The US dollar gained against all its major peers yesterday and extended these gains on Friday against most currencies, with the exception of the Japanese yen, which strengthened after a Bank of Japan decision that turned out to be more hawkish than expected.

The dollar rebounded following Wednesday’s Federal Reserve decision, which investors judged to be less dovish than anticipated. The FOMC cut interest rates by 25 basis points, but Fed Chair Jerome Powell appeared in no rush to ease borrowing costs aggressively during his press conference. The committee’s projections showed two more cuts this year, but the median forecast for 2026 pointed to just one additional cut—contrasting with market expectations for three.

Adding further momentum to the dollar’s rise yesterday was a larger-than-expected drop in weekly initial jobless claims. Despite recent signs of weakness in labor reports, the Fed upgraded its growth forecasts and projected the unemployment rate would fall across its forecast horizon. The claims data reinforced that optimism.

Nevertheless, even with additional gains in the greenback, Fed funds futures indicate that investors remain convinced of two further cuts this year—in October and December—and three more in 2026. This divergence between market and Fed expectations suggests the dollar’s path will remain uncertain in the near term.

If incoming data continue to point to a stronger labor market, investors may start trimming bets on aggressive easing, which could lend the dollar further support. Conversely, weaker labor data could shift sentiment in the opposite direction.

Sterling Retreats as Two BOE Members Vote for a Cut

Thursday saw the Bank of England’s latest policy decision, with policymakers opting to hold rates steady by a 7–2 vote while reducing the pace of gilt sales to £70 billion from £100 billion.

Sterling’s initial reaction was positive, likely due to the relatively hawkish tone in the statement, which reaffirmed that a gradual and cautious approach to unwinding monetary accommodation remained appropriate. The statement also noted that the overall degree of policy tightness had fallen, hinting that the need for further cuts was not pressing.

However, the pound quickly reversed and lost its gains, pressured by the surprise of two members voting for a 25-basis-point cut instead of just one as expected. The stronger dollar on the back of US jobless claims, combined with comments from Governor Andrew Bailey later in the day pointing to the likelihood of further easing ahead, added to sterling’s decline.

Yen Rallies After a Hawkish BOJ Tone

During today’s Asian session, focus turned to the Bank of Japan. Policymakers also kept rates unchanged in a 7–2 vote, but this time the dissenters pushed for a hike. The BOJ also unanimously announced it would begin selling its holdings of exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITs).

The yen jumped immediately as traders ramped up bets on a rate increase. According to Japan’s overnight index swaps (OIS), the probability of a 25-basis-point hike by year-end rose to 70% from 65% prior to the decision. Markets are pricing a 43% chance of an October hike, with expectations of another similar move next year.

Gold prices fell in the European market on Friday, continuing to move in negative territory for the third consecutive day and retreating significantly from record highs, as correction and profit-taking activity persisted alongside pressure from the rise of the US currency in the foreign exchange market.

As widely expected, the Federal Reserve announced a 25-basis-point interest rate cut, bringing rates to their lowest levels in nearly three years, though it gave no signals that it was in a hurry to ease monetary policy further in the coming months.

Price Overview

•Gold prices today: Gold fell by 0.35% to $3,632.33, from the opening level of $3,644.294, recording a session high of $3,657.40.

•At Thursday’s settlement, gold lost 0.45% in its second straight daily decline, as correction and profit-taking continued from the all-time high of $3,707.65 an ounce.

•Aside from profit-taking, gold prices also came under pressure from the US dollar’s rise following positive economic data in the United States.

US Dollar

The dollar index rose by 0.15% on Friday, extending gains for a third consecutive session and reflecting the continued strengthening of the US currency against a basket of major and minor counterparts.

Beyond recovering from its lowest level in three and a half years, the dollar’s rise also came after the Federal Reserve failed to deliver the more dovish signals markets were expecting.

Federal Reserve

•In line with expectations, the Fed on Wednesday cut rates by 25 basis points, bringing them to 4.25%, their lowest since November 2022, after five consecutive meetings of holding rates steady.

•The decision passed with a majority of FOMC members in favor, except for one dissenter, Steven Mnuchin, who preferred a larger 50-basis-point cut.

•The Fed noted in its policy statement that job growth had slowed markedly in recent months, with downward revisions to prior employment data, reflecting weakening momentum and rising labor market risks.

•The Fed added that despite slowing growth, inflation remains above the 2% target, pointing out that new tariffs imposed by the Trump administration were adding further upward pressure on prices.

•In its quarterly economic projections, the Fed lowered the 2025 year-end target rate from 4.0% to 3.75%, the 2026 target from 3.5% to 3.25%, and the 2027 target from 3.25% to 3.0%.

•Fed Chair Jerome Powell described the rate cut as necessary for risk management in response to labor market weakness, saying the central bank was in a “volatile situation” regarding interest rate expectations.

•Powell added that he saw no need for rapid additional cuts, emphasizing that monetary policy would remain data-dependent, guided by inflation and growth developments.

US Interest Rates

•The Fed’s median projections point to an additional 50 basis points of rate cuts in 2025.

•Median expectations from Fed members show one 25-basis-point cut in 2025, with another similar cut expected in 2026.

