Dollar Slips as Fed Signals Rate Cuts, Pound Hits Four-Month High

The U.S. dollar softened on Thursday after the Federal Reserve signaled potential interest rate cuts later this year, while uncertainty surrounding U.S. tariffs weighed on markets. Meanwhile, the British pound hit a four-month high ahead of the Bank of England’s policy decision.

The Fed maintained its benchmark rate at 4.25%-4.50% and projected two quarter-point cuts this year, aligning with previous forecasts despite expectations of slower growth and persistent inflation. Fed Chair Jerome Powell emphasized a cautious approach, stating, "We’re not in a hurry to move," as policymakers assess economic risks, including the impact of President Donald Trump’s proposed tariffs.

Traders anticipate two 25-basis-point rate cuts in 2025, with a July reduction fully priced in, according to LSEG data. Analysts suggest that the Fed is balancing inflation concerns with potential economic slowdown risks, contributing to a weaker dollar and rising stock markets.

The dollar index remained steady at 103.41 but hovered near a five-month low. The euro traded at $1.0908, while the yen strengthened to 148.36 per dollar following the Bank of Japan’s decision to hold rates steady amid global uncertainty. Sterling touched $1.3015 as the BoE prepared to maintain rates while navigating persistent inflation above its 2% target.

Turkey’s lira plunged to a record low of 42 per dollar before recovering to 37.665 after authorities detained President Erdogan’s political rival. In early trading, it stood at 38 per dollar.

Elsewhere, the Australian dollar fell 0.35% to $0.6335 following a surprise drop in employment figures. Despite a recent rate cut by the Reserve Bank of Australia, policymakers remain cautious about further easing due to ongoing labor market strength and inflation concerns.