The US dollar fell on Thursday but remained above its recent lows after minutes from the latest Federal Reserve meeting showed policymakers are in no rush to cut interest rates, with several members open to raising rates again if inflation remains elevated.

Investors also grew cautious amid reports of an expanding US military presence in the Middle East and the possibility of a US-Iran conflict, which pushed oil prices and traditional safe-haven assets higher.

Meanwhile, the euro stabilized near $1.18 after a sharp drop in the previous session, following reports that European Central Bank President Christine Lagarde may leave her post before her mandate ends in October next year.

Division Within the Federal Reserve

Minutes released Wednesday revealed divisions among Federal Reserve officials regarding the future path of US interest rates. The document suggested that the incoming Fed chair, expected to take office in May, could face difficulties in pushing through rate cuts.

The minutes indicated that many policymakers expect productivity gains to help contain inflation, but “most participants” warned that progress could be slow and uneven.

Several analysts noted that rate hikes remain possible if inflation continues to exceed target levels.

Peter Dragicevich, APAC currency strategist at Corpay, said: “This suggests there is no urgent need to cut rates again, at least not before current Chair Jerome Powell’s term ends in May.”

Data released Wednesday also showed US factory output posted its largest increase in 11 months during January, alongside stronger capital spending and higher housing starts.

Markets are now awaiting global PMI readings and US GDP data scheduled for release on Friday.

Euro Steadies After Lagarde Speculation

The euro edged slightly higher against most major currencies after stabilizing following a selloff triggered by speculation that Lagarde could leave the ECB early. According to a report by the Financial Times, such a move would give outgoing French President Emmanuel Macron influence over selecting her successor.

Lagarde’s term is set to end in October 2027, and while potential successors are not expected to dramatically shift monetary policy, the speculation emerged at a time when leadership changes are also taking shape at the Federal Reserve.

Terry Wiseman, global FX and rates strategist at Macquarie Group, said that a change at the Fed could prove more significant for global policy direction than a change at the ECB.

He added: “She could easily be replaced by someone more dovish or more hawkish — it’s unclear because there are no clear front-runners. That’s likely why markets haven’t reacted strongly.”

Yen Falls, Aussie Dollar Holds Steady

The Japanese yen weakened for a second consecutive session after the Trump administration announced $36 billion in projects as the first wave of investments under Japan’s pledge to invest $550 billion in the United States.

The yen traded slightly weaker at 154.96 per dollar after losing about 1.5% this week.

Chris Turner, head of global research at ING, said Japanese direct investment into the US will be a key theme this year, adding further complexity to the outlook for the USD/JPY pair.

The central question for FX markets is whether these investments will boost dollar flows or whether Japan will use its foreign reserves to back dollar loans and avoid putting pressure on the yen — with Tokyo appearing to favor the latter.

Meanwhile, the Australian dollar held steady near $0.7050 after employment data showed the jobless rate remained at a multi-month low of 4.1%.

The New Zealand dollar rose 0.3% to $0.5982 after recording its biggest decline since April, following a more cautious stance from the Reserve Bank of New Zealand regarding future rate hikes.

Holiday closures in Hong Kong, China, and Taiwan slowed Asian trading activity, while the offshore Chinese yuan remained stable around 6.9 per dollar during European trading hours.

Gold prices rose in European trading on Thursday, extending gains for a second consecutive session and moving back above the $5,000-per-ounce level. The metal continues to recover from a two-week low, supported by renewed safe-haven demand amid escalating geopolitical tensions between the United States and Iran.

However, gains in the precious metal are being limited by the strength of the US dollar in the foreign exchange market, supported by the latest Federal Reserve policy meeting minutes, which reduced expectations for a US interest rate cut in March.

Price Overview

• Gold prices today: Gold rose 0.9% to $5,022.04, up from the session opening level of $4,976.25, while recording an intraday low at $4,960.54.

• At Wednesday’s settlement, gold prices gained 2.0% as part of a recovery from the two-week low of $4,841.43 per ounce.

Geopolitical Tensions

The White House announced on Wednesday that relative progress had been made during talks related to Iran held this week in Geneva, though disagreements remain over several unresolved core issues.

In the same context, an expanded meeting of US national security advisors was held in the White House Situation Room to assess developments surrounding the Iranian file. Officials stressed the importance of completing the deployment and positioning of US military forces in the region by mid-March, reflecting strategic preparedness for potential developments.

US Dollar

The dollar index rose 0.1% on Thursday, extending gains for a fourth straight session and reaching a two-week high at 97.78 points, reflecting continued strength in the US currency against a basket of global currencies.

As is widely known, a stronger dollar makes dollar-denominated gold less attractive for holders of other currencies.

This dollar strength comes as investors increasingly favor the US currency as one of the best available opportunities in the FX market, especially as expectations grow that US interest rates will remain unchanged through the first half of the year.

Federal Reserve Minutes

Minutes from the latest Federal Reserve meeting, held on January 27–28, showed divisions among policymakers over the appropriate path for US interest rates. The minutes suggested that the incoming Fed chair, expected to assume office in May, may face challenges in implementing rate cuts.

The minutes also indicated that some members expect productivity gains to ease inflation pressures, while “most participants” warned that progress toward lower inflation could be slow and uneven. Some even signaled the possibility of raising rates again if inflation remains above target.

