Dollar Recovers as Bessent Confirms No Intervention; Fed Pauses

The U.S. dollar staged a rebound on Wednesday, halting a four-day slide that had pushed the currency to levels not seen in nearly four years. The recovery followed Treasury Secretary Scott Bessent’s explicit reassurance that the United States will not intervene in the dollar-yen market. Speaking to CNBC, Bessent stated the U.S. is “absolutely not” intervening and emphasized that a robust dollar relies on solid economic fundamentals rather than market manipulation.

The Federal Reserve also left interest rates unchanged, as widely expected after three consecutive cuts late last year. Investors are now closely monitoring Chair Jerome Powell’s press conference for any hints on future monetary policy and updates regarding his ongoing Justice Department probe. At 14:06 ET (19:06 GMT), the Dollar Index, which tracks the greenback against six major currencies, rose 0.5% to 96.50, following a 0.9% drop the previous day.

Dollar Faces Continued Uncertainty

Despite the midweek rebound, the dollar remains under pressure amid growing uncertainty over U.S. economic policy and central bank independence. Last week’s rate checks on USD/JPY, often interpreted as a precursor to intervention, left traders questioning whether authorities are now targeting a weaker dollar.

Analysts from ING noted that while Republican administrations historically favored a weaker dollar, President Trump’s dismissive comments regarding recent declines have fueled debate over U.S. dollar policy. Treasury Secretary Bessent is now expected to clarify Washington’s stance further, as market participants weigh the implications for both short-term and long-term currency trends.

Even with the Fed maintaining rates, analysts suggest that a pause could provide temporary support to the dollar. However, if the rebound proves weak, the currency may continue its bearish trajectory, despite stable short-term U.S. yields.

Global Currency Movements Respond

The euro retraced some of its gains against the dollar, with EUR/USD dropping 1.1% to 1.1910. European Central Bank officials are expected to hold interest rates steady at 2% next week, though they may consider cuts if the euro continues to appreciate and threatens to lower inflation. Austrian central bank governor Martin Kocher highlighted that a stronger euro could push the ECB off its inflation target.

In other currency markets, GBP/USD fell 0.6% to 1.3765 after hitting its highest level since October 2021. USD/JPY rebounded 1.1% to 153.88, following earlier volatility linked to potential Tokyo intervention. AUD/USD dipped 0.2% to 0.6994 after Australian CPI data exceeded expectations, reinforcing bets on a possible rate hike by the Reserve Bank of Australia.

The rebound in the dollar, driven by Treasury assurances and the Fed’s policy pause, has created a cautious optimism among investors. Traders are closely monitoring Powell’s remarks for guidance on future monetary policy, while global markets continue to respond dynamically to movements in the greenback.