The US dollar stabilized on Thursday amid mounting concerns about a wider conflict in the Middle East while traders assess latest decisions by global central banks, including a surprise rate cut by the Norwegian Central Bank, keeping traders cautious.

A spike in geopolitical tensions boosted the dollar, which recently reclaimed its status as a safe haven, with both Iran and Israel carrying out air strikes on Thursday with the conflict entering its seventh week. 

Concerns are mounting about a potential US entry as President Trump keeps the world guessing on whether he’ll enter the fray or not.

The Fed Holds Rates

The Federal Open Market Committee voted to hold interest rates unchanged at below 4.5% as expected by analysts. 

The FOMC expects two 0.25% interest rate cuts by the end of 2025, while reducing expected future cuts in both 2026 and 2027 by once each.

The statement showed persistent uncertainty among Fed officials on the future of interest rates, but overall, the Fed expects rates to reach 3.4% by 2027.

The Fed has adjusted GDP growth in 2025 to 1.4%, while raising inflation forecasts to 3%.

Swiss Franc Rises, Norwegian Krone Drops 

The Swiss franc rose against the US dollar after an expected decision by the Swiss National Bank to cut interest rates, but the surprise came from the Norwegian central bank, which cut interest rates unexpectedly by 25 basis points.

Both the dollar and the euro rose against the Krone by 0.7% and 0.6% respectively, but it remains one of the best performing currencies this year against the dollar with an 11% profit so far.

Forex Performance Worldwide

The euro fell 0.1% to $1.147, while the yen reached 145.28 against the greenback, as the Swiss franc rose after the central bank avoided a deeper 0.5% rate cut. 

The dollar index was stable at 98.9, up 0.8% so far this week, the best such performance since late February.

Wall Street Closed

Liquidity could be impacted today due to the US banking holiday of Juneteenth.

Powell Talks about Inflation 

Fed Chair Powell said the impact of tariffs will become clearer during the summer, and as long as growth remains strong and inflation down, the proper decision would be to maintain current monetary policies. 

According to the Fedwatch tool, the odds of a Fed July 0.25% rate cut rose to 17%, while the odds of such a cut in September rose to 66%.

Gold prices fell in European trade on Thursday on track for the second loss in a row, hitting a week low under pressure from the stronger US dollar.

The Federal Reserve maintained interest rates unchanged for the fourth meeting in a row, and said it won’t rush into policy easing, while expecting two rate cuts by the end of 2025.

The Price

Gold prices fell 0.65% today to $3347 an ounce, a week low, with a session-high at $3388.

On Wednesday, gold lost 0.55% away from a two-month high at $3451 on profit-taking. 

The Dollar

The dollar index rose 0.2% on Thursday on track for the fifth profit in a row, hitting a week high at 99.10 against a basket of major rivals.

It comes amid increasing haven demand on the greenback as the Iran-Israel military strikes mount, with the possibility of a US entry.

The Fed

The Federal Open Market Committee voted to hold interest rates unchanged at below 4.5% as expected by analysts. 

The FOMC expects two 0.25% interest rate cuts by the end of 2025, while reducing expected future cuts in both 2026 and 2027 by once each.

The statement showed persistent uncertainty among Fed officials on the future of interest rates, but overall, the Fed expects rates to reach 3.4% by 2027.

The Fed said that despite changes in net exports, recent indicators still show strong economic growth, with unemployment still low. 

Economic Outlook

The Fed changed most of the economic outlook as follow:

Growth: The Fed reduced US growth outlook this year from 1.7% to 1.4%, and in 2026 from 1.8% to 1.6%, and maintained 2027 at 1.8%.

Inflation: The Fed raised the inflation outlook this year to 3.0% from 2.7%, and to 2.4% in 2026, and to 2.1% in 2027.

Core inflation: The Fed expects 3.1% core inflation in 2025, then 2.4% in 2026, and 2.1% in 2027.

Interest rate target is estimated at 4% this year, 3.5% next year, and 3.25% in 2027.

Powell

Fed Chair Powell said the impact of tariffs will become clearer during the summer, and as long as growth remains strong and inflation down, the proper decision would be to maintain current monetary policies. 

US Rates

According to the Fedwatch tool, the odds of a Fed July 0.25% rate cut rose to 17%, while the odds of such a cut in September rose to 66%.

SPDR

Gold holdings at the SPDR Gold Trust rose 1.43 tons yesterday to a total of 947.37 tons, the highest since April 24. 

Sterling fell in European trade on Thursday against a basket of major rivals, extending losses for the third straight session against the dollar and hitting a four-week trough, before the Bank of England’s policy decision later today, widely expected to hold rates flat at 4.25%.

The US dollar continues to muscle up against main rivals on haven demand as the Israel-Iran conflict worsens, and after the Fed raised its inflation outlook this year.

The Price

The GBP/USD price fell 0.3% today to $1.3387, the lowest since May 21, with a session-high at $1.3429.

Sterling shed 0.1% on Wednesday against the dollar on risk aversion.

The BOE

The Bank of England is widely expected to maintain UK interest rates flat at 4.25%, the lowest since March 2023.

US Dollar

The dollar index rose 0.2% on Thursday, expanding the gains for the fifth straight session and hitting a week high against a basket of major rivals.

The Federal Reserve also raised its inflation outlook for 2025 and alluded to the difficulty of cutting interest rates before knowing the full impact of tariffs on prices.

The Australian dollar fell in Asian trade on Thursday against the US dollar, approaching a two-week trough after weak Australian labor data.

The data reduced the pressure on the Reserve Bank of Australia and boosted the odds of a rate cut in July.

The Price

The AUD/USD price fell 0.45% today to 0.6476, with a session-high at 0.6512.

The Aussie rose 0.5% on Wednesday against its US counterpart as risk appetite rebounded in the global markets. 

Australian Data

Australia’s unemployment rate was unchanged at 4.1% in May as expected, same as the previous reading. 

Australia’s economy lost 2.5 thousand jobs in May, missing estimates of the addition of 20.6 thousand new  jobs, while the previous reading was revised downward to show the addition of 89.0 thousand jobs instead of 87.6 thousand. 

The data will likely prompt the RBA to accelerate the pacing of interest rate cuts in future months.

Australian Rates

Following the labor data, markets now expect 70  basis points of Australian rate cuts by the end of the year.

The odds of an RBA 0.25% rate cut in July rose from 55% to 65%.

The RBA reduced interest rates twice since February to 3.85%, as inflation settled into the 2-3% target range.