The US dollar index dipped below 102 on Tuesday as investors weighed the Federal Reserve’s upcoming policy decision. The central bank’s October 27-28 meeting is in focus, with markets assigning an 83% probability to rates staying unchanged next week. However, traders are pricing in a 94% chance of a rate hike in December, reflecting uncertainty over the Fed’s next move.
Market participants are also awaiting the latest PCE price index report, the Fed’s preferred inflation gauge. On Friday, Fed Chair Kevin Warsh declined to signal the outcome of this month’s FOMC meeting but emphasized that stronger-than-expected inflation had not altered his view of the US economy.
Meanwhile, the euro showed modest recovery as European governments worked to quell violent unrest that erupted over the weekend. In Japan, the yen weakened despite hawkish remarks from Bank of Japan Governor Kazuo Ueda, who suggested that underlying inflation was approaching the central bank’s 2% target.