The U.S. dollar held steady on Wednesday, recovering slightly after recent losses as investors prepared for crucial inflation reports that could shape the Federal Reserve’s next steps on interest rates.
At 04:45 ET (08:45 GMT), the Dollar Index, which tracks the greenback against six major currencies, rose 0.1% to 97.820, following a 0.3% gain on Tuesday. Despite this, the dollar remains down roughly 10% in 2025, weighed by unpredictable trade policies and expectations of Fed rate cuts.
Dollar rebounds amid geopolitical uncertainty
The currency gained modestly this week after a sharp drop last week, as geopolitical concerns returned to the spotlight. Poland scrambled its air defenses alongside NATO to intercept drones during a Russian strike on western Ukraine, heightening market caution.
Nevertheless, the dollar continues to face pressure after disappointing U.S. employment figures. The Bureau of Labor Statistics revised its estimates downward, acknowledging that 911,000 fewer jobs were created over the 12 months to March 2025 than previously reported, highlighting a softening labor market.
The weak employment data strengthens expectations of a Federal Reserve rate cut next week, although this week’s inflation figures could influence both the magnitude and timing of the move. The U.S. producer price index is due Wednesday, followed by the consumer price index on Thursday.
Traders are pricing in a 25-basis-point reduction next week, with only a 5% probability of a larger 50-basis-point cut.
“The prospect of the Fed cutting rates by 125-150bp over the next nine months can only support leverage and demand that asset managers remain fully invested to earn their fees. This is a benign, bearish environment for the dollar,” ING analysts noted.
Euro slips amid French political uncertainty
The euro weakened 0.2% to 1.1692 against the dollar after a 0.5% decline in the previous session. The drop followed French President Emmanuel Macron’s appointment of loyalist Sébastien Lecornu as prime minister on Tuesday, a move signaling his intent to continue with a minority government while pursuing his pro-business reforms.
In an unusual political step, Macron asked Lecornu to negotiate with all parliamentary factions to reach compromises on the budget and other policies before forming his cabinet.
“Uncertainty in French politics has seen the OAT:Bund 10-year government spread settle above 80bp. French 10-year government borrowing costs now match those of Italy,” ING added.
GBP/USD remained broadly unchanged at 1.3524.
“Next week’s Bank of England rate meeting should, in theory, keep sterling supported unless upcoming jobs and CPI releases very much surprise on the downside,” ING said.
Asian currencies and metals
USD/JPY gained 0.1% to 147.48 after fluctuating following the abrupt resignation of Japanese Prime Minister Shigeru Ishiba. USD/CNY was down 0.1% at 7.1217, holding near a near 10-month high after several strong fixings.
China’s consumer price index fell 0.4% in August, exceeding expectations, signaling weakening domestic demand and private spending as government support waned. Producer prices declined 2.8% as forecast, marking 35 straight months of contraction. These figures underscore the ongoing disinflationary pressures in China, compounded by heightened economic uncertainty and U.S. tariffs.
Commodity-linked currencies gain support
AUD/USD rose 0.2% to 0.6602, boosted by stronger commodity prices. Oil climbed due to heightened Middle East tensions, while copper prices advanced on the closure of a major Indonesian mine, raising concerns about global supply.
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