Forex Today: US Dollar strengthens as expectations for Fed to maintain rates increase

US Dollar Index Holds Firm Amid Positive Economic Data

The US Dollar Index is hovering around 99.35, giving back some of its earlier gains late in Thursday's US trading session. The dollar found support from upbeat economic indicators, notably as initial jobless claims came in at 198,000—lower than the 215,000 forecast and an improvement over last week's 207,000 figure.

Key Developments to Watch for Friday, January 16

Currency markets remain volatile, with traders navigating ongoing uncertainty across major pairs.

Earlier this week, Federal Reserve Chair Jerome Powell criticized the Trump administration's move to subpoena him, describing it as an effort to pressure the central bank into cutting interest rates. Despite a Justice Department investigation into Powell, President Trump said Wednesday he does not intend to dismiss the Fed Chair.

On Thursday, President Trump also commented that Iran currently has “no plan for executions,” addressing concerns over a detained protester. However, he did not rule out the possibility of military action, stating that his administration would monitor the situation before making decisions.

The EUR/USD pair dropped below 1.1600, as robust US data reinforced expectations for the Fed's policy stance. Market participants are now looking ahead to Germany’s Harmonized Index of Consumer Prices (HICP) report, set for release on Friday.

GBP/USD also slipped beneath the 1.3400 mark, despite the UK’s monthly Gross Domestic Product (GDP) rising to 0.3%, surpassing the 0.1% projection.

USD/JPY is steady near 158.50, with traders remaining cautious about potential intervention following stern warnings ahead of Japan’s upcoming election.

The AUD/USD pair surged higher as Australia’s Consumer Inflation Expectations eased to 4.6% in January, down from 4.7% previously. A stronger performance in equity markets also lent support to the Australian dollar.

Gold pulled back to around $4,600 as speculation grows that the Federal Reserve may pause its rate hikes.