Investing.com – The U.S. dollar rose modestly on Thursday, rebounding from its lowest level in more than a year after the Federal Reserve announced a significant interest rate cut and sterling gained ahead of the Bank of England’s latest monetary policy meeting.

At 04:25 ET (08:25 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was up 0.1% at 100.410, after falling to a more than 12-month low in the previous session.

Big Fed cut confirmed

The latest round of interest rate cuts began on Wednesday, cutting rates for the first time since March 2020 by a solid 50 basis points to a range of 4.75% to 5%.

Federal Reserve Chairman Jerome Powell said the risks of higher inflation and a weakening labor market are now balanced and that the central bank will likely cut interest rates amid growing confidence that inflation will decline.

However, Powell said the bank has no intention of returning to very low interest rates, such as during the pandemic, and the Fed’s neutral interest rate will now be much higher than in the past.

“Where does the Fed’s decision leave the dollar,” ING analysts ask in a note. “In our view, it is still weaker relative to most developed markets. Powell has tried to moderate the dovish nature of the excessive rate cut, but it would be hard to argue against the notion that it was dovish market pricing that pushed the Fed past the 50bp line. If the Fed is seen as reluctant to disappoint market expectations, investors may continue to prefer to err on the side of dovishness.”

Attention turns to the release of weekly data that provides the latest guidance on the health of the significant labor market.

Sterling in demand ahead of BoE meeting

In Europe, the index rose 0.3% to 1.3253, after rising to 1.3298 in the previous session. That was its highest level since March 2022.

The meeting will take place later in the session; the key interest rate is expected to be kept at 5%, after starting to ease monetary policy with a 25 basis point cut in August.

“The inflation situation has simply not improved enough to justify further easing of monetary policy,” ING said.

In the UK, annualised inflation stood at 2.2% last month, close to the Bank’s medium-term target, but services inflation remained at 5.6% year-on-year.

rose 0.3% to 1.1149, just off a three-week high set in the previous session.

Last week, interest rates were cut for the second time this year, but there is some uncertainty about when the next move will come.

Eurozone inflation is still not as low as the ECB would like, Bundesbank President Joachim Nagel said on Wednesday, so interest rates must remain high enough to cope with price pressures.

Although inflation fell to 2.2% in August and could come even closer to the ECB’s 2% target this month, it is likely to rise again towards the end of the year and could reach around 2.5% by the end of 2024.

Jen withdraws ahead of BOJ meeting

rose 0.3% to 142.75 as investors expected local interest rates to remain unchanged following Friday’s meeting.

The central bank is widely expected to keep interest rates unchanged, but may continue to announce future rate hikes due to elevated inflation forecasts.

The Japanese language is also scheduled to arrive on Friday.

traded 0.2% lower at 7.0698, ahead of the People’s Bank of China’s decision on Friday. The central bank is expected to leave that key rate unchanged.