The US dollar strengthened on Wednesday after Fed Chairman Jerome Powell maintained a cautious tone on policy easing, even as markets still expect two more rate cuts this year. The US dollar index rose 0.5% to 97.745, rebounding from two straight sessions of declines.
The euro and pound each weakened, weighed down by weak German business confidence data and sterling's decline throughout the week. Markets are now awaiting US PCE inflation data this weekend, which is expected to be a key determinant of the Fed's policy direction.
Elsewhere, the Australian dollar steadied after slightly better-than-expected CPI data, while the New Zealand dollar weakened after the announcement of Anna Breman's appointment as the new governor of the Reserve Bank. The dollar also rose 0.5% against the yen.
Analysts stressed that the balance of risks remains challenging, with the Fed needing to be careful to avoid too much easing that could keep inflation at bay, or excessive tightening that could damage the labor market. Global and geopolitical developments are also expected to influence the currency's direction ahead of the next policy meeting.
