Forex Today: US Dollar struggles to rebound as markets assess Fed announcements

Here is what you need to know on Thursday, May 2:

The US Dollar (USD) suffered large losses against its major rivals in the late American session on Wednesday as the Federal Reserve's (Fed) statement language and Chairman Jerome Powell's comments turned out to be not as hawkish as feared. Final revisions to HCOB Manufaturing PMIs for Germany and the Eurozone will be featured in the European economic docket. Later in the day, weekly Initial Jobless Claims and Unit Labor Costs data for the first quarter from the US will be watched closely by market participants.

The Fed left the policy rate unchanged at 5.25%-5.5% as expected. In its policy statement, the Fed acknowledged that there has recently been a lack of further progress toward the 2% inflation target. Regarding the quantitative tightening strategy, the Fed noted that they will slow the decline of the balance sheet by cutting the Treasury redemption cap to $25 billion per month from $60 billion starting June 1. In the post-meeting press conference, Chairman Powell refrained from hinting at the timing of a policy pivot but said that it was unlikely that the next interest rate move would be a hike. "To hike, we'd need to see evidence policy is not sufficiently restrictive -- that's not what we see," he explained.

After fluctuating wildly during the press conference, the USD Index turned south and lost over 0.6% on a daily basis on Wednesday. Early Thursday, the index moves up and down in a tight channel above 105.50. Meanwhile, the benchmark 10-year US Treasury bond yield stays in negative territory slightly above 4.6% and US stock index futures trade modestly higher.

Toward the end of the American session on Wednesday, USD/JPY fell nearly 400 pips in less than an hour. Although there is no official word yet, market participants see that move as a result of another intervention. After falling all the way to 153.00, USD/JPY recovered during the Asian trading hours and was last seen trading at around 155.50.

EUR/USD staged a decisive rebound on Wednesday and erased all of Tuesday's losses. The pair holds steady slightly above 1.0700 in the early European morning on Thursday.

GBP/USD spent the majority of the day below 1.2500 on Wednesday but closed above that level, supported by the USD weakness. The pair stays in a consolidation phase at around 1.2520 in the European session.

Gold benefited from the selling pressure surrounding the USD and retreating T-bond yields on Wednesday and settled above $2,300. XAU/USD struggles to preserve its bullish momentum and trades in the red slightly below $2,310 early Thursday.