The dollar remained steady on Thursday, pinned beneath recent peaks as traders awaited the latest U.S. labor market data and digested remarks from Federal Reserve Chair Jerome Powell. Powell’s comments were seen as reassuring on the likelihood of interest rate cuts this year, leading to expectations of a Fed rate cut in June.
An unexpected slowdown in U.S. services growth also supported the expectations of a rate cut and weighed on the dollar. Despite this, the dollar remains the best-performing G10 currency for the year so far, with more modest expectations compared to three months ago.
The euro, which rose 0.6% overnight, returned to the middle of its year-long range at $1.0837. European inflation data coming in softer-than-expected reinforced expectations for a rate cut by the European Central Bank in June.
Analysts at ANZ noted that Powell’s remarks affirmed the Fed’s intention to cut rates this year, with data guiding the timing. Futures pricing indicated a 60% probability of a Fed rate cut in June, with markets expecting a cut by July.
The Australian dollar broke above its 200-day moving average, reaching a five-month high against the New Zealand dollar. Traders anticipate rate cuts in New Zealand starting in August, while Australian rates are expected to remain on hold until November.
Overall, the focus remains on upcoming PMI readings in Europe and the U.S. labor data due on Friday, as market participants continue to monitor central bank actions and economic data for further guidance on monetary policy.