On Thursday, the U.S. dollar made modest gains, continuing its recovery from earlier setbacks this week as the prospects of additional Federal Reserve interest rate reductions appeared to diminish. As of 03:00 Eastern Time (08:00 GMT), the Dollar Index, which measures the value of the greenback against six major currencies, edged up 0.1% to 98.980, positioning it for a slight increase on the week.
The dollar's early-week decline followed remarks from Federal Reserve Chair Jerome Powell, who revealed that the Trump administration had threatened criminal proceedings linked to his testimony about renovation activities at the Federal Reserve's headquarters. Powell characterized this pressure as an attempt to coerce the central bank into adopting a looser monetary stance.
Following this disclosure, the market response stabilized, aided by President Donald Trump's indication on Wednesday that he does not currently intend to replace Powell, though he refrained from offering a definitive long-term stance.
Further contributing to the greenback's uplift were November data releases showing a modest rise in U.S. producer prices driven largely by gasoline costs and retail sales that exceeded expectations during the same month.
Analysts at ING pointed out, "Last night's Federal Reserve Beige Book showed no urgency for immediate rate cuts, with economic activity stable or improving across eight of the 12 Federal Reserve districts and labor markets remaining robust." The analysts further added that market anticipations of Fed policy easing this year have shifted, deferring expected cuts to midyear or later, which could prompt reassessment in rate markets favoring the dollar.
In European currency markets, the euro slipped 0.1% against the dollar to 1.1633 after remarks from Denmark's Foreign Minister Lars Lokke Rasmussen highlighted "fundamental disagreements" with the United States following discussions about Greenland's future. These talks involved Danish and Greenlandic officials meeting with U.S. Secretary of State Marco Rubio and Vice President JD Vance at the White House.
Despite this diplomatic tension, ING noted that the euro-dollar pair remains in a low volatility range near multiyear lows, with no immediate triggers expected to reverse the current trend, making a move towards 1.1600 unlikely at present.
The British pound edged slightly higher to 1.3440 against the dollar thanks to robust economic data from the UK. Official figures indicated a 0.3% expansion in the British economy in November, outperforming the anticipated 0.1% growth on a month-to-month basis.
ING analysts suggested that the recent correction in sterling since November may continue, but there is potential for further upward surprises, particularly with the December UK Consumer Price Index due for release next week.
Turning to Asian currencies, the Japanese yen weakened against the dollar, with USD/JPY rising 0.2% to 158.63, maintaining proximity to a one-and-a-half-year peak reached earlier this week at 159.45. The yen's softness has been attributed to speculation surrounding Prime Minister Sanae Takaichi's planned early election call in February.
Markets view the potential for a Takaichi-led administration as bearish for the yen given her support for expansive fiscal policies, including increased public spending and ongoing accommodative monetary policies. Investors worry that such stimulus efforts could delay any policy normalization by the Bank of Japan, widen interest rate differentials with the U.S., and exert further downward pressure on the yen.
Elsewhere, the Chinese yuan eased slightly, as USD/CNY declined 0.1% to 6.9700. The Australian dollar gained 0.1%, reaching 0.6686 against the U.S. dollar, while the South Korean won appreciated by 0.5% to 1469.49 versus the greenback after previously falling 0.8%. This rebound followed reassuring comments from U.S. Treasury Secretary Scott Bessent, who remarked that the won's recent depreciation did not align with the nation's economic fundamentals.