Dollar languishes as focus turns to CPI, Fed speakers

The dollar languished on Wednesday as traders awaited fresh signals on the timing for interest rate hikes to contend with persistent inflation.

The greenback weakened from an 18-month high in the previous session as oil prices eased and investors reassessed the AI-fuelled rally that has supported demand for US assets. The euro clung to gains as budget concerns in France kept regional bond yields elevated and markets on edge.

Attention now focuses on the release of US consumer price index data as well as speeches from Federal Reserve policymakers that could clarify the outlook for interest rates.

“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 dollar index, which measures the greenback against a basket of currencies, edged 0.02% lower to 102.16, following a 0.35% slide on Tuesday. The euro rose 0.04% at US$1.1203.

The yen was little changed at 158.32 per dollar, and sterling rose 0.03% to US$1.3256.

The dollar extended losses on Tuesday after New York Fed president John Williams said he still expects one more rate hike this year, but sees no need for further increases in 2027.

The US Labor Department is due to release its CPI for September, which is expected to have risen 0.6% month-on-month after increasing 0.4% in August, while annual inflation is seen accelerating to 3.6% from 3.4%. Additionally, the Fed is due to publish its Beige Book.

Traders see a 77% chance that the Fed will leave rates unchanged at its Oct 27-28 meeting, up from 51% a month ago, while pricing in about 75 basis points of tightening by late 2027, CME Group’s FedWatch Tool showed.

Investors abandoned bets on a Fed rate hike later this month after two policymakers argued for gathering more evidence before deciding whether further tightening is needed, while Fed governor Christopher Waller said inflation expectations remained “well anchored.”

Richmond Fed president Thomas Barkin is scheduled to participate in a fireside chat in Virginia, while Federal Reserve vice chair for supervision Michelle Bowman is set to take part in talks in Bangkok.

The International Monetary Fund and World Bank’s annual meetings continue in Bangkok, with several appearances expected by European Central Bank president Christine Lagarde on Wednesday.

The Australian dollar strengthened 0.06% versus the greenback to US$0.6984, while New Zealand’s kiwi strengthened 0.09% to US$0.5614.

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