Bessent Speaks Out, Dollar Immediately Rebounds
The US dollar strengthened against the euro and yen on Wednesday (January 28th), after the Fed decided to hold interest rates. The US central bank assessed that inflation remains quite high while the economy remains solid, but its latest statement did not provide a clear signal when the next interest rate cut might occur.
In the foreign exchange market, the euro fell about 1% to $1.19163, while the dollar rose 1.1% against the yen to 153.90. The dollar index strengthened 0.8% to 96.667, after falling to 95.86 the day before—its lowest level since February 2022. Tuesday's weakening occurred when President Donald Trump responded to the dollar's decline this month with a relaxed response, which the market interpreted as a green light to continue aggressively selling dollars ahead of the Fed meeting.
On the policy front, the FOMC emphasized that its next decision would be data-dependent. They said that "the extent and timing of any additional adjustments" in interest rates would be determined by developments in economic data and the future outlook—without providing a timetable.
Wednesday's session was also influenced by other factors: the dollar briefly recovered after Treasury Secretary Scott Bessent reiterated that the US continues to support a strong dollar policy and denied any intervention in the currency market to support the Japanese yen.
Overall, the dollar index is still down nearly 2% year-to-date, after weakening 9.4% last year. Pressure on the dollar comes from several directions: lingering expectations of interest rate cuts, tariff uncertainty, policy volatility, including the issue of the Fed's independence, and concerns about a widening fiscal deficit—a combination that has eroded investor confidence in the stability of US economic policy.
On Tuesday, this volatility briefly pushed the euro above $1.2 for the first time since 2021, the pound to a 4.5-year high, and the yen to its strongest monthly performance since April. The yen's movement was also supported by speculation about potential Japan-US coordination to support the currency.
In Europe, the strengthening of the euro has begun to become a concern. Two ECB officials have suggested that an excessively strong euro could influence the direction of monetary policy. Austrian central bank Governor Martin Kocher said the ECB could consider another interest rate cut if the euro's strength begins to change the inflation outlook. Meanwhile, French central bank governor François Villeroy de Galhau said policymakers are monitoring the euro's appreciation and its potential impact on lower inflation.
Towards the end of the session, the euro was hovering around $1.1907 (down 1.1%), but still close to its previous peak of $1.2084—its strongest level since June 2021.
Source: Newsmaker.id
