US dollar rises as ECB and BOE decisions approach

The US dollar rises in Thursday trading, extending its recovery as investors seek safety amid heightened volatility in global equity markets, while the euro and British pound weakened ahead of key central bank policy announcements.

The Dollar Index, which measures the greenback against a basket of major currencies, gained around 0.3% to reach 97.740, hovering near a two-week high after rebounding from multi-year lows seen recently.

Market participants shifted toward the dollar as risk sentiment softened, driven largely by concerns surrounding elevated valuations in technology stocks and ongoing uncertainty linked to artificial intelligence investment trends. Analysts noted that a challenging environment for equities typically encourages flows into safe-haven currencies, providing additional support for the US currency.

Recent developments in US monetary policy expectations also helped lift the dollar. The nomination of Kevin Warsh as Federal Reserve chair reinforced expectations of a less dovish policy stance, which investors interpreted as supportive for the greenback.

Meanwhile, economic data showed signs of cooling in the US labor market, although the release of key employment figures has been delayed due to a brief government shutdown. Investors are now closely watching upcoming secondary labor indicators, including weekly jobless claims and the latest JOLTS job openings data, for further clues about economic momentum.

ECB and BOE meetings weigh on euro and pound

The euro slipped slightly against the dollar ahead of the European Central Bank’s policy meeting, where policymakers are widely expected to keep interest rates unchanged. Investors remain focused on the post-meeting press conference for signals about the future rate path, especially after strong gains in the single currency raised questions about potential effects on inflation.

Recent data showed eurozone inflation slowing to 1.7% year-on-year in January, falling below the ECB’s 2% target and increasing speculation that policymakers could maintain a more accommodative stance if price pressures continue to ease.

The British pound also declined as markets awaited the Bank of England’s policy decision. Expectations suggest the central bank will leave rates steady, while political uncertainty in the UK has added additional pressure on sterling.

Analysts highlighted that potential changes in political leadership could influence fiscal policy expectations, creating further headwinds for the currency in the near term.

Yen pressured ahead of elections; Asian currencies mixed

In Asia, the Japanese yen remained under pressure ahead of upcoming lower house elections, with expectations that increased fiscal spending could widen Japan’s already stretched fiscal position. This outlook has weighed on the currency in recent weeks.

The Chinese yuan remained relatively firm, trading near its strongest levels in almost three years following strong midpoint guidance from the People’s Bank of China. Meanwhile, the Australian dollar slipped slightly after retreating from recent gains despite a hawkish interest rate increase by the Reserve Bank of Australia earlier this week.