US Interest Rates

• Following the minutes, and according to the CME FedWatch tool, market pricing for leaving US rates unchanged at the March meeting rose from 90% to 95%, while pricing for a 25-basis-point cut fell from 10% to 5%.

• To reprice these expectations, investors are closely monitoring upcoming US economic data, in addition to further guidance from the Federal Reserve.

Gold Outlook

Jamie Dutta, market analyst at Nimo Money, said that geopolitical concerns are currently dominating sentiment, noting that reports suggest any potential US military action against Iran could extend for several weeks.

SPDR Gold Trust

Gold holdings in the SPDR Gold Trust, the world’s largest gold-backed ETF, remained largely unchanged on Wednesday at 1,075.61 metric tons, marking the lowest level since January 15.

The British pound declined in European trading on Thursday against a basket of global currencies, extending its losses for a fourth consecutive session against the US dollar and hitting a four-week low. The move comes as investors continue to favor the US currency after the Federal Reserve meeting minutes showed that policymakers are not rushing toward interest rate cuts.

UK consumer price data showed continued easing in inflationary pressures on policymakers at the Bank of England, which increased expectations for a UK interest rate cut in March.

Price Overview

• British pound exchange rate today: The pound fell 0.1% against the dollar to $1.3480, the lowest level since January 22, from an opening level of $1.3494, recording a session high of $1.3502.

• The pound lost 0.55% against the dollar on Wednesday, marking its third consecutive daily loss, pressured by UK inflation data.

US Dollar

The dollar index rose 0.1% on Thursday, extending gains for a fourth straight session and reaching a two-week high at 97.78 points, reflecting continued strength of the US currency against a basket of global currencies.

Minutes from the latest Federal Reserve meeting, held on January 27–28, showed divisions among policymakers regarding the appropriate path for US interest rates. The minutes indicated that the incoming Fed chair, expected to take office in May, may face challenges in pushing through any rate cuts.

The minutes also showed that some members expect productivity gains to help ease inflationary pressures, while “most participants” warned that the path toward lower inflation may be slow and uneven. Some members even hinted at the possibility of raising interest rates again if inflation remains above target.

Following the minutes, and according to the CME FedWatch tool, market pricing for keeping US interest rates unchanged at the March meeting rose from 90% to 95%, while expectations for a 25-basis-point rate cut dropped from 10% to 5%.

UK Interest Rates

• Data released on Wednesday in the UK showed headline consumer inflation rising 3.0% in January, in line with market expectations, marking the lowest reading in the past ten months, down from 3.4% in December. Core inflation also eased to 3.1% from 3.2%.

• These figures indicate continued easing of inflationary pressures on policymakers at the Bank of England.

• Following the data, pricing for a 25-basis-point rate cut by the Bank of England in March increased from 85% to 90%.

The Japanese yen declined in Asian trading on Thursday against a basket of major and minor currencies, deepening its losses for a second consecutive session against the US dollar and touching a one-week low. The move came as investors continued to favor the US currency after the Federal Reserve meeting minutes showed that policymakers are in no rush to move toward interest rate cuts.

US President Donald Trump announced projects worth $36 billion as the first round of investments under Japan’s pledge to invest $550 billion in the United States within the framework of the latest trade agreement between the two countries.

Price Overview

• Japanese yen exchange rate today: The dollar rose against the yen by 0.35% to ¥155.29, the highest level since February 10, from an opening level of ¥154.76. The pair recorded a session low at ¥154.62.

• The yen ended Wednesday’s session down 1.0% against the dollar, marking its second loss in three days, pressured by the Federal Reserve minutes.

US Dollar

The dollar index rose 0.1% on Thursday, extending gains for a fourth straight session and hitting a two-week high at 97.78 points, reflecting continued strength of the US currency against a basket of global currencies.

Minutes from the latest Federal Reserve meeting, held on January 27–28, showed divisions among policymakers regarding the appropriate path for US interest rates. The minutes also indicated that the incoming Fed chair, expected to take office in May, could face challenges in pushing through any rate cuts.

The minutes further revealed that some members expect productivity gains to help ease inflationary pressures, while “most participants” warned that the path toward lower inflation may be slow and uneven. Some even hinted at the possibility of raising interest rates again if inflation remains above target.

Following the minutes, and according to the CME FedWatch tool, pricing for keeping US interest rates unchanged at the March meeting rose from 90% to 95%, while expectations for a 25-basis-point rate cut fell from 10% to 5%.

Investment Spending

The administration of President Donald Trump announced the launch of $36 billion worth of projects, representing the first tranche of Japan’s pledged $550 billion investment package in the United States.

The move aims to strengthen economic cooperation between the two countries and support Japanese investment in strategic sectors within the US market.

Views and Analysis

• Chris Turner, Head of Global Research at ING, said that Japanese direct investment into the United States will be a key factor to watch this year, adding complexity to the already mixed outlook for the dollar/yen pair.

• Turner added that the key question for currency markets is whether these investments will generate dollar-supportive flows or whether Japan will rely on its foreign exchange reserves to back new dollar loans and avoid pressure on the yen, noting that the latter appears to be Tokyo’s preferred outcome.

Japanese Interest Rates

• Market pricing for a quarter-point rate hike by the Bank of Japan at its March meeting remains below 10%.

• Pricing for a quarter-point hike at the April meeting is currently around 50%.

• According to the latest Reuters poll, the Bank of Japan may raise rates to 1% by September.

• Investors are awaiting further data on inflation, employment, and wages in Japan to reassess these expectations.