The dollar continued to face instability on Thursday, as uncertainty surrounding U.S. economic policies and geopolitical developments was only somewhat mitigated by encouraging remarks from the White House and European officials after a significant decline in the currency. On the monetary policy front, the Federal Reserve adopted a more optimistic stance regarding the U.S. labor market and inflation risks overnight, leading investors to interpret this as a signal that rates may remain unchanged for an extended period. The dollar experienced a significant decline earlier this week, reaching a four-year low following comments from U.S. President Donald Trump, who appeared unconcerned about the currency’s depreciation.

However, it stabilized after Treasury Secretary Scott Bessent stated the following day that Washington maintains a strong-dollar policy. The euro, having surpassed the significant $1.20 threshold due to the dollar’s downturn, was trading slightly lower at $1.1979 in Asia, following indications from European Central Bank policymakers regarding rising apprehensions about its rapid increase. “It was a timely comment from Bessent that you’d assume was premeditated, if you’d like,” said Ray Attrill. The comments from the ECB appear to be independent; however, it is noteworthy that the euro/dollar exchange rate at $1.20 seems to have acted as a trigger. One could contend that the euro/dollar movement, which has not been particularly impressive until now, is somewhat concealing the overall strength of the euro. And that will contribute to the ECB’s inflation projections.”

Although the intense dollar selling subsided on Thursday, the currency continued to lag behind. The currency declined by 0.5% against the Swiss franc, reaching 0.7656, which is near an 11-year low, while the pound remained near a 4-1/2-year high at $1.3826. The Australian dollar has gained further traction from expectations of a potential rate hike domestically as early as next week, reaching a three-year high of $0.70495. The recent dollar selloff marked the most significant decline since the market turbulence triggered by Trump’s tariff measures last April. Currently down 2% for the year, its decline has been influenced by worries regarding Trump’s unpredictable policymaking, criticisms of the Fed, and the implications for the rate outlook. Most recently, signals on Friday indicated that the U.S. was prepared to sell dollars to assist Japan in strengthening the yen. NAB’s Attrill indicated that the dollar’s performance will significantly depend on the developments regarding Fed independence, particularly in light of a U.S. Supreme Court ruling concerning Trump’s attempt to dismiss Fed Governor Lisa Cook. “Loss of independence is far and away the biggest risk to ongoing dollar hegemony,” he stated.

The dollar stood at 96.24 against a basket of currencies, remaining close to Tuesday’s four-year low of 95.566.
The recent decline has offered some relief for the struggling yen, which appreciated by 0.12% to 153.21 per dollar on Thursday. The Japanese currency has remained within the 152-154 per dollar range for the majority of this week, influenced by discussions of rate checks from both the U.S. and Japan last week—an action frequently interpreted as a signal for potential intervention. In other developments, the New Zealand dollar reached a peak not seen in 6-1/2 months, hitting $0.60695. The offshore yuan experienced a modest increase to 6.9426 per dollar, reaching its highest point since May 2023 earlier this week.