Investing.com – The U.S. dollar rose in early European trade on Thursday, rising to a near seven-week high after the Federal Reserve kept interest rates steady and downplayed expectations for a rate cut in March.
At 04:25 ET (0925 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.5% higher at 103.575, near its highest level since mid-December.
Dollar helped by Powell’s comments
Interest rates remained unchanged at elevated levels at the latest policy-setting meeting on Wednesday.
It was widely expected, but the dollar received support after the Fed chairman said a recent slowdown in inflation would keep the central bank from making any monetary easing in the near term.
Goldman Sachs delayed its expectation that the Fed would begin cutting interest rates until May from March, while maintaining its forecast of five rate cuts of 25 basis points this year.
The influential investment bank expects four successive cuts starting from May to September, with a final cut in December.
“The strong signal from the Fed yesterday was that inflation and economic growth are moving towards a ‘better balance’, rate cuts are likely to happen, but more data is needed to give the Fed confidence that the cycle can begin.” ING analysts said. in the note.
More labor market data will be examined later in the session in the form of a weekly report ahead of the key monthly report on Friday.
Euro falls ahead of eurozone consumer price index data
In Europe, shares traded 0.2% lower at 1.0791 ahead of the latest euro zone inflation data, which could give policymakers the push to cut interest rates.
The figure is expected to fall to 2.7% year on year in January, down from 2.9% in the previous month and closer to the ECB’s medium-term target of 2%.
The European Central Bank has tamed the “greedy beast” of inflation, policymaker Joachim Nagel said earlier this week, deviating from its usual cautious tone.
“Given the successful downward trend in inflation and weak economic activity data, the European Central Bank is finding it more difficult than the Fed to counter expectations of early easing,” ING added. “This is why markets still see a 60% chance of an ECB rate cut in April.”
Shares traded 0.3% lower at 1.2647 ahead of the Bank of England’s policy meeting later in the session.
Rates are expected to remain unchanged as the governor previously stressed it was too early to talk about lower borrowing costs, but policymakers could hint that the central bank is moving toward lowering interest rates this year.
Yen rises as officials discuss monetary tightening
In Asia, the rate fell 0.1% to 146.75, with the yen rising slightly after minutes from the Bank of Japan’s January meeting showed policymakers actively discussing abandoning their ultra-dovish stance.
The yuan rose 0.2% to 7.1830, with the yuan remaining under pressure as data continued to point to a sluggish economic recovery.
A showed China’s manufacturing sector grew as expected in January, but the pace of growth now appears to be slowing, while home sales fell sharply in January, indicating mounting pressure from the worsening property crisis.