The US dollar saw mixed movements on Wednesday as traders awaited next week's Federal Reserve meeting, with oil-driven inflation risks adding to uncertainty. The ongoing US conflict with Iran has raised concerns about rising oil prices, which jumped over $2 after Iran dismissed prospects for diplomatic progress. Brent crude neared five-month highs, while falling US crude inventories further supported gains.
Despite recent data showing accelerating US consumer price inflation, the dollar weakened last week. Investors remain cautious about the sustainability of the AI-driven growth, which has supported the dollar by attracting capital into the US and boosting inflation expectations. "US growth has been very much driven by the whole AI trade," noted Noah Buffam, FX strategist at CIBC Capital Markets.
The euro faced pressure from anti-government protests in France and a deteriorating fiscal outlook, with French 10-year borrowing costs hitting 24-year highs. French President Emmanuel Macron vowed to prevent further riots, as the Yellow Vest movement planned a major march in Paris. Meanwhile, the Australian dollar rose after Reserve Bank of Australia Deputy Governor Andrew Hauser described the inflation outlook as "materially worse."
The pound remained steady after UK inflation data strengthened the case for a Bank of England rate hike in November. Against the euro, the pound reached its highest level in 17 months. The yen also firmed slightly, with Bank of Japan Deputy Governor Ryozo Himino suggesting underlying inflation was close to the central bank's 2% target.