The greenback showed fractional gains late in a subdued U.S. session, with investors girding for a busy news flow next week

The dollar traded sideways versus the euro on Thursday after the European Central Bank held rates steady, and was confined to a tight range against the yen as prospects for higher Japanese rates offset worries about political risk after Sunday’s elections.

The greenback showed fractional gains late in a subdued U.S. session, with investors girding for a busy news flow next week.

The European Central Bank left its policy rate at 2%, as expected, on Thursday, taking a break after a year of policy easing to wait for clarity over Europe’s future trade relations with the US.

The view that the ECB is probably on hold here is probably gaining a bit more traction. We’ve trimmed expectations for the cuts in September to certainly less than 50/50, said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.

The Japanese central bank’s deputy governor, Shinichi Uchida, said Tuesday’s trade deal with Washington had reduced economic uncertainty, comments that fuelled optimism in the market about the potential resumption of interest rate hikes.

Analysts believe the yen will face persistent headwinds after Sunday’s upper house election, with the opposition considering a no-confidence motion.

The European Union is nearing a deal that would impose a broad 15% tariff on EU goods, diplomats said. The rate, which could also extend to cars, would mirror the framework agreement the US struck with Japan.

The ECB faces a challenge that is quantitatively different from the BoJ’s, said Thierry Wizman, global forex and rates strategist at Macquarie Group.

The euro has appreciated by far more than the JPY so far in 2025, meaning that the disinflationary impulse from U.S. import tariffs may be greater in the EU than in Japan, or the ECB may suspect as much, he added.