EUR/USD: Dollar rebounds as Fed damps rate cut hopes

The dollar bounced back on Friday, gaining 0.39% to 102.35 on the dollar index, after Federal Reserve Bank of New York President John Williams dismissed market expectations for near-term rate cuts. This tempered a broader sell-off this week which saw the index hit a near 5-month low of 101.76 amid bets on easing.

The greenback had tumbled after Wednesday’s Fed projections for 75 basis points in cuts by 2024. Markets are pricing in cuts as soon as March but Williams said “it’s premature” to speculate. His comments halted four straight days of declines for the dollar index.

The euro retreated 0.84% to $1.0907, giving up gains after hitting $1.1009 on Thursday – its highest level since November. Meanwhile, sterling dropped 0.42% to $1.2711 having previously reached heights not seen since August. Both currencies were supported this week by pushback on cuts from the ECB and BoE.

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Gold holds steady on dovish Fed signals

Despite the temporary rebound, futures still fully price in a cut by September. Markets see aggressive 145 basis points in easing by year-end as the Fed leads a global dovish shift amid weakening data. The central bank had opportunities to temper expectations but chose not to lean against pricing.