US Dollar Index Rises as Fed Signals Gradual Approach to Rate Cuts

The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, traded higher around 97.40 during Friday’s early European session. The dollar gained traction after the Federal Reserve cut interest rates as expected but adopted a less dovish tone than markets anticipated.

Fed Delivers 25 bps Cut but Maintains Caution

On Wednesday, the Fed lowered its benchmark rate by 25 basis points, a move widely priced in by traders. Chair Jerome Powell described the cut as a “risk-management” step to counter a cooling labor market. However, he stressed that the central bank was not rushing toward aggressive easing, preferring a “meeting-by-meeting” strategy based on incoming data.

This cautious stance boosted the dollar. “Investors judged the Fed’s guidance less dovish than expected,” said MUFG analyst Soojin Kim. Powell’s comments on tariff-driven inflation risks further reinforced the dollar’s strength in global markets.

Political Tensions Cloud Fed Independence

Separately, political developments in Washington added a layer of uncertainty. CNBC reported that US President Donald Trump asked the Supreme Court to overturn lower court rulings blocking his attempt to replace Fed Governor Lisa Cook, who was appointed under former President Joe Biden.

The White House accused Cook of mortgage fraud related to government-backed home loans, though no charges have been filed and Cook has denied the allegations. The legal battle raises fresh concerns over the Fed’s independence, a factor that could eventually weigh on the DXY if political pressure intensifies.

Outlook for the Dollar

For now, the dollar remains supported by expectations that the Fed will move cautiously on further rate cuts. Traders are closely watching upcoming economic data, including inflation and labor market reports, to gauge whether Powell’s “meeting-by-meeting” strategy will keep the dollar firm in the weeks ahead.