Dollar Slips as Markets Eye Fed Signals on Rate Hikes

The US dollar remained under pressure on Wednesday as markets shifted focus to upcoming Federal Reserve minutes and policymaker speeches for clues on future interest rate hikes. The euro saw its largest gain in seven weeks during the previous session after French bond yields dropped, following the frontrunner in next year's presidential election's pledge to cut spending. Meanwhile, the Japanese yen weakened despite a dovish comment from a Bank of Japan board member supporting rate increases.

The Federal Reserve is set to release the minutes from its September 15-16 policy meeting, where it raised rates to combat inflation. Recent economic data, including softer personal consumption expenditures (PCE) and jobs reports, has led to a less hawkish tone from Fed officials. The dollar index edged up slightly to 101.94 after a previous decline, while the euro retreated marginally to US$1.1249. The yen and sterling also saw minor drops against the dollar.

Global bond yields have risen due to expectations of central bank rate hikes and concerns over government finances. French debt faces increasing pressure ahead of a contentious 2027 election, while a snap election in Spain added to recent eurozone stress. The euro surged on Tuesday after far-right presidential candidate Marine Le Pen proposed deeper spending cuts. Meanwhile, the Bank of Japan may soon signal that underlying inflation has met its 2% target, paving the way for further rate hikes.

Expectations for a Fed rate hike in October have diminished but remain high for December. Kansas City Fed President Jeff Schmid emphasized the need for further rate increases to control inflation, contrasting with other officials' calls for patience. Cryptocurrencies also saw declines, with bitcoin and ether falling slightly.