SINGAPORE, Feb 19 - The dollar steadied and reclaimed ground on Thursday after Federal Reserve minutes revealed a split among policymakers on the future direction of U.S. interest rates, and noted that several officials were prepared to raise rates again if inflation proved persistent. U.S. Treasury yields moved higher as early Asian trading consolidated the dollar's overnight advances versus both the euro and the yen, keeping the euro below $1.18.
In currency-specific moves, the Australian dollar changed hands at $0.7045 as markets awaited fresh employment data; a strong print there could reinforce expectations for additional rate hikes. New Zealand's dollar suffered a sharp fall after the central bank struck a cautious tone on future interest rate moves, falling nearly 1.4% overnight to sit just under $0.60 in morning trade.
The euro hovered at $1.1788 after also taking a hit on reporting that European Central Bank President Christine Lagarde plans on leaving before her term ends in October next year. Sterling was trading at $1.3497.
Fed minutes and dollar implications
The published minutes showed policymakers divided over the appropriate level for U.S. rates and suggested the incoming chair, due to start in May, may find it difficult to push through cuts. The minutes said several participants expect productivity gains to reduce inflationary pressure, but that "most participants" warned that progress could be slow and uneven. The document also noted that several officials indicated hikes are possible if inflation stays above target.
"This suggests there isn’t a great deal of urgency to cut rates again, at least not until after current chair (Jerome) Powell’s term ends in May," said Peter Dragicevich, Asia-Pacific currency strategist at Corpay.
Markets are now looking to global purchasing managers' index figures and U.S. gross domestic product data due on Friday for further direction.
Yen weakens as U.S. investment announcements and currency dynamics play out
The yen weakened against the revived dollar overnight and in reaction to announcements that the Trump administration is moving ahead with projects valued at $36 billion as the first tranche of investments under Japan's pledged $550 billion U.S. investment commitment. The yen fell about 1% overnight and was steady at 154.78 to the dollar on Thursday, retreating from the 152 level it had tested last week after Prime Minister Sanae Takaichi's landslide electoral victory.
Observers noted the yen has been under downward pressure for years owing to low domestic interest rates and concerns about Japan's budget outlook, although it has recently received some support from hopes for economic growth. "Direct Japanese investment into the U.S. will be a key watch factor this year, and one which adds to the very mixed picture on USD/JPY," said Chris Turner, global head of research at ING.
He added: "The question for FX markets this year is whether this investment proves a supportive dollar flow or something like Japan’s FX reserves are used to guarantee new USD loans and avoid pressure on the yen. The latter seems to be the preferred outcome for Tokyo."
Regional market context
Holidays across Hong Kong, China and Taiwan reduced liquidity in Asian trading, while the Chinese yuan was steady in offshore trade at 6.89 to the dollar. With lower activity in some markets, currency moves reflected a combination of central bank messaging, macro data anticipation and cross-border investment flows.
Across markets, the immediate focus remains on how central bank communications - particularly the Fed's - will shape expectations for the timing and extent of policy easing or tightening, and what that means for exchange rates, fixed income and broader risk assets as new economic data arrives.