Dollar Reaches First Monthly Gain in 2023

U.S. dollar eased on Thursday, but is on track to achieve its first monthly rise of the year after Federal Reserve Chair Jerome Powell made a firm comment following the central bank’s policy meeting.

At 03:00 ET (08:00 GMT), the Dollar Index, which compares the greenback against a basket of six other currencies, fell 0.1% to 99,550, near its highest level in two months and is on track to record a monthly gain of more than 3%, the first time this year.

Dollar rises thanks to Powell’s firm stance

The Federal Reserve kept rates unchanged at the close of the two‑day policy meeting on Wednesday, with the central bank citing unemployment as “low”, labor market conditions as “solid”, and inflation as “moderately high.”

Powell remained steadfast in his patient rate approach and gave little guidance on when rates might be lowered, even as President Donald Trump repeatedly urged rate cuts.

The Powell’s press conference was firm,” analysts at ING said in a report. “He reiterated expectations about short‑term inflation impacts and said that a moderately restrictive policy is appropriate. He seemed to put himself on a confrontational path with President Trump when stating that the Fed was considering inflation by not raising rates.”

CME’s 30‑day Fed Fund futures currently indicate a 45.7 % probability of a rate cut in September, down from 63.4 % before the announcement.

There has been disagreement among Fed rate setters over Powell, with Governors Christopher Waller and Michelle Bowman—both appointed by Trump—voting for a 25‑basis‑point cut this month. Officials cited concern that a slowing labor market is evidence for a cut.

An index of private sector employment outperformed expectations on Wednesday, indicating some recovery potential in the labor market. More labor data will be released this week, including the key non‑farm payroll report for July on Friday.

Another noteworthy data point is the number of unemployment claims, which recently attracted our attention after a six‑week series of unexpected drops. That is the longest streak since the August‑September 2022 period and may be contributing to expectations of a resilient labor market,” ING added.

Euro headed for a major monthly loss

On the euro area, EUR/USD rose 0.4 % to 1.1447, a modest gain after slipping to its lowest level in seven weeks in the previous session. However, the common currency remains on track to lose nearly 3 % for the month.

On the euro area, EUR/USD rose 0.4 % to 1.1447, a modest gain after slipping to its lowest level in seven weeks in the previous session. The common currency remains on track to lose nearly 3 % for the month.

French consumer prices rose slightly more than expected in July, with a moderate inflation rate adjusted for comparison across euro‑zone countries. Year‑on‑year it was 0.9 % in July, higher than the 0.8 % forecast.

Euro‑zone economic growth accelerated slightly above forecasts in Q2, but remains modest, and the world’s second‑largest economy will face U.S. tariffs in the future.

“If the first leg of the EUR/USD adjustment is driven by bleak growth prospects for the eurozone following the EU‑US trade agreement, then the drop to 1.14 is driven by the Fed’s hard‑backed re‑pricing,” ING said.

In our view, downside risks remain for EUR/USD, although the current position is considerably less tense following the tightening of dollar‑sell positions since the start of the week.

GBP/USD rose 0.1 % to 1.3253. The British pound traded near its lowest level in two and a half months and is on track for a monthly decline of nearly 3 %.

USD/JPY fell 0.2 % to 149.28 after the Bank of Japan kept policy rates unchanged, citing inflation as “moderately high.” The bank also raised its forecasts for core CPI and GDP for the current year, with core inflation projected to be higher than previously forecasted. The bank warned that real rates remain low, and it will raise rates further if inflation and growth rise more than expected.

The manufacturing PMI fell more than expected in July, as did the services PMI, with the decline attributed to the impact of harsh weather.