The US dollar has steadied at the start of Asian trade on Thursday ahead of interest rate decisions from the European Central Bank and the Bank of England, both of which are expected to keep rates on hold. The US dollar index, which measures the greenback's strength against a basket of six currencies, was up 0.2% at 96.671, having traded near a two-week high earlier. The euro was steady at $1.1800 ahead of the European Central Bank decision, where it is expected to keep rates on hold. Investors' attention will be focused on the post-policy press conference to gauge the outlook for rates over the coming months. As reported by The Economic Times, analysts from Bank of America expect the ECB to hold rates later in the day, with emphasis likely on higher uncertainty and only minor tweaks in communication. The British pound was flat at $1.3650 ahead of the Bank of England's policy decision, at which it is also expected to remain on hold.
Federal Reserve Governor Lisa Cook said in a speech she is more concerned about stalled progress on inflation than a weakening labour market, a strong signal that she will not support another interest-rate cut until tariff-induced price pressures begin to recede. Fed funds futures are pricing an implied 90.6% probability that the U.S. central bank will hold rates at its next two-day meeting ending on March 18, unchanged from a day earlier, according to the CME Group's FedWatch tool. The dollar has gained some strength this week as financial markets assess U.S. corporate earnings season, now halfway complete, and stocks turn risk-off. Against the yen, the U.S. dollar was fetching 156.92 yen, keeping steady as Japan's election campaign enters its final stretch ahead of Sunday's poll. The Nasdaq Composite has fallen 2.9% during the past two days, its biggest slide since October, with volatility triggered by market bellwethers including Google parent Alphabet, which reported aggressive capital expenditure plans alongside its earnings on Wednesday.
The Nasdaq Composite has fallen 2.9% during the past two days, its biggest slide since October, with volatility triggered by market bellwethers including Google parent Alphabet, which reported aggressive capital expenditure plans alongside its earnings on Wednesday, and a rout in software stocks as they adapt to a new era of generative AI. A phone call between U.S. President Donald Trump and Chinese counterpart Xi Jinping in which they discussed trade, security issues and U.S. arms sales to Taiwan has created some market uncertainty. Against the Chinese yuan trading offshore in Hong Kong, the dollar slipped 0.1% to 6.9386 yuan following the diplomatic discussions. The Australian dollar was up 0.1% at $0.70045 following the release of trade balance data which was a little ahead of market estimates. The New Zealand dollar was 0.1% firmer at $0.60045. Cryptocurrencies stabilised after a selloff which saw digital assets fall to the lowest since November 2024, with bitcoin last up 0.2% at $72,745.23, while ether edged up 1% to $2,146.63.
The report emphasized that a disorderly fall in the dollar is not in anyone's interest, neither the US nor the rest of the world would benefit from an abrupt or uncontrolled depreciation. Global financial stability relies on orderly currency movements, and a sudden loss of confidence in the dollar could disrupt trade, investment, and financial markets worldwide. The analysis noted that recent dollar weakness has occurred even as US interest rates have remained largely stable in the 4.00-4.50 per cent range and stock markets have continued to reach new highs despite periodic volatility. This decoupling suggests that the dollar may have lost some of its traditional safe-haven and hedging appeal in the face of US-specific policy risks. As reported by The Economic Times, analysts from Bank of America noted that their conviction in a March cut is not rock solid, but they remain convinced of an easing bias from here.
The report highlighted a changing relationship between the US dollar and US interest rates, noting that the dollar has weakened even as US interest rates have remained stable. According to BofA Securities, this decoupling suggests that the dollar may have lost some of its traditional safe-haven and hedging appeal in the face of US-specific policy risks. The broader narrative of a collapsing dollar is seen as overstated, as the US continues to benefit from strong growth and productivity advantages compared to other advanced economies. These fundamentals have supported a strong dollar for several years and allowed the US to finance large fiscal and current account deficits. The report concluded that while modest further depreciation of the dollar may occur, the large real decline would be particularly damaging for global economic stability.