The dollar index rose to 104 on Thursday, gaining traction after falling to a five-month low of 103.2 earlier this week, despite a sharp decline in Treasury yields. The greenback found support amid dovish developments for other major currencies in the DXY basket.
US dollar index rebounds
The Swiss National Bank (SNB) cut its key interest rate and signaled a cautious stance on preventing excessive franc appreciation driven by safe-haven demand. Meanwhile, the Bank of England (BoE) and Sweden’s Riksbank both held rates steady while highlighting downside risks to economic growth. Additionally, the European Central Bank (ECB) warned that the US’s proposed tariffs could pose further risks to the already fragile economic outlook in the Eurozone.
These developments came on the heels of the Federal Reserve's decision to hold rates unchanged, as widely expected. While Fed officials downwardly revised their GDP growth projections and upwardly revised unemployment forecasts, Chairman Jerome Powell reassured markets that the impact of tariffs on inflation is likely to be transitory. The central bank maintained a cautious stance on monetary policy, reinforcing expectations of rate cuts later in the year.
USD supply set to rise
In the meantime, the supply of dollars is set to increase, as the Federal Reserve announced it would slow its balance sheet runoff by $20 billion per month. This move aims to maintain liquidity in financial markets and prevent unnecessary tightening, especially as the US Treasury continues to manage its cash balances following last year’s debt ceiling turmoil. The slower pace of quantitative tightening is expected to persist, even if the Treasury normalizes its account levels.
Looking ahead, traders will closely watch upcoming economic data releases, including inflation prints and job market indicators, for further clues on the Fed’s policy path. While the dollar has gained short-term momentum, its trajectory remains tied to shifting expectations around interest rates, global growth concerns, and the broader risk sentiment in financial markets.
