The U.S. dollar eased on Wednesday, pulling back from recent highs after Jerome Powell signaled a more cautious outlook on the economy, boosting expectations for interest rate cuts. Meanwhile, the euro gained ground, supported by developments in French politics.
At 04:25 ET (08:25 GMT), the Dollar Index — which tracks the greenback against six major currencies — was down 0.3% at 98.545, erasing part of the more than 2% advance made over the past month.
Dollar weakens after Powell speech
The greenback softened after Powell’s Tuesday remarks, in which the Federal Reserve Chair kept the possibility of further monetary easing on the table, noting that the U.S. labor market “remained in the doldrums.”
Futures markets are currently pricing in a 25-basis-point rate cut at the October 28–29 Fed meeting, followed by another in December and three more next year, according to data from LSEG.
“Risk sentiment improved throughout Tuesday – boosted by strong U.S. bank earnings – before Powell’s speech added dovish-sounding headlines: slower payrolls, tolerable inflation, and a possible QT rollback,” analysts at ING Group wrote.
“That said, the overall policy stance remains broadly unchanged from September. Fed pricing is steady at 48bp of easing for the rest of the year, and we doubt that will shift much before new inflation and jobs data arrive.”
Investors are now awaiting the release of the Fed’s Beige Book later in the day, which may provide further clues on the economic outlook amid the ongoing U.S. government shutdown.
Euro finds support before confidence vote
The euro strengthened, with EUR/USD up 0.3% at 1.1637 after similar gains in the previous session. The move was supported by political momentum in France, where Prime Minister Sébastien Lecornu pledged to delay the government’s planned pension reform — a key demand of the Socialist Party — during the presentation of the 2026 budget bill. In return, the Socialists said they would not support the no-confidence vote.
The development boosts the government’s chances of passing its budget, even though parliamentary arithmetic remains tight.
“If Lecornu survives the no-confidence vote, EUR/USD could edge higher and potentially build strong support around 1.1600,” ING said.
The pound also firmed, with GBP/USD rising 0.2% to 1.3350, recovering from Tuesday’s drop that followed weaker wage growth data.
Yen and yuan strengthen amid political and trade developments
USD/JPY slipped 0.4% to 151.30 as investors scaled back expectations of looser fiscal policy under Sanae Takaichi. The Liberal Democratic Party leader is facing political uncertainty after her coalition partner Komeito withdrew its support.
USD/CNY fell 0.2% to 7.1263 after the People’s Bank of China set a stronger-than-expected midpoint fix. Trade tensions remained in the spotlight after Beijing pushed back against U.S. President Donald Trump’s threat to impose 100% tariffs on Chinese goods, with China’s commerce ministry warning it was prepared to “fight to the end.”
Fresh inflation data out of China showed a deeper-than-expected drop in consumer prices in September, while producer prices extended their three-year deflation streak. Although core inflation reached a 19-month high, broader signs of recovery were scarce.
AUD/USD advanced 0.5% to 0.6518, with the Australian dollar benefiting from the overall weakness of the greenback.
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