The US dollar index rebounded above the 100 mark on Thursday, building on momentum from the previous session as easing trade tensions and a firmer policy stance from the Federal Reserve helped lift investor sentiment. The renewed strength in the greenback came as signs emerged that the White House may soften its aggressive trade posture.
US dollar rebounds on potential trade deal
Reports indicated that the US and UK are set to announce a comprehensive trade agreement later in the day, potentially creating a framework for similar deals with other major economies, including the European Union and Japan. The agreement could serve as a strategic counterweight to recent tensions with China, ahead of high-level talks in Switzerland this weekend, where officials from both sides will attempt to reestablish a working dialogue after months of escalating tariffs.
At the same time, the Federal Reserve held its benchmark interest rate steady, as widely expected. However, Chair Jerome Powell struck a cautious tone in his post-meeting remarks, warning of mounting risks on both sides of the central bank’s dual mandate—namely, the possibility of a resurgence in inflation due to trade policy uncertainty, alongside weakening labor market conditions. He firmly dismissed calls for a preemptive rate cut to shield the economy from the potential impact of President Trump’s tariff threats, suggesting the Fed would wait for concrete evidence of deterioration before adjusting its policy stance. The Fed's resolve lent further support to the dollar, particularly amid a backdrop of global monetary easing.
Across major currency pairs, performance was mixed
The greenback underperformed against the Swedish krona (SEK) after the Riksbank defied market expectations by keeping interest rates unchanged and signaling confidence in inflation returning to target over the medium term. In contrast, the British pound came under pressure as markets braced for an expected rate cut from the Bank of England, with policymakers facing a sluggish growth outlook and softening inflation. Meanwhile, the euro remained range-bound, weighed down by weaker-than-expected German factory orders and continued stagnation in the bloc's construction sector.
Elsewhere, risk-sensitive currencies such as the Australian and New Zealand dollars saw modest gains on improved global sentiment and optimism surrounding trade diplomacy. However, gains were capped by weak domestic data and ongoing expectations of further rate cuts by their respective central banks. Emerging market currencies were broadly firmer, benefiting from lower volatility and improved appetite for risk assets.
Overall, the dollar's rebound reflected a combination of diminishing global uncertainty, a relatively hawkish Fed stance, and anticipation of potential diplomatic breakthroughs in trade policy that could reshape global economic dynamics in the months ahead.
