Dollar Struggles as Policy Uncertainty Weighs on Markets Despite Official Support

The U.S. dollar remained under pressure on Thursday, as lingering uncertainty over U.S. economic policy, Federal Reserve independence, and geopolitical developments continued to undermine confidence in the currency. While supportive remarks from the White House and European officials helped slow the selloff, they were not enough to fully reverse the damage from earlier in the week’s sharp decline.

On the monetary policy front, the Federal Reserve adopted a more relaxed tone on risks surrounding the U.S. labor market and inflation. Investors interpreted this as a signal that interest rates could remain on hold for an extended period, which further weighed on the dollar’s outlook. Earlier in the week, the dollar fell to a four-year low after President Donald Trump appeared unconcerned about its weakness. The slide briefly stabilized after Treasury Secretary Scott Bessent reiterated that the United States maintains a strong-dollar policy.

The euro benefited significantly from the dollar’s decline, breaking above the key $1.20 level before easing slightly to around $1.1979 in Asian trading. European Central Bank officials expressed concern over the euro’s rapid appreciation, noting potential implications for inflation forecasts. Market strategists suggested that the $1.20 level acted as a psychological trigger, highlighting broader underlying strength in the euro.

Although heavy selling pressure eased on Thursday, the dollar remained on the defensive. It slipped 0.5% against the Swiss franc to 0.7656, hovering near an 11-year low, while the British pound stayed close to a 4½-year high near $1.38. The Australian dollar climbed to a three-year peak above $0.70, supported by expectations of a potential rate hike as early as next week. The New Zealand dollar also strengthened, reaching a six-and-a-half-month high, while the offshore Chinese yuan held near its strongest level since May 2023.

Analysts noted that concerns over President Trump’s unpredictable policymaking, criticism of the Federal Reserve, and signals that the U.S. might sell dollars to support the Japanese yen have all contributed to the currency’s weakness. Against a basket of major currencies, the dollar index lingered near 96.24, close to its recent four-year low. Market participants remain focused on the outcome of a U.S. Supreme Court ruling related to Fed independence, which many view as a critical factor for the dollar’s long-term global standing.