Dollar steady as Fed’s rate cut view calms market nerves

The dollar steadied near five-month lows on Thursday after the Federal Reserve indicated rate cuts were likely later this year despite uncertainties around U.S. tariffs, while the pound hit a four-month high ahead of the Bank of England’s policy decision, Reuters reported.

U.S. policymakers projected two quarter-point interest rate cuts were likely later this year, the same median forecast as three months ago, even as they expect slower economic growth and higher inflation. On Wednesday, the Fed held its benchmark overnight rate steady in the 4.25%-4.50% range.

“We’re not going to be in any hurry to move,” Fed Chair Jerome Powell said. “Our current policy stance is well-positioned to deal with the risks and uncertainties we face … The right thing to do is to wait here for greater clarity about what the economy is doing.”

Powell’s comments and the Fed statement underscored the challenge faced by policymakers as they navigate President Donald Trump’s plans to levy duties on imports from U.S. trading partners and the impact on the economy.

“The Fed doesn’t have all the answers but faces plenty of questions about how it is interpreting the shift in the U.S. economy and policy impacts,” said Kerry Craig, global market strategist at JPMorgan Asset Management.

“For now, the market seems reassured that the Fed is ready to act if needed.”

Traders are pricing in 66 basis points of easing this year from the Fed, about two rate reductions of 25 bps each, with a cut in July fully priced in, LSEG data showed.

Japan is closed for a holiday on Thursday, leading to a quiet session in Asia for currency markets.

The dollar index, which measures the U.S. currency against six rivals, was 0.1% higher at 103.51 but stayed close to the five-month low touched earlier this week. The euro last bought $1.0894.

Sterling touched a four-month high of $1.3015 in early Asian hours before settling at $1.2992 at 0600 GMT ahead of the BoE policy decision, where the central bank is expected to keep rates on hold.

With UK inflation stuck firmly above its 2% target, the BoE has cut borrowing costs by less than the European Central Bank and the Fed since last summer, contributing to the country’s sluggish growth rate.

The yen was a shade stronger at 148.46 per dollar, a day after the Bank of Japan kept rates steady and warned of heightening global economic uncertainty, suggesting the timing of further hikes will depend on the fallout from U.S. tariffs.

The yen has risen nearly 6% this year as traders bet that the Japanese central bank will hike rates this year as well as benefiting from geopolitical tensions leading to safe asset flows.