trade deal.
The Federal Reserve maintained interest rates unchanged for the third straight meeting, pointing to rising inflation and unemployment concerns due to tariffs.
The Index
The dollar index rose 0.35% today to 100.21, with a session-low at 99.61.
On Wednesday, the index rose 0.5%, the first profit in four sessions following the Federal Reserve’s policy decisions.
Trade Developments
US President Donald Trump said he’ll announce a big trade deal with a “highly respectable country” in a new conference later today, the first of many such deals.
It’s likely to be a trade deal with the UK, which itself reached a free trade deal with India last week.
The Fed
In a step that wasn’t surprising, the Fed decided to maintain interest rates unchanged at below 4.5%, due to ongoing economic uncertainty.
The statements asserted the FOMC continues to monitor risks closely, and believes that unemployment and higher inflation risks are on the upside.
The statement hinted that tariffs threaten higher prices and could slow growth, which opens the door to the scenario of inflationary recession.
Most Fed policymakers believe the central bank is in a good position to hold off modifying policies until clear data presents itself.
The Fed’s decision comes as the US administration engages in intense talks with trade partners to reach deals within the 90-day pause on reciprocal tariffs that Trump provided.
Powell
Fed Chair Jerome Powell provided important remarks following the meeting:
-He expects higher short-term inflation
-Tariffs are the main mover of inflation forecasts
-Tariffs so far are much larger than expected
-Sustained tariffs will lead to higher inflation and less employment
-Fed remains in a good position before changing policies
-Fed isn’t in a rush to cut interest rates
-He opened the door for more interest rate cuts this year is suitable
US Rates
Following the Fed meeting and according to the Fedwatch tool, the odds of a June 0.25% interest rate cut fell from 32% to 20%.
The odds of a July interest rate cut also fell from 71% to 66%.
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