The dollar drifted lower on Wednesday as investors positioned themselves ahead of key US inflation data and a fresh round of commentary from Federal Reserve officials, both of which could sharpen the outlook for interest rates amid stubborn price pressures.
The greenback pulled back from an 18-month high touched in the previous session, weighed down by softening oil prices and a reassessment of the artificial-intelligence-driven rally that has underpinned demand for US assets. The euro held onto recent gains, though budget worries in France kept regional bond yields elevated and investors cautious.
All Eyes on US Consumer Price Index
Market attention is now fixed on the release of the US consumer price index for September, alongside a slate of Fed speeches that may offer clearer guidance on the path of monetary policy.
“The risk is the core CPI surprises to the upside because of strong consumer demand and higher costs, pushing up market pricing of an October Fed hike and the USD,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia, in a note to clients.
Economists expect headline inflation to have risen 0.6% month-on-month in September, up from 0.4% in August, while the annual rate is projected to accelerate to 3.6% from 3.4%. The Fed is also due to publish its Beige Book survey of regional economic conditions.
Rate Expectations Shift
Traders now see a 77% probability that the Fed will hold rates steady at its October 27-28 meeting, up sharply from 51% a month ago, according to CME Group’s FedWatch Tool. Markets are pricing in roughly 75 basis points of tightening by late 2027.
Investors scaled back bets on a rate hike later this month after two policymakers argued for gathering more evidence before deciding whether further tightening is warranted, while Fed Governor Christopher Waller said inflation expectations remained “well anchored.”
The dollar index, which measures the greenback against a basket of major currencies, edged 0.02% lower to 102.16, following a 0.35% decline on Tuesday.
Currency Moves Across the Board
- The euro rose 0.04% to $1.1203, holding onto gains as French budget concerns kept the region on edge.
- The yen was little changed at 158.32 per dollar.
- Sterling added 0.03% to $1.3256.
- The Australian dollar strengthened 0.06% to $0.6984.
- The New Zealand dollar gained 0.09% to $0.5614.
The dollar had extended losses on Tuesday after New York Fed President John Williams said he still expects one more rate hike this year but sees no need for further increases in 2027.
Fed Speakers and Global Meetings in Focus
Richmond Fed President Thomas Barkin is scheduled to take part in a fireside chat in Virginia, while Federal Reserve Vice Chair for Supervision Michelle Bowman is set to speak in Bangkok. The International Monetary Fund and World Bank annual meetings also continue in the Thai capital, with European Central Bank President Christine Lagarde expected to make several appearances on Wednesday.
