Dollar eases as markets await U.S. CPI and Fed signals

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Dollar eases ahead of CPI

Highlights

The dollar index slips 0.02% to 102.16 as traders await September CPI data expected at a 0.6% monthly and 3.6% annual rise.
Market pricing now reflects a 77% probability of unchanged Fed rates on October 27-28, up from 51% last month, as policymakers urge more evidence before further tightening.
The euro strengthens to $1.1203 amid higher French bond yields, while the Australian and New Zealand dollars gain 0.06% and 0.09% respectively.

Inflation data and Fed remarks in focus

As reported by Reuters, the dollar languishes on Wednesday as traders await U.S. consumer price index data and comments from Federal Reserve officials for clearer guidance on the path of interest rates.

The dollar index, which tracks the greenback against a basket of currencies, edges 0.02% lower to 102.16 after a 0.35% slide on Tuesday. The euro rises 0.04% to $1.1203, the yen is little changed at 158.32 per dollar, and sterling adds 0.03% to $1.3256.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, says the risk is that core CPI surprises to the upside because of strong consumer demand and higher costs, which could lift market pricing for an October Fed rate hike and support the U.S. dollar. The U.S. Labor Department is due to release September CPI, with economists expecting a 0.6% monthly increase after 0.4% in August, while annual inflation is seen accelerating to 3.6% from 3.4%.

The Fed is also due to publish its Beige Book, while Richmond Fed President Thomas Barkin is scheduled to appear in Virginia and Federal Reserve Vice Chair for Supervision Michelle Bowman is set to speak in Bangkok. The dollar extends losses after New York Fed President John Williams says he still expects one more rate hike this year but sees no need for further increases in 2027.

Rate expectations shape global currency moves

Traders now see a 77% chance that the Fed leaves rates unchanged at its October 27-28 meeting, up from 51% a month ago, while still pricing in about 75 basis points of tightening by late 2027, according to CME Group's FedWatch Tool.

Recent caution in rate-hike bets comes after two policymakers argue for gathering more evidence before deciding whether additional tightening is needed, while Fed Governor Christopher Waller says inflation expectations remain well anchored. That shift has tempered support for the greenback even as markets continue to weigh the implications of resilient U.S. demand.

Elsewhere, the Australian dollar strengthens 0.06% to $0.6984 and New Zealand's kiwi gains 0.09% to $0.5614. The euro holds onto gains as budget concerns in France keep regional bond yields elevated, while the International Monetary Fund and World Bank annual meetings continue in Bangkok with several appearances expected from European Central Bank President Christine Lagarde.

In our earlier article on Susan Collins’ case for further Fed tightening, we covered her view that another rate hike could still be appropriate before year-end if inflation stays above target and economic momentum remains resilient. We also noted the risk that fresh price pressures—from AI-related investment, tariffs, and higher energy costs—could slow disinflation and keep policymakers cautious about easing too soon.

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