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Jan 29 - 04:55 PM

EUR/USD - US Recap: EUR/USD Down After Fed Boosts Dollar

By Robert Fullem  —  Jan 29 - 03:11 PM

Jan 29 (Reuters) - The U.S. dollar index rose alongside Treasury yields on Wednesday after the Fed held its policy corridor steady at 4.25-4.50%, as expected, and dropped language that inflation is progressing toward its 2% goal. The Fed sees its inflation and unemployment goals as roughly in balance and that the balance sheet runoff will continue at its previous pace. Fed Chair Jerome Powell said inflation is "somewhat" elevated, policy is well positioned and that there was no need to be in a hurry to adjust stance. Powell also said the Fed is working to account for new executive orders.

Month-end flows and speculative buying propped up the dollar ahead of the Fed decision, fueled partly by expectations for U.S. tariffs in February. Commerce Secretary nominee Howard Lutnick said he advised President Trump to impose across-the-board tariffs country-by-country, that China tariffs should be highest and that Canada and Mexico can avoid a 25% tariff if they swiftly act to stop allowing fentanyl and illegal immigrants into the U.S. Tech shares dipped before the Fed announcement on a report U.S. government officials were said to be discussing tightening curbs on Nvidia China sales. EUR/USD remained defensive after the German government slashed its growth forecast and the French Socialist Party said it will not return to talks over the 2025 budget. The European Central Bank is expected to cut its policy rate 25 basis points on Thursday.

GBP/USD was little changed after holding to tight range 1.2394-1.2463 range prior to the Fed. British finance minister Rachel Reeves pointed to infrastructure as a key driver to speed up the country's sluggish economy.

USD/JPY dipped below 155 to test its 55-DMA amid fix-related sales while falling shares prices underpinned the yen’s haven appeal against other G10 currencies. USD/CAD wobbled briefly after the Bank of Canada cut rates by 25 bias points, as expected, lowered growth forecasts and flagged inflation risks if U.S. imposes tariffs. BOC Governor Tiff Macklem called the loonie's recent drop a "material depreciation" and will start to have some impacts. Canada's Energy and Natural Resources Minister Jonathan Wilkinson said any response to U.S. tariffs will be regionally fair and equitable. Treasury yields rose modestly, coming off immediate post-Fed highs, and the curve flattened. The S&P 500 slid 0.68% as tech shares weakened before earnings reports. Oil fell 1.5%, touching a multi-week low, after a report showed stockpiles rose more than expected.

Gold dropped 0.6% due to rising Treasury yields.

Copper rose 0.9%, rebounding from a three-week low.

Heading toward the close: EUR/USD -0.18%, USD/JPY -0.11%, GBP/USD -0.02%, AUD/USD 0.32%, DXY +0.09%, EUR/JPY -0.27%, GBP/JPY -0.13%, AUD/JPY -0.52%.(Editing by Burton Frierson Reporting by Robert Fullem)

Source:
London Stock Exchange Group | Thomson Reuters

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