Investing.com - The US dollar slipped slightly lower Thursday, handing back some of the previous session’s gains after a slightly hawkish US Federal Reserve meeting, with the European Central Bank now in the spotlight.
At 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 107.710.
Fed provides hawkish commentary
The US dollar had climbed Wednesday, bouncing from Monday’s one-month low, with the currency up more than 4% since the US election won by Trump in November.
The Federal Reserve left interest rates unchanged on Wednesday as widely expected, but gave scant clues about further reductions in borrowing costs this year.
During his press conference, Fed Chair Jerome Powell said it is too soon to say what Trump’s policies will do and the central bank’s 2% inflation target will remain in place.
"The dollar failed to hold very modest gains from the initially hawkish-sounding FOMC statement,” said analysts at ING, in a note. “This leaves the market looking for two 25bp cuts this year – one in June and one in December – and awaiting both US data and the tariff story for their next big cues.”
Euro awaits ECB decision
In Europe, EUR/USD dropped 0.1% to 1.0424, ahead of the latest policy-setting meeting by the European Central Bank, which is expected to result in a reduction of a quarter of a percentage point, despite eurozone inflation ticking upwards over the past few months.
The ECB eased interest rates four times last year to address weak growth throughout the eurozone, and against this backdrop investors will be closely watching the latest growth data from the eurozone later in the session.
Data released earlier Thursday showed that France’s economy retreated slightly in the fourth quarter, with the eurozone’s second-biggest economy declining by 0.1% in the last three months of 2024 after an unrevised 0.4% rise in the third quarter.
German gross domestic product also fell in fourth quarter, signaling weak growth in the eurozone’s largest economy.
“A 25bp cut in the deposit rate to 2.75% is nailed on and instead the focus will be on ECB President Christine Lagarde’s press conference,” ING said. We “see some downside risks if the market believes there is a chance of the ECB taking policy below neutral.”
GBP/USD slipped marginally lower to 1.2449, a day after Chancellor Rachel Reeves announced some plans in an attempt to grow the UK economy, seeking to address fears that Britain’s economy is growing too slowly to reduce its public debt burden quickly.
“While these efforts to restore confidence are very welcome – and have helped the sterling trade-weight index recover about 1% from lows earlier this month – we still feel sterling is vulnerable,” ING added.
Yen gains on safe-haven demand
In Asia, USD/JPY traded 0.4% lower to 154.52, due to safe-haven demand amid a broader risk-off sentiment.
USD/CNH traded marginally lower at 7.2613, with thin trading volumes due to the Lunar New Year holiday.
AUD/USD traded largely unchanged at 0.6230, amid rate-cut bets after soft inflation data.