•Following the meeting, CME Group’s FedWatch tool showed the market pricing for a 25-basis-point October cut falling from 100% to 87%, the probability of a 50-basis-point cut slipping from 3% to 1%, and the likelihood of no change rising from 0% to 13%.

Gold Outlook

•Kyle Rodda, market analyst at Capital.com, said: “Sentiment remains bullish, but it has definitely lost some momentum. Essentially, the Fed didn’t provide dovish-enough guidance to push gold higher.”

•Rodda added that expectations for two more cuts this year were supportive, but projections of just one cut in 2026 were higher than market pricing, which pushed yields and the dollar higher.

SPDR Fund

Gold holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Thursday, with the total remaining at 975.66 metric tons—the lowest since September 12.

The British pound fell in European trading on Friday against a basket of global currencies, extending its losses for the third consecutive session against the US dollar and moving notably away from its highest level in two and a half months.

This decline comes amid ongoing correction and profit-taking, in addition to negative pressure from the outcome of the Bank of England’s latest monetary policy meeting.

In line with expectations, the Bank of England kept its benchmark interest rate unchanged at its lowest level in two and a half years, though the voting details surprised markets; seven members voted to maintain current rates, while two favored a 25-basis-point cut.

Price Overview

•British pound exchange rate today: The pound fell against the dollar by about 0.2% to $1.3531, from the opening price of $1.3554, with the session high at $1.3560.

•The pound lost 0.5% against the dollar on Thursday, marking its second straight daily decline, as correction and profit-taking continued from its two-and-a-half-month high at $1.3727, under pressure from the Bank of England meeting results.

Bank of England

In line with expectations, the Bank of England decided on Thursday to leave interest rates unchanged at 4.00%, the lowest since February 2023. It also said it would slow the pace of quantitative tightening and avoid selling long-term government bonds to limit the impact on volatile markets.

The decision passed with seven members voting to keep rates unchanged, while two supported a 25-basis-point cut to 3.75%. This split went against market expectations, which had forecast eight members voting for no change and just one for a cut.

In its monetary policy statement, the Bank of England said that any upcoming rate cuts would be cautious and gradual.

Andrew Bailey

Bank of England Governor Andrew Bailey said after Thursday’s meeting that the Monetary Policy Committee is following a “gradual and cautious” approach to rate reductions, focusing on the medium-term upside risks to inflation, such as rising food prices that could influence wage agreements and exert pressure on long-term price levels.

UK Interest Rates

•Traders increased their bets on further Bank of England rate cuts, expecting at least an additional 25-basis-point reduction this year.

•Market pricing currently places the probability of a 25-basis-point rate cut at the November meeting above 50%.

The Japanese yen rose broadly in Asian trading on Friday against a basket of major and minor currencies, beginning to recover from its lowest level in nearly two weeks against the US dollar, amid strong demand for the currency as one of the best available investment opportunities, especially after the Bank of Japan’s eventful monetary policy meeting.

In line with expectations, the Bank of Japan kept its short-term interest rate unchanged for the fifth consecutive meeting. However, the decision passed with only seven of nine members in favor, as two voted for a rate hike—an unusual split that surprised markets.

The Bank of Japan also announced it would begin selling its holdings of exchange-traded funds, signaling a gradual move away from ultra-loose monetary policy and the unwinding of the massive stimulus program that had persisted for years.

Price Overview

•Japanese yen exchange rate today: The dollar fell by about 0.55% against the yen to ¥147.20, from the opening level at ¥147.99, with the session high at ¥148.11.

•The yen ended Thursday down 0.7% against the dollar, marking a second consecutive daily loss, and hit its lowest level in nearly two weeks at ¥148.27, pressured by strong US dollar buying from low levels after positive US economic data.

Bank of Japan

In line with expectations, the Bank of Japan decided on Friday to make no changes to its current monetary policy tools, keeping interest rates unchanged at 0.50%, the highest level since 2008, for the fifth consecutive meeting.

The Bank of Japan keeps interest rates unchanged

The decision passed with seven out of nine board members voting in favor, while two voted for a hike—an unusual split that added an element of surprise for global financial markets.

In the two-day meeting that concluded just recently, the Bank of Japan decided to sell its ETF holdings in the market at an annual pace of about ¥330 billion. It also decided to sell real estate investment trusts at an annual pace of about ¥5 billion.

The announcement of asset sales is seen as a clear signal of a gradual retreat from ultra-loose monetary policy and the unwinding of the massive stimulus program maintained for many years.

Monetary Policy Statement

In its policy statement update, the Bank of Japan said core inflation in Japan is expected to stagnate due to slowing economic growth but will gradually accelerate thereafter.

The bank added that Japan’s economic growth is expected to slow due to the impact of trade policies on global growth, but will later regain momentum.

The bank explained that it unanimously decided to sell these assets in the market based on basic principles for their disposal, including the principle of avoiding destabilizing effects on financial markets.

Japanese Interest Rates

•Following the meeting, pricing for the likelihood of the Bank of Japan raising interest rates by 25 basis points at the October meeting rose to above 75%.

•To reprice those odds, investors are now awaiting further data on inflation, unemployment, and wage levels in Japan.

Kazuo Ueda

Bank of Japan Governor Kazuo Ueda is scheduled to speak later today about the results of the monetary policy meeting, and his comments are expected to provide stronger clues on the outlook for policy normalization and Japanese interest rate hikes throughout the year.