On the monetary policy front, the Federal Reserve struck a more sanguine tone on the U.S. labour market and inflation risks overnight, which investors took to imply that rates could be on hold for longer.
The dollar was in free fall earlier this week and hit a four-year low after U.S. President Donald Trump seemed to shrug off the currency’s weakness, though it found a floor after Treasury Secretary Scott Bessent said a day later that Washington has a strong-dollar policy.
The euro, which broke above the key $1.20 level on the back of the dollar’s decline, traded just below that at $1.1979 in Asia, after European Central Bank (ECB) policymakers similarly flagged growing concerns over its quick appreciation.
“It was a timely comment from Bessent that you’d assume was premeditated, if you’d like,” said Ray Attrill, head of FX strategy at National Australia Bank (NAB).
“I think the ECB comments are independent, but it’s interesting that with euro/dollar, $1.20 does seem to have been a little bit of a trigger.
“You could argue that… the euro/dollar move, which up until recently, hasn’t been that great, is kind of masking broader euro strength. And that will feed into the ECB’s inflation forecasts.” While the heavy dollar selling abated on Thursday, the currency remained on the back foot.
It fell 0.5% against the Swiss franc to 0.7656, close to an 11-year low, while sterling hovered near a 4-1/2-year high at $1.3826.
The Australian dollar, which has drawn additional support from bets of a rate hike at home as soon as next week, scaled a three-year peak of $0.70495.
The dollar selloff from earlier this week had been the sharpest since Trump’s tariff blitz rocked markets last April.
Already down 2% for the year, its weakness has been driven by concern over Trump’s erratic policymaking, attacks on the Fed and what it could mean for the rate outlook and, most recently, signals on Friday the U.S. was willing to sell dollars to help Japan to boost the yen.
NAB’s Attrill said the dollar’s performance will hinge crucially on how issues around Fed independence play out, including a U.S. Supreme Court ruling on Trump’s bid to fire Fed Governor Lisa Cook.
“Loss of independence is far and away the biggest risk to ongoing dollar hegemony,” he said.
Against a basket of currencies, the dollar was at 96.24, languishing near Tuesday’s four-year low of 95.566.
Its slide has provided some reprieve for the ailing yen, which rose 0.12% to 153.21 per dollar on Thursday.
The Japanese currency has tracked around the 152-154 per dollar range for most of this week thanks to talk of rate checks from the U.S. and Japan last week – a move often seen as a precursor to intervention.
Elsewhere, the New Zealand dollar scaled a 6-1/2-month top of $0.60695. The offshore yuan rose slightly to 6.9426 per dollar, having hit its strongest level since May 2023 earlier this week.
