The U.S. dollar strengthened slightly Wednesday after Federal Reserve Chair Jerome Powell adopted a cautious tone regarding further interest rate cuts, while the euro struggled to respond to positive headlines on Ukraine.
At 03:50 ET (07:50 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, edged up 0.2% to 97.080, rebounding from earlier losses.
Powell stresses careful approach
Speaking to the Greater Providence Chamber of Commerce in Rhode Island on Tuesday, Powell highlighted the Fed’s “challenging situation,” citing the risks of faster-than-expected inflation alongside weak job growth that raised concerns about the labor market.
He offered little guidance on the timing of future rate cuts, warning of the dangers of moving too quickly and triggering inflation or easing too slowly and potentially raising unemployment. Earlier this month, the Fed cut interest rates for the first time in 2025, and markets currently anticipate quarter-point reductions at the remaining two Fed meetings this year.
“Fed Chair Jerome Powell broadly reiterated his cautious view yesterday, signalling there is some balance between downside employment risks and upside inflation risks. The result is still a more hawkish tone by the chair relative to the FOMC consensus, as expressed by the median Dot Plot,” ING analysts said in a note.
Traders will also monitor housing data later in the session, although it is unlikely to significantly alter sentiment. “We retain a moderate bearish bias on the dollar this week, although a quiet day for data and Fedspeak today (only Mary Daly is due to speak) means we could see FX volatility ease further and the dollar hover close to the current level in most G10 crosses,” ING added.
Euro struggles despite Trump remarks
In Europe, the euro weakened 0.2% to 1.1794 against the dollar, failing to rally despite bullish comments from U.S. President Donald Trump regarding Ukraine. On his Truth Social platform, Trump said he believes Ukraine can regain all territories lost to Russia since the invasion, following his meeting with Ukrainian President Volodymyr Zelenskiy at the U.N. General Assembly.
He had earlier suggested that both Kyiv and Moscow might have to make territorial concessions to end the conflict. “With time, patience, and the financial support of Europe and, in particular, NATO, the original Borders from where this War started, is very much an option,” Trump wrote.
“While that is a significant change of tone, markets have been treating Trump’s comments on the matter with caution due to a lack of progress in peace negotiations so far,” ING noted. “If anything, there are downside risks for the euro and even more for higher-beta European currencies as Trump told EU allies to shoot down Russian planes violating NATO airspace.”
GBP/USD traded 0.3% lower at 1.3487, approaching last week’s two-week low.
Other currency and market movements
Elsewhere, USD/JPY climbed 0.3% to 148.10 as investors speculated on an earlier resumption of Bank of Japan rate hikes following recent hawkish signals. USD/CNY increased 0.1% to 7.1193, while AUD/USD advanced 0.4% to 0.6620 after Australia’s CPI report for August showed a 3.0% year-on-year rise, slightly above the 2.9% forecast.
The Reserve Bank of Australia had reduced interest rates in its previous meeting and indicated the possibility of further cuts if the data supported it. However, Wednesday’s CPI print, at the upper end of the RBA’s target range, renewed concerns about the central bank’s next steps.
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