Dollar under pressure as investors remain jittery over U.S. policy

By Saqib Iqbal Ahmed

NEW YORK, Jan 29 (Reuters) - The dollar eased against the yen and the euro on Thursday but remained above recent multi-year lows, with investors still jittery about U.S. policy even as a mildly hawkish Federal Reserve provided some support.

The dollar has been under pressure for several reasons, including expectations of continued Federal Reserve rate cuts, tariff uncertainty and U.S. policy volatility.

The currency ended last week with its biggest fall since last April driven partly by concerns about U.S. policy over Greenland.

"Concerns that investors have about trade and geopolitical policies that ?have been wheeled out in the U.S. at the moment have been potentially negative for the dollar," said Shaun Osborne, chief currency strategist at Scotiabank.

Against the yen, dollar slipped 0.2% to 153.055 yen, while the euro rose 0.5% ?to $1.196.

The dollar found some support after the Federal Reserve held interest rates steady on Wednesday against the backdrop of what U.S. central bank chief Jerome Powell ?described as a solid economy and diminished risks to both inflation and employment.

Data on Thursday showed the number of ?Americans filing new applications for unemployment benefits ?fell slightly last week, still consistent with a relatively low level of layoffs, though lackluster hiring is stoking anxiety among households over the labor market.

President Donald Trump said on Thursday that the U.S. should have ?substantially lower interest rates now and should have the lowest in the world.

Some analysts did ?not expect cuts soon, however.

"While the outlook remains uncertain, particularly given the appointment of a new Fed Chair in coming months, our baseline remains that the rate cutting cycle is complete, as labour improvement lies ahead," said David Doyle, head of economics at Macquarie Group.

"We ?see the next move as a hike, potentially occurring in the fourth quarter ?of 2026."

The dollar came ?under pressure earlier this week after Trump said on Tuesday the value of the dollar was "great", when asked whether he thought it had declined too much.

While Treasury Secretary Scott Bessent reaffirmed the U.S. preference for a strong currency, relieving some of the pressure, investors remain jumpy about further ?losses for the currency.

"We're getting kind of mixed messaging on the dollar from the White House and the Treasury ... that doesn't necessarily instil a lot of confidence," Osborne said.

While Thursday's price action showed some signs of the dollar steadying after the sharp slide earlier this week, investors remain concerned about the near-term outlook.

"Short-term momentum has turned sharply against the USD without adequate resistance from any of the long-term forces we had expected to support the currency," Steven Englander, global head of G10 FX research and North American macro strategy at Standard Chartered Bank, said in a note.

EURO BACK IN THE ECB SPOTLIGHT

The euro's recent rise above the key $1.20 level has ?concerned European Central ?Bank policymakers, who warned that the currency's rapid appreciation could have deflationary effects.

"Although the euro/dollar stayed well above the ECB's base scenario last year without triggering strong disinflation risk, trade uncertainty persists," said Geoff Yu, EMEA macro strategist at BNY.

Economists flagged that the strength of the euro could ?amplify the deflationary effect of China's export machine and jolt the ECB out of its "good place" and into more interest rate cuts.

ECB board member Isabel Schnabel reiterated on Wednesday monetary policy was in a 'good place' and interest rates are expected to remain at their current levels for an extended period while financial markets are pricing steady rates through early 2027.

JAPAN'S FISCAL POLICY STILL IN FOCUS

The dollar slide has provided some reprieve for the battered yen.?

The Japanese currency has tracked around the 152 to 154 per dollar range for most of this week thanks to talk of rate checks from the U.S. and Japan last week - a move often seen as a precursor to intervention.

Goldman Sachs said in a note that the prospect of coordinated ?action by Japan's Ministry of Finance and the U.S. Treasury should curb near-term downside pressure on the yen, but warned the impact would only last if backed by disinflation-friendly fundamentals such as quicker Bank of Japan tightening or fiscal restraint.

The Canadian dollar strengthened 0.4% against the greenback on Thursday, a day after the Bank of Canada held its policy rate at 2.25%, as widely expected.

Leading cryptocurrency bitcoin fell ?6% to $83.563 on Thursday, as riskier assets, including stocks sold off.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Stefano Rebaudo; Editing by Alexandra Hudson, Elaine Hardcastle and Nick Zieminski)