The US dollar weakened on Wednesday as investors awaited fresh inflation data and comments from Federal Reserve policymakers for clues about the timing of potential interest rate increases.
The greenback slipped from an 18-month high reached in the previous session as oil prices eased and investors reassessed the artificial intelligence-driven rally that has supported demand for US assets.
The euro held on to recent gains, although concerns over France’s budget outlook kept regional bond yields elevated and financial markets cautious.
Dollar Index Edges Lower
The dollar index, which measures the US currency against a basket of major currencies, fell 0.02% to 102.16 on Wednesday, following a 0.35% decline on Tuesday.
The euro gained 0.04% to $1.1203, while the Japanese yen traded little changed at 158.32 per dollar. Sterling rose 0.03% to $1.3256.
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The Australian dollar strengthened 0.06% against the greenback to $0.6984, while the New Zealand dollar advanced 0.09% to $0.5614.
US Inflation Data in Focus
Investors are closely watching the US consumer price index (CPI) report for September, which could influence expectations for the Federal Reserve’s next policy move.
Economists expected monthly inflation to rise 0.6%, compared with 0.4% in August. Annual inflation was forecast to accelerate to 3.6% from 3.4%.
“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,” Carol Kong, a currency strategist at Commonwealth Bank of Australia, said in a note.
The Federal Reserve is also due to release its Beige Book, which provides a regional assessment of economic conditions across the United States.
Fed Policy Outlook Remains Uncertain
The dollar extended its losses on Tuesday after New York Federal Reserve President John Williams said he still expected one more interest rate increase this year but saw no need for further hikes in 2027.
Market expectations for an October rate increase have shifted. Traders now see a 77% probability that the Fed will leave rates unchanged at its October 27–28 meeting, up from 51% a month earlier, according to CME Group’s FedWatch Tool.
Markets were also pricing in approximately 75 basis points of monetary tightening by late 2027.
Investors scaled back bets on an immediate rate increase after two policymakers called for more evidence before deciding whether additional tightening was necessary. Fed Governor Christopher Waller also said inflation expectations remained “well anchored.”
Richmond Fed President Thomas Barkin was scheduled to participate in a discussion in Virginia, while Federal Reserve Vice Chair for Supervision Michelle Bowman was due to take part in talks in Bangkok.
Global Economic Meetings Add to Market Focus
The International Monetary Fund and World Bank’s annual meetings are continuing in Bangkok, with European Central Bank President Christine Lagarde scheduled to make several appearances on Wednesday.
Investors are monitoring developments in the United States and Europe as they assess inflation, economic growth and the outlook for monetary policy.
For currency markets, the latest US inflation figures and signals from central bankers could determine whether expectations for further rate increases strengthen or ease in the coming weeks.
