Dollar Holds Firm as Fed Rate Cut Expectations and Global Data Drive Currency Markets

The U.S. dollar held onto recent gains Tuesday as investors looked ahead to key signals from the Federal Reserve that could clarify the timing of anticipated interest rate cuts. Currency markets remained relatively quiet due to thin trading volumes, with several Asian markets closed for the Lunar New Year and U.S. markets recently observing the President’s Day holiday.

The dollar index, which tracks the greenback against a basket of major currencies, was steady at 97.12 after rising 0.2% in the previous session. The euro slipped slightly to $1.1843, while sterling eased to $1.3616. Meanwhile, the Japanese yen strengthened 0.15% to 153.28 per dollar, trimming earlier losses triggered by weaker-than-expected Japanese economic growth data. Japan’s economy expanded at an annualized rate of just 0.2% last quarter, increasing speculation that policymakers may introduce additional stimulus measures.

Market participants are closely watching the release of the Federal Open Market Committee minutes from January’s meeting, due Wednesday, along with advance U.S. GDP figures. Recent data showing softer U.S. consumer price inflation in January has strengthened expectations that the Fed could begin easing monetary policy in June. Money markets are currently pricing in roughly 62 basis points of rate cuts in 2026, implying at least two quarter-point reductions, with an 80% probability of a June cut.

According to Commonwealth Bank of Australia strategist Kristina Clifton, the broader narrative of U.S. economic resilience, often described as “U.S. exceptionalism,” may remain a key driver of dollar strength through 2026. While markets expect a June rate cut, her outlook includes a potential follow-up reduction in July.

The Australian dollar fell to $0.7064 following the Reserve Bank of Australia’s February meeting minutes, which highlighted ongoing inflation concerns. The New Zealand dollar edged lower ahead of the Reserve Bank of New Zealand’s policy decision. In cryptocurrencies, bitcoin traded near $68,882, while ether hovered around $1,999, reflecting steady investor interest in digital assets.