The US dollar remained weak on Wednesday as traders waited for clearer signals on potential interest rate hikes to combat ongoing inflation. The greenback lost ground from its 18-month peak in the prior session, with oil prices easing and investors reassessing the recent AI-driven rally that had bolstered demand for US assets. Meanwhile, the euro held onto gains amid budget concerns in France, which kept regional bond yields elevated and markets on edge.
Market attention is now focused on the upcoming release of the US consumer price index (CPI) data, along with speeches from Federal Reserve policymakers that could provide more clarity on interest rate decisions. Carol Kong, a currency strategist at Commonwealth Bank of Australia, warned that the core CPI might exceed expectations due to strong consumer demand and rising costs, potentially pushing up market expectations for an October Fed rate hike and strengthening the dollar.
The dollar index, which tracks the greenback against a basket of currencies, fell slightly by 0.02% to 102.16, following a 0.35% decline on Tuesday. The euro rose 0.04% to $1.1203, while the yen remained unchanged at 158.32 per dollar, and the British pound gained 0.03% to $1.3256. The dollar extended losses on Tuesday after New York Fed President John Williams indicated he expects one more rate hike this year but sees no need for further increases in 2027.
The US Labor Department is set to release the September CPI data, with expectations of a 0.6% month-on-month rise, up from 0.4% in August, and annual inflation projected to accelerate to 3.6% from 3.4%. Additionally, the Fed will publish its Beige Book. Traders currently see a 77% chance of the Fed keeping rates unchanged at its October 27-28 meeting, up from 51% a month ago, while pricing in about 75 basis points of tightening by late 2027, according to CME Group's FedWatch Tool.
Investors have scaled back bets on a Fed rate hike later this month after two policymakers advocated for more evidence before deciding on further tightening. Fed Governor Christopher Waller noted that inflation expectations remain 'well anchored.' Richmond Fed President Thomas Barkin and Federal Reserve Vice Chair for Supervision Michelle Bowman are scheduled to participate in discussions, while the International Monetary Fund and World Bank's annual meetings continue in Bangkok, featuring appearances by European Central Bank President Christine Lagarde.
The Australian dollar strengthened 0.06% against the greenback to $0.6984, and New Zealand's kiwi rose 0.09% to $0.5614.