Dollar Holds Firm as Markets Await ECB, BoE Decisions

Global currency markets opened Thursday on a cautious note, with the U.S. dollar holding steady as investors braced for key interest rate decisions in Europe and digested fresh signals from the Federal Reserve. The moves reflect a broader sense of uncertainty gripping financial markets from volatile U.S. equities to shifting expectations around inflation, trade, and central bank policy.

With multiple economic and political forces converging, currency traders are positioning carefully, aware that even subtle changes in tone from policymakers could ripple across global markets.

Dollar steadies as focus shifts to central banks

The U.S. dollar traded slightly firmer in early Asian hours on Thursday, stabilizing after recent gains as markets awaited interest rate decisions from the European Central Bank (ECB) and the Bank of England (BoE). Both central banks are widely expected to leave rates unchanged later in the day, but investors remain keenly focused on guidance for the months ahead.

The U.S. dollar index, which tracks the greenback against six major currencies, rose around 0.2% to 96.671. Earlier in the session, it hovered near a two-week high, reflecting a modest return to the dollar as risk appetite cooled.

Market participants said the dollar’s resilience was less about fresh optimism and more about caution, as traders reassessed global growth prospects and the path of interest rates across major economies.

Euro waits on ECB signals, not the rate call

The euro was largely unchanged near $1.1800 ahead of the ECB’s policy announcement. While no rate move is expected, the real focus lies on the post-meeting press conference, where policymakers are likely to address mounting uncertainty around inflation, growth, and future monetary easing.

Analysts at Bank of America expect the ECB to maintain its current stance but acknowledged that communication could evolve subtly. They noted that while a rate cut as early as March is not guaranteed, the overall direction still points toward gradual easing if economic conditions weaken further.

Investors are watching closely for any hints about how long the ECB intends to hold restrictive policy, particularly as euro zone growth remains uneven and inflation progress shows signs of slowing.

Pound steady before Bank of England decision

Sterling was also subdued, trading around $1.3650 ahead of the Bank of England’s policy decision. Similar to the ECB, the BoE is expected to keep interest rates unchanged as it balances stubborn inflation pressures against signs of cooling economic activity.

Currency traders say the pound’s lack of movement reflects confidence that policy will remain steady in the near term, with greater volatility likely only if policymakers signal a clear shift toward rate cuts later in the year.

Yen holds ground as Japan’s election looms

Against the Japanese yen, the dollar was last seen near 156.92, showing little change as Japan’s election campaign enters its final days ahead of Sunday’s vote. Political uncertainty has added another layer of caution to yen trading, though the currency has remained relatively stable in recent sessions.

Japan’s ultra-loose monetary policy continues to weigh on the yen, even as global yields fluctuate. Traders are watching closely for any post-election signals that could influence fiscal or monetary coordination in the months ahead.

U.S. earnings volatility boosts dollar demand

The dollar’s recent firmness has been partly supported by a shift toward risk-off sentiment in global markets. U.S. corporate earnings season, now roughly halfway through, has delivered mixed results and renewed volatility in equity markets.

The Nasdaq Composite has dropped nearly 3% over the past two days, marking its sharpest decline since October. Much of the pressure has come from heavyweight technology names, including Google parent Alphabet, which unsettled markets by outlining aggressive capital expenditure plans alongside its earnings report.

At the same time, software stocks have come under pressure as investors reassess valuations in an industry grappling with rapid changes driven by generative artificial intelligence. The pullback has prompted some investors to seek safety in the dollar.

Fed signals reinforce cautious rate outlook

Adding to the cautious tone, Federal Reserve Governor Lisa Cook said in remarks during the Asian session that she is more concerned about stalled progress on inflation than about a weakening labor market. Her comments suggested limited appetite within the Fed for near-term rate cuts.

Cook emphasized that inflation risks particularly those linked to tariffs, remain a concern, reinforcing expectations that the Fed will keep policy restrictive until price pressures ease more convincingly.

According to CME Group’s FedWatch tool, futures markets are pricing in a roughly 90% probability that the Fed will leave interest rates unchanged at its next two-day meeting ending March 18, a view that has remained largely stable in recent days.

Yuan edges higher after U.S.- China call

The dollar slipped slightly against the offshore Chinese yuan, easing about 0.1% to 6.9386. The move followed a phone call between U.S. President Donald Trump and Chinese President Xi Jinping, during which the two leaders discussed trade, security concerns, and U.S. arms sales to Taiwan.

While the call did not result in immediate policy announcements, traders said the dialogue appeared to ease near-term tensions, offering modest support to the yuan amid ongoing uncertainty over U.S.–China relations.

Aussie, kiwi gain on economic data

In the Asia-Pacific region, the Australian dollar ticked up around 0.1% to $0.70045 after the release of trade balance data that slightly exceeded market expectations. The figures offered a small boost to sentiment, though analysts cautioned that broader global trends remain the dominant driver for the currency.

The New Zealand dollar also edged higher, rising about 0.1% to $0.60045, tracking modest gains across risk-sensitive currencies.

Cryptocurrencies stabilize after sharp selloff

Digital assets showed signs of stabilizing after a steep selloff earlier in the week that pushed prices to their lowest levels since November 2024. Bitcoin was last up around 0.2% near $72,745, while ether gained roughly 1% to trade around $2,146.

Market participants said the rebound appeared tentative, with investors still wary of broader risk aversion and tighter global financial conditions.

What comes next for global markets

With major central bank decisions imminent and U.S. earnings season still unfolding, currency markets are likely to remain sensitive to shifts in tone rather than headline moves. Even small changes in guidance from policymakers could prompt sharp reactions, particularly in an environment where investors are already on edge.

For now, the dollar’s steady footing reflects its role as a relative safe haven amid uncertainty, but that balance could shift quickly as fresh economic data and policy signals emerge.

(With inputs from Reuters.)

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