Dollar Retreats As Fed Retains Rate Cut Projection

(RTTNews) - The U.S. dollar dropped against major currencies during the week ended March 20 despite escalations in the Middle East war and the fears of a protracted energy price shock. The Dollar's weakness came amidst the Federal Reserve holding rates steady as well as retaining the rate cut projections made in December.

During week ended March 20, the U.S. dollar inter alia lost against the euro, the British pound, the Australian dollar, the Japanese yen, the Swedish krona as well as the Swiss franc. The greenback however held its ground against the Canadian dollar. As a result, the Dollar Index which measures the Dollar's strength against a basket of 6 currencies dropped more than 0.70 percent on a weekly basis, recording its first weekly fall since the start of the war. Here is a quick recap of the dollar's trajectory during the week ended March 20.

Data released on Wednesday morning by the U.S. Bureau of Labor Statistics showed producer prices in the U.S. rising 0.7 percent month-over-month in February, versus 0.5 percent in January. The biggest increase in producer prices in seven months came in much higher than forecasts of 0.3 percent, boosting the greenback.

The Federal Reserve on Wednesday afternoon, in a near-unanimous decision held rates steady at 3.50- 3.75 percent. Though one member preferred to lower the rates by a quarter percentage point, the decision was in line with market expectations. The committee acknowledged the solid pace of expansion in economic activity, the low job gains, the unemployment rate that has been little changed in recent months, as well as the somewhat elevated levels of inflation. The committee also noted the uncertainty surrounding the developments in the Middle East for the U.S. economy.

The Federal Reserve raised the GDP growth projection for 2026 to 2.4 percent from 2.3 percent made in December. The unemployment rate projection was retained at 4.4 percent. The Fed expects PCE inflation to jump to 2.7 percent in 2026 from the level of 2.4 percent it had forecast in December. The core PCE is also expected to rise to 2.7 percent from the level of 2.5 percent it had projected at the time of the FOMC in December 2025. However, the projections of the Federal Funds rate remain at 3.4 percent, the same level that was anticipated while drawing up projections in December 2025.

During the past week, the Dollar Index traded between the weekly high of 100.48 recorded on Monday and the weekly low of 98.97 on Thursday. The index eventually closed the week's trading at 99.65, implying a decline of 0.71 percent from the level of 100.36 on March 13.

The EUR/USD pair jumped 1.36 percent during the week ended March 20 that witnessed the European Central Bank also keep interest rates steady. The common currency's surge against the greenback came amidst warnings from the central bank about the upside risks for inflation and downside risks for growth triggered by the Middle East war. From the weekly low of 1.1412 touched on Monday, the pair climbed to a high of 1.1616 on Thursday. The pair eventually closed the week at 1.1571, versus 1.1416 a week earlier.

The British pound rallied 0.88 percent against the greenback during the week ended March 20. The GBP/USD pair which had closed at 1.3226 on March 13 closed trading for the week ended March 20 at 1.3342. The weekly trading range was wider, between a low of 1.3222 recorded on Monday and a high of 1.3468 on Thursday. The Bank of England had on Thursday unanimously voted to keep rates steady at 3.75 percent even as the conflict in the Middle East caused a sharp rise in global energy and commodity prices. Data released on Thursday had also revealed the unemployment rate remaining steady at 5.2 percent.

The Australian Dollar jumped 0.62 percent against the U.S. Dollar during the past week amidst the Reserve Bank of Australia's widely expected quarter percentage rate hike on Tuesday. The AUD/USD pair rallied from the level of 0.6981 recorded on March 13 to close the week ended March 20 at 0.7024. During the week, the pair oscillated between a low of 0.6983 recorded on Monday and the high of 0.7125 recorded on Wednesday.

The U.S. Dollar declined against the Japanese Yen also during the week ended March 20 amidst Bank of Japan leaving its key short-term rate unchanged at 0.75 percent, keeping borrowing costs at their highest since September 1995. The USD/JPY pair closed the week at 159.23 versus 159.73 a week earlier, registering a loss of 0.31 percent. During the week, the pair oscillated between the high of 159.91 recorded on Wednesday and the low of 157.51 recorded on Thursday.

With the spotlight on the escalation in the Middle East war as well as the threats and counter threats of attacks on energy infrastructure, the six-currency Dollar Index touched a high of 100.15 on Monday. However, with President Trump signaling a pause on Iran strikes, the Dollar has retreated. The six-currency Dollar Index is currently trading at 99.44, implying an overnight decline of 0.21 percent from Friday's closing level of 99.65.

The EUR/USD pair is currently trading 0.26 percent higher at 1.1601 versus 1.1571 on Friday. The GBP/USD pair is currently trading near 1.3413 versus 1.3342 on Friday, implying a gain of 0.53 percent. The AUD/USD pair is currently trading 0.04 percent higher at 0.7027 versus 0.7024 on Friday.

Amidst the dollar's retreat, the USD/JPY pair is now 0.40 percent lower at 158.60 as compared with the level of 159.23 recorded at the end of the previous week.