Mar 21 2024: The U.S. dollar made a modest recovery in European trading on Thursday, bouncing back from sharp losses in the previous session following the Federal Reserve’s reaffirmation of its interest rate cut projections for the year. Concurrently, the Swiss franc experienced a significant decline after a surprise rate cut by the Swiss National Bank.
The Dollar Index, which gauges the dollar against a basket of other major currencies, edged higher to 103.065 at 04:20 ET (09:20 GMT), after a notable decline of over 0.5% on Wednesday.
Fed Stays on Course for Rate Cuts
The Federal Reserve’s decision to maintain interest rates unchanged, coupled with its commitment to three rate cuts this year, provided support to the dollar. Despite concerns over persistent inflation, the Fed’s stance remained dovish, leading to a positive market response and a rebound in the dollar.
Traders are now anticipating a high probability of a 25 basis points rate cut by the Fed in June, as indicated by the CME Fedwatch tool.
The Swiss Franc Slumps on SNB Rate Cut
In contrast, the Swiss franc witnessed a sharp decline, with USD/CHF rising by 0.9% to 0.8945 after the Swiss National Bank surprised markets with a 25 basis points cut in its benchmark interest rate to 1.5%. This move, aimed at curbing the recent appreciation of the Swiss franc, made the SNB the first major central bank to cut rates in the current cycle.
Other Market Movements
USD/NOK fell slightly to 10.5484 after Norway’s central bank maintained its benchmark interest rate at 4.50%. GBP/USD declined to 1.2776 ahead of the Bank of England’s policy-setting meeting, where interest rates are expected to remain unchanged but with potential hints of future rate cuts.
EUR/USD traded higher at 1.0920, recovering from a one-week high earlier in the session. The European Central Bank’s efforts to manage rate cut expectations were reflected in President Christine Lagarde’s statement cautioning against committing to a specific number of rate cuts.
USD/JPY slipped to 150.99, bouncing back from a four-month high as the prospect of U.S. rate cuts and a more hawkish Bank of Japan favored the yen. Positive data on Japan’s purchasing managers index also contributed to the yen’s strength.
AUD/USD climbed to 0.6613, driven by robust labor market data showing a substantial improvement and a decrease in unemployment to a six-month low.
