The dollar index (DXY) rose by 0.09% on Wednesday following hawkish comments from Fed Chair Powell, who stated, “We expect a meaningful amount of inflation in the coming months,” indicating that the Federal Reserve is not close to cutting interest rates. This rise came despite an initial drop due to weaker-than-expected reports on US May housing starts, which fell 9.8% to a five-year low of 1.256 million, and building permits, which unexpectedly fell 2.0% to a 4¾-year low of 1.393 million.
In a statement, the FOMC kept the fed funds target rate unchanged at 4.25%-4.50% while cutting its US 2025 GDP estimate to 1.4% from 1.7%. The Fed’s dot plot indicates two quarter-point rate cuts by the end of the year, with the chances for a 25 basis point cut after the July 29-30 FOMC meeting estimated at 10%. Weekly initial unemployment claims fell by 5,000 to 245,000, aligning with expectations.
Meanwhile, the euro (EUR/USD) decreased by 0.04%, pressured by dovish comments from an ECB member, while the yen (USD/JPY) fell by 0.09%, despite modest gains from safe-haven buying due to geopolitical risks in the Middle East. Japan’s April core machine orders fell by 9.1%, a smaller decline than expected, highlighting mixed trade news as May exports fell by 1.7% year-over-year, and imports declined by 7.7%, the largest drop in 16 months.
