Key Points:
- Fed officials show no urgency to cut rates, keeping hike options open.
- The dollar strengthens while the euro dips on rumors of Lagarde’s early exit.
- New Zealand dollar suffers a steep drop after a dovish central bank signals.
- Yen falls to 154.78 amid major U.S.-Japan investment announcements.
The U.S. dollar bounced back from recent lows on Thursday, holding onto gains after Federal Reserve minutes revealed a cautious stance on interest rates. The minutes showed that policymakers are in no rush to cut rates. In fact, several members indicated they remain open to hiking rates again if inflation stays stubborn.
This news pushed U.S. yields higher and consolidated the dollar’s strength against major rivals. In early Asian trading, the Euro struggled, staying below $1.18. The single currency faced additional pressure from reports suggesting European Central Bank President Christine Lagarde plans to leave her post before her term ends next October.
The Fed minutes highlighted a divide among officials on the future path of interest rates. While some hope productivity gains will cool inflation, most participants warned that progress could be slow. The consensus suggests the next chair, who takes over in May, will face difficulties pushing for rate cuts. Market strategists note this lack of urgency likely means rates will hold steady until at least the end of current Chair Jerome Powell’s term.
In the Pacific, the New Zealand dollar took a heavy hit, dropping nearly 1.4% to trade just under $0.60. The currency suffered its steepest fall since last April after the central bank took a more cautious line than investors expected. Meanwhile, the Australian dollar traded at $0.7045 as the market waited for employment data that could trigger future rate hikes.
The Japanese yen also retreated, falling about 1% to 154.78 against the dollar. The drop coincided with the Trump administration announcing $36 billion in projects, the first part of Japan’s massive investment pledge. This news reversed the yen’s recent rally following Prime Minister Sanae Takaichi’s election victory.
Analysts are watching these investment flows closely. Some believe direct Japanese investment in the U.S. will support the dollar, while others think Tokyo may use reserves to guarantee loans to protect the yen. With holidays in China and Hong Kong slowing trade, investors are now shifting focus to Friday’s release of U.S. gross domestic product data.
