Fed's Inflection Point: Dollar Rises Amid Global Economic Uncertainty

The dollar strengthened following the Federal Reserve's decision to maintain interest rates amidst global economic uncertainties. Other currencies, including the pound and Swiss franc, experienced fluctuations influenced by respective central bank decisions. U.S. rate forecasts project gradual cuts, reflecting cautious approaches by global policymakers amid uncertain market conditions.

The dollar advanced on Thursday as the Federal Reserve signaled it was in no rush to cut rates further this year due to uncertainties involving U.S. tariffs. Meanwhile, the pound underperformed after the Bank of England kept rates unchanged. The Swiss franc also saw slight weakening after the Swiss National Bank reduced its policy rate to 0.25% whereas the Swedish crown softened following its central bank's decision to maintain its interest rate.

U.S. policymakers indicated that two quarter-point rate reductions might occur later this year, matching the forecast from three months ago despite expectations of slower economic growth and rising inflation. On Wednesday, the Fed retained its overnight rate at the 4.25%-4.50% range. "We're not going to be in any hurry to move," Federal Reserve Chairman Jerome Powell stated. "Our current policy stance is well-positioned to address the risks and uncertainties we face."

The stance taken by Powell and the Fed highlights the challenges faced by policymakers as they respond to President Donald Trump's tariff actions and their economic impact. "There is probably not enough in the Fed communication to build fresh USD shorts," noted ING FX strategist Francesco Pesole. Amid speculation about future easing, traders are anticipating 63 basis points of Federal Reserve cuts this year. This represents two rate reductions of 25 basis points each, with a 50% likelihood of a third, according to LSEG data.

(With inputs from agencies.)