Investing.com – The U.S. dollar fell on Thursday, giving back some of its sturdy post-election gains ahead of the Federal Reserve’s latest meeting, while sterling rose as Bank of England policymakers gathered.

At 05:00 ET (10:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 104,790, after rising to its highest level since early July of the previous session following Donald Trump’s victory decision Trump’s election campaign.

In the previous session, it recorded its biggest one-day gain since September 2022.

The dollar retreats before the Fed meeting

The dollar rose to a four-month high on Wednesday as the prospect of a Republican takeover of Congress gave the Trump administration a much easier path to enacting tariffs and immigration policies that are widely seen as inflationary.

This could prompt the Federal Reserve to cut interest rates more slowly and shallowly, which would strengthen the dollar.

“The challenge for investors is how to position now,” ING analysts said in a note. “The risk of the US election has passed with a surprisingly clean result, but Trump’s political agenda will not emerge until 2025, and perhaps not even until late 2025.”

For now, the focus is on the latest one, which ends later in the session. Markets are preparing for another rate cut, this time by 25 basis points instead of the massive 50 basis point cut seen in September.

“We doubt that Chairman Jay Powell will be prepared to support a less dovish valuation of the market-led monetary easing cycle, arguing that future Republican policy is inflationary in nature. This would be a bullish surprise for the dollar,” ING added.

Sterling looks into Bailey’s comments

In Europe, it rose 0.2% to 1.2904, with another 25 basis point rate cut likely to be announced later in the session, the second cut since 2020, following a move in August.

Such a decision would be widely expected, and the topic of discussion will be whether policymakers signal further cuts after the government’s inflation-raising budget.

“There is a risk of a fall in UK and sterling interest rates today [Governor Andrew] Bailey downplays the importance of the UK budget for the BoE’s monetary easing cycle,” ING said.

rose 0.2% to 1.0753, after falling to 1.0682 for the first time since July 27, due to Donald Trump’s re-election.

The euro appreciated despite the collapse of the German government, and German Chancellor Olaf Scholz said on Wednesday that he would announce a confidence vote on January 15, which could pave the way for early federal elections in March.

This came after Scholz fired Finance Minister Christian Lindner of the Free Democrats following a series of budget disputes that led to the collapse of the three-party ruling coalition.

“The prospect of a new German government next March may actually increase the chance of some fiscal stimulus and provide Europe with better ammunition to counter Trump’s trade agenda in 2025.” – said ING.

Yuan is gaining after recent beatings

fell 0.2% to 7.1609, with the yuan gaining after being weakened by the prospect of a Trump presidency given his promise to impose high trade tariffs on the country.

The prospect of a renewed trade war bodes ill for China’s economy, but Beijing is expected to introduce more fiscal stimulus to counter any tariffs.

The National People’s Congress began a four-day meeting this week to present plans to enhance fiscal spending and support economic growth.

fell 0.5% to 153.94 after the pair hit a three-month high in the previous session, prompting warnings from Japanese ministers over potential intervention.

rose 1% to 0.6631, rebounding from losses in the previous session, with data showing the country’s trade balance contracted more than expected in September on weakening commodity exports.