USD Price Pulls Back After Fed Rally as Key Data Approaches

The US Dollar took a breather Thursday after Wednesday's strong rally, when solid economic data and the Fed's cautious stance on rate cuts boosted the greenback.

USD Price Shows Mixed Signals After Strong Run

The Dollar Index jumped 1% Wednesday to hit its highest point in two months near 100.00, but Thursday brought some profit-taking as traders digested the moves.

What really got the USD moving was surprisingly good economic news. The US economy grew at 3% annual rate in Q2, way better than expected 2.4% and a huge turnaround from Q1's 0.5% decline. ADP also reported 104,000 new private jobs in July, beating forecasts of 78,000.

These numbers showed an economy doing better than many thought, naturally supporting dollar strength against other currencies.

Fed's Cautious Tone Keeps USD Price Supported

The Federal Reserve kept rates unchanged at 4.25%-4.5% as expected, though two Fed governors actually wanted a rate cut, showing disagreement on policy direction.

Fed Chair Powell was careful in his comments, wouldn't commit to September rate cuts, citing inflation uncertainty. This wait-and-see approach helped the dollar since it means rates might stay higher longer.

Powell admitted current policy is "a bit restrictive" but said it's not holding back the economy. This balanced view keeps USD bulls interested.

Global Moves Impact USD Price Action

Other central banks face their own challenges. The Bank of Japan kept rates at 0.40%-0.50% as expected, still worried about trade policy but ready to raise rates if the economy improves.

USD/JPY had a wild ride, hitting above 149.50 late Wednesday before pulling back below 149.00 Thursday. The big US-Japan rate gap remains a major factor.

USD/CAD rose for five straight days, gaining 0.5% Wednesday. Bank of Canada's Macklem talked about preventing tariff issues from becoming inflation problems. USD/CAD held above 1.3800 despite early Thursday weakness.

EUR/USD dropped over 1% Wednesday to test 1.1400 before bouncing toward 1.1450 Thursday morning.

Gold felt the dollar's strength too, falling to monthly lows below $3,270 as Treasury yields climbed. But XAU/USD recovered above $3,300 in European trading.

Traders are now watching weekly jobless claims and PCE inflation data for clues about Fed's next moves. The dollar's recent strength has been impressive, but whether it continues depends on these upcoming numbers.