The US dollar strengthened against major European currencies on Wednesday, led by gains versus the British pound, supported by signs that the United States and China are nearing a truce in their trade dispute. Traders also turned their focus toward the Federal Reserve meeting scheduled later in the day.
Speaking in South Korea, where he is set to meet Chinese President Xi Jinping on Thursday, US President Donald Trump said he believed both sides would reach a “great deal” beneficial to both nations. Sources told Reuters that China’s state-owned COFCO purchased three cargoes of US soybeans this week — another sign of easing trade tensions.
Trump also said he expects US tariffs on Chinese goods to be reduced in exchange for Beijing’s pledge to limit exports of chemicals used in the production of fentanyl.
Bart Wakabayashi, Tokyo branch manager at State Street Bank, commented that the dollar’s strength “could be a kind of relief rally after Trump’s tariff festival.” He added, “The dollar had been oversold for a long time, so the current rebound may simply reflect a market correction — though perhaps slightly exaggerated.”
The euro slipped 0.2% to 1.1628, ending a five-day winning streak, while the dollar rose 0.4% against the Swiss franc to 0.7969, pulling further away from multi-year lows reached last month.
Fed Meeting in Focus
The Federal Reserve’s policy meeting later today remains the key event for markets. Investors broadly expect the central bank to cut interest rates again, as policymakers navigate the economy using limited but concerning data showing softness in the labor market.
Market pricing also reflects expectations for another rate cut in December and potentially two more by July next year. Traders are watching whether Fed Chair Jerome Powell’s press conference — which will take place in the absence of fresh data — will alter those expectations.
Meanwhile, both the European Central Bank and the Bank of Japan are expected to leave interest rates unchanged in their respective meetings on Thursday.
The Japanese yen weakened slightly to 152.31 per dollar after briefly strengthening earlier in the session. The move came after Treasury Secretary Scott Bessent posted on X that “the Japanese government’s willingness to give the Bank of Japan sufficient space to continue its policy will be key to anchoring inflation expectations and avoiding excessive currency volatility.”
Bessent, who accompanied President Trump to Japan for talks with newly appointed Prime Minister Sanae Takaichi’s government, has repeatedly criticized the BOJ for its slow pace in normalizing rates.
Pound and Australian Dollar
Both the British pound and the Australian dollar saw notable moves driven by shifting rate expectations, even though the Bank of England (BoE) and the Reserve Bank of Australia (RBA) are not set to meet until next week.
The pound fell 0.45% to 1.3198 — its lowest in nearly three months — as markets increasingly bet on a BoE rate cut later this year, possibly as soon as next week. Goldman Sachs said Tuesday it now expects the BoE to lower rates next month after previously forecasting no easing in 2025.
Sterling also touched its weakest level in over two years against the euro and fell to its lowest since September 2022 versus the Swiss franc.
Meanwhile, the Australian dollar reversed earlier losses to rise 0.22% to 0.66005 after hotter-than-expected quarterly inflation data cast doubt on the likelihood of an RBA rate cut next week — or even in December.
Lucy Ellis, chief economist at Westpac, said: “The earliest the RBA board can gain sufficient confidence on inflation will be after the next quarterly reading ahead of the February 2026 meeting.” She added, “Even a February rate cut is no longer certain, given the upside surprise in this quarter’s inflation data.”
