Dollar Advances as Solid U.S. Data Cools Near-Term Fed Cut Expectations

Key Moments

Dollar Finds Support as Fed Easing Bets Recede

The U.S. dollar edged higher on Thursday, extending its rebound from early-week weakness as traders reassessed the likelihood of additional Federal Reserve interest rate cuts.

At 03:00 ET (08:00 GMT), the Dollar Index – which measures the greenback against six major peers – was up 0.1% at 98.980 and was on track for a small gain for the week.

The currency had dropped sharply at the start of the week after Federal Reserve Chair Jerome Powell revealed that the Trump administration had threatened criminal charges over his testimony about renovation works at the central bank’s headquarters, saying it amounted to intimidating the Fed into delivering easier monetary policy.

The dollar has since stabilized, with market participants absorbing the news, helped by President Donald Trump stating on Wednesday that he has no plans to remove Powell from his post, while adding that it was “too early” to say what he would ultimately do.

Fresh U.S. data contributed to the dollar’s advance. Producer prices picked up slightly in November, driven by higher gasoline costs, and retail sales for the same month exceeded expectations.

Additionally, “last night’s release of the Fed’s Beige Book suggests the central bank will be in no hurry to cut. Activity was flat to higher in eight of the 12 Fed districts, and there was no sign of any deterioration in the labor markets,” said analysts at ING, in a note.

ING added, “Having pushed expectations of Fed policy easing this year back to a cut in June and then December, the next move in the rates market could be to price out the second Fed rate cut this year – a dollar positive.”

Major FX Moves: Euro, Sterling and Key Levels

Euro Softens After Greenland Dispute Comments

In European trading, EUR/USD slipped 0.1% to 1.1633. The move came after Denmark’s foreign minister Lars Lokke Rasmussen said there is a “fundamental disagreement” with the U.S. following discussions about Greenland’s future.

The remarks followed a meeting in Washington where Danish and Greenlandic foreign ministers held talks with Secretary of State Marco Rubio and Vice President JD Vance at the White House.

Despite the latest headlines, implied volatility in the pair has remained subdued. ING noted that “EUR/USD traded volatility remains near multi-year lows, and we cannot see any immediate catalysts to reverse this. EUR/USD grinding towards 1.1600 looks unlikely to change this either.”

Elsewhere in Europe, GBP/USD inched up to 1.3440 after stronger than anticipated U.K. activity figures. Britain’s economy expanded by 0.3% in November on a month-on-month basis, compared with a forecast of 0.1%.

Commenting on the move, ING said, “We think the sterling correction we have seen since November probably has a little further to run, especially with the risk of an upside surprise in December U.K. CPI released next week.”

Asian Currencies: Yen Under Pressure, Won Rebounds

In Asia, USD/JPY rose 0.2% to 158.63, holding close to one-and-a-half-year highs as the yen remained under pressure. The Japanese currency has weakened sharply in recent sessions amid speculation that Prime Minister Sanae Takaichi is preparing to call an early snap election in February.

The pair touched an 18-month peak of 159.45 on Wednesday.

Market participants have largely viewed the potential for a Takaichi-led administration as unfavorable for the yen, citing her backing for expansionary fiscal measures, increased public expenditure, and continued accommodative monetary policy.

Investors are concerned that another push for stimulus could constrain the Bank of Japan’s room to normalize policy, widen yield differentials with the U.S., and intensify downward pressure on the yen.

Elsewhere in the region, USD/CNY slipped 0.1% to 6.9700, while AUD/USD added 0.1% to trade at 0.6686.

USD/KRW climbed 0.5% to 1469.49, recovering from a 0.8% drop in the previous session. The earlier decline followed comments from U.S. Treasury Secretary Scott Bessent, who offered rare verbal support, saying the Korean won’s recent depreciation was inconsistent with economic fundamentals.