The Federal Reserve has done the thing markets expected, and then somehow still made everyone nervous. Policymakers held interest rates steady overnight, after a run of cuts late last year. The message was basically: we’re not in a hurry. That steadiness would normally calm the waters. This time, it hasn’t.
Sterling edged higher against the dollar on the back of the decision, though gains remained modest.
That’s partly because the US economy is sending mixed signals. Headline growth has been strong, but the mood on Main Street looks worse. Fresh survey data this week showed US consumer confidence falling hard, down to its weakest level in more than a decade. When households turn gloomy, markets start asking awkward questions about spending, jobs, and how long “resilient” really lasts.
Layer on politics, and you get the sort of cocktail the dollar tends not to enjoy. President Trump’s pressure campaign on the Fed hasn’t gone away, and the backdrop is still one of trade threats and policy unpredictability. Even when the Fed stands still, the market can’t help wondering what might lurch next.
In Europe, there was a rare bit of good news with some heft: the EU and India have concluded a long-running free trade agreement. It’s more of a medium-term story than a day-trader headline, but it matters. It’s about supply chains, investment, and Europe trying to build more options in a world that feels less friendly to global trade.
That divergence between high-level data and consumer sentiment has become a central theme for currency analysts. Equity markets have occasionally found reasons to cheer. But the underlying fatigue in the labour market — and the mounting cost of living for average Americans — are weighing on the greenback’s long-term outlook. The Fed’s “data-dependent” mantra gets harder to follow when the data itself is pulling in opposite directions.
The global shift toward regional trade blocs is accelerating. Traditional alliances are being tested. The EU–India deal serves as a counterbalance to the protectionist rhetoric coming out of North America. While the US focuses on domestic priorities and tariff barriers, other major economies are actively seeking new growth corridors. For the dollar, that’s a subtle but persistent erosion of its central role in global commerce.
