BY COMFORT OGBONNA
The U.S. dollar edged lower on Thursday but remained comfortably above its recent troughs after minutes from the Federal Reserve indicated policymakers are in no hurry to cut interest rates and are even open to further tightening if inflation proves persistent.
The minutes, released Wednesday, revealed divisions among officials over the future path of U.S. rates and suggested that the next Fed chair — set to take office in May — could face difficulty pushing through rate reductions. While several policymakers expect productivity gains to help moderate inflation, most participants warned that progress toward the 2% target may be gradual and uneven. A number of officials also signaled that rate hikes remain a possibility should inflation stall above target levels.
The cautious tone reinforced expectations that borrowing costs may stay elevated for longer, supporting the dollar. Analysts noted that the current chair, Jerome Powell, is nearing the end of his term in May, and major policy shifts are unlikely before leadership transitions are complete. Peter Dragicevich, Asia-Pacific currency strategist at Corpay, said the minutes suggest there is little urgency to resume rate cuts in the near term.
Investor sentiment was also shaped by geopolitical concerns. Reports of a buildup of U.S. forces in the Middle East and the possibility of confrontation with Iran lifted oil prices and boosted demand for safe-haven assets, including the dollar.
The euro steadied near $1.18 after tumbling sharply a day earlier. The drop followed a report by the Financial Times that Christine Lagarde, president of the European Central Bank, may step down before her term ends in October 2027. Speculation over an early departure fueled concerns about potential political influence in the appointment of her successor, particularly from outgoing French President Emmanuel Macron.
Despite the market reaction, analysts suggested the leadership change may not dramatically alter the ECB’s policy trajectory. Thierry Wizman, global FX and rates strategist at Macquarie Group, argued that with multiple policymakers shaping ECB decisions, a change at the Fed could have a greater impact on global monetary direction than a shift in Frankfurt. He added that there are no clear front-runners to succeed Lagarde, and the absence of a defined policy pivot has limited sustained euro weakness.
The Japanese yen weakened for a second consecutive session, trading around 154.96 per dollar after losing roughly 1.5% so far this week. The move followed the Trump administration’s announcement of $36 billion in projects representing the first wave of investments under Japan’s pledged $550 billion U.S. investment program. Analysts said the scale and structure of Japanese capital flows into the United States will be closely watched in the months ahead.
Chris Turner, global head of research at ING, noted that direct Japanese investment could either support the dollar through sustained inflows or ease pressure on the yen if structured in a way that limits currency market disruptions. The outcome remains uncertain and adds complexity to the outlook for USD/JPY this year.
Economic data also underpinned the dollar’s resilience. Figures released Wednesday showed U.S. factory production rose by the most in 11 months in January, alongside gains in capital expenditure and housing starts. The strength in activity reinforced the perception of a resilient U.S. economy. Markets are now turning their attention to upcoming global purchasing managers’ index readings and U.S. gross domestic product data due Friday.
In Asia-Pacific trade, the Australian dollar hovered around $0.7050 after data showed the unemployment rate remained at a multi-month low of 4.1%, signaling ongoing labor market strength. The New Zealand dollar rose 0.3% to $0.5982, rebounding after its steepest percentage drop since April last year, as the central bank adopted a more cautious stance on future rate hikes than many investors had anticipated.
Trading volumes in Asia were subdued due to holidays in Hong Kong, mainland China and Taiwan. The offshore yuan was little changed at 6.9 per dollar during European trading hours.
Overall, currency markets remain caught between steady U.S. economic momentum, central bank leadership transitions on both sides of the Atlantic, and rising geopolitical tensions that could quickly shift risk sentiment.
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