The Dollar Rises Most in Two Weeks as the Fed Appears Less Dovish

The U.S. dollar gained ground against all major currencies after investors interpreted the Federal Reserve’s latest policy stance as less dovish than previously assumed.

‍

Bloomberg’s U.S. dollar index rose as much as 0.4% on Thursday, marking its strongest intraday advance in two weeks. The move came as traders pared back expectations for aggressive interest-rate cuts from the Fed. Among the hardest hit were the New Zealand dollar and the South Korean won, which led the day’s declines.

‍

“While the Fed has indicated additional rate cuts are likely, the pace and scope of easing may fall short of what markets had been betting on,” explained Jane Foley, senior strategist at Rabobank in London. “Much of the anticipated Fed easing had already been priced in, and with the market positioned short on dollars, the shift in tone prompted some unwinding of those trades.”

‍

As widely expected, the Federal Reserve lowered its benchmark interest rate by 25 basis points on Wednesday. Policymakers also projected two further cuts before year-end, responding in part to mounting political pressure from the White House to bring down borrowing costs.

‍

However, the decision highlighted the central bank’s balancing act. With tariffs continuing to cloud the inflation outlook, Fed Chair Jerome Powell cautioned that officials will face tough choices in the months ahead when deciding whether to press forward with additional easing.

‍

The Fed’s measured approach contrasted with market hopes for a more aggressive path. Investors who had positioned for deeper rate reductions were forced to adjust after Wednesday’s announcement.

‍

“Currency markets are realigning after the Fed stopped short of meeting the highly dovish expectations priced in ahead of the September meeting,” said Valentin Marinov, head of FX strategy at Credit Agricole in London. “That has prompted traders to square dollar short positions, fueling today’s rebound in the greenback.”

‍

The ripple effect was most visible in Asia-Pacific currencies. The New Zealand dollar weakened notably, followed by the Korean won, as traders sought safety in the dollar. Other majors, including the euro and the yen, also slipped, though their losses were less pronounced.

‍

The shift underscores how sensitive global currency markets remain to Fed policy. While lower U.S. interest rates typically pressure the dollar, the latest move suggests investors are recalibrating to a slower pace of easing than previously thought.

‍

The Fed has signaled further cuts remain on the table, but the uncertainty around trade tensions and their impact on inflation means the path forward is far from clear. For currency markets, this uncertainty ensures volatility will remain elevated.

‍

For now, the dollar’s strength reflects investors’ recognition that while the Fed is easing, it may not be inclined to deliver the kind of rapid-fire cuts many were expecting just weeks ago.

‍