The Federal Reserve decided on Wednesday to keep the US benchmark overnight interest rate unchanged in the range of 4.25% -4.50%, and reiterated that it may implement two 25 basis point rate cuts each within the year. This decision is consistent with the forecast from three months ago, despite the backdrop of slowing economic growth and rising inflation expectations, policy makers have shown a cautious attitude

As a result, the US dollar weakened in early Thursday trading, with the US dollar index stabilizing at 103.41, close to the five month low at the beginning of this week. The market generally believes that the Fed's move reflects a cautious response to the economic uncertainty that may arise from trade concerns.

Federal Reserve Chairman Jerome Powell said, "We will not rush to adjust policy, and our current stance is sufficient to address risks and uncertainties. Waiting for the economic trend to become clearer is the right choice

Powell emphasized that in the face of potential tariff adjustment pressure from Asian powers and other trading partners, the Federal Reserve needs more data to assess the direction of the economy. This statement eased market concerns about the short-term impact of inflation, while implying that interest rate cuts will remain the main theme of the year.

Global currency markets have inconsistent reactions

Against the backdrop of the weakening of the US dollar, the performance of major global currencies has diverged. The euro remained stable at $1.09085, while the Japanese yen appreciated slightly to $148.36 per dollar. The Bank of Japan previously kept interest rates unchanged and warned of increasing global economic uncertainty, indicating that its policy adjustments will heavily rely on the impact of trade concerns.

The pound rose to a four month high of $1.3015 due to the upcoming policy decision by the Bank of England. The market expects the Bank of England to keep interest rates unchanged, as inflation in the UK continues to exceed its 2% target and weak economic growth limits the room for interest rate cuts.

ING economists point out that "the coexistence of economic growth, low unemployment, and high inflation means that the Federal Reserve will not cut interest rates at least until the end of summer. Early action may exacerbate inflation risks

According to market research, traders expect the Federal Reserve to cut interest rates by a cumulative 66 basis points this year, and the July rate cut has been fully priced in. This expectation drove the stock market up while weakening the attractiveness of the US dollar.

Trade Concerns and Regional Market Fluctuations

The potential impact of trade concerns on the global market cannot be ignored. Federal Reserve officials have made it clear that they will closely monitor the downside risks to economic growth and the job market, rather than being constrained by short-term price fluctuations caused by tariffs.

Kyle Roda, a senior financial market analyst at Capital.com, commented, "Powell successfully conveyed the message that the Federal Reserve will focus on long-term trends rather than short-term shocks, which explains the phenomenon of rising stock markets and falling US dollars

The Türkiye lira fell to an all-time low of 42 to US $1 on Wednesday, and then recovered some losses, closing at 37.665 to US $1. It was 38 to US $1 on Thursday morning. According to market research, this fluctuation is closely related to the domestic situation in the country, but the specific reasons are not yet fully clear. The severe volatility of the lira highlights the fragility of emerging markets in the face of global uncertainty.

Market expectations driven by data

According to market research data, the expectation of a 66 basis point rate cut by the Federal Reserve this year has become a consensus, and the possibility of a rate cut in July is 100%. This expectation echoes the US economic data: slowing economic growth, high inflation, and low unemployment rates. Although trade concerns have not directly changed the Federal Reserve's policy path, they undoubtedly increase the complexity of decision-making.

Edit viewpoint

The Federal Reserve maintains interest rates unchanged and sends signals of interest rate cuts, demonstrating its superior skills in balancing inflation and growth. The weakening of the US dollar and global currency divergence indicate that the market's response to trade concerns is intensifying.