The U.S. dollar rose on Wednesday as investors waited to see whether Federal Reserve Chair Jerome Powell would back market expectations for a dovish policy path at his press conference later in the day.
The dollar fell to a four-year low against the euro on Tuesday, as investors turned their attention to the Federal Reserve’s policy meeting, where a 25-basis-point rate cut is widely expected.
Markets are pricing in 68 basis points of Fed easing moves by year-end and a total of 147 bps by the end of 2026.
The spotlight will also be on whether policymakers considered a bigger 50 bps cut at a time when President Donald Trump pushes ahead with efforts to overhaul a pillar of the U.S. economy, stoking concerns about the central bank’s independence.
The euro eased by 0.25 per cent to $1.1838, after hitting a four-year high of $1.18785 on Tuesday.
Sterling dropped 0.13 per cent to $1.3630, not far from 2-1/2-month highs after British inflation data matched expectations.
“Jay Powell will offer balance. He’ll highlight again the downside risk to employment growth, but refrain from signaling a long string of cuts after September,” said Thierry Wizman, global forex and rates strategist at Macquarie Group.
“That could rally the dollar, hurt gold, and cause a tremor tomorrow in the tectonic drift higher in tech stocks,” he added.
The dollar index, which measures the U.S. unit against six others, was up 0.20 per cent at 96.84 after hitting 96.554 on Tuesday, its lowest since early July.
The index is down nearly 11 per cent this year, with investors bracing for further losses after a recent pause.
“With six cuts priced over the next year, the real story is not the size of the move this week, but how Powell frames the path,” said Laura Cooper, senior macro strategist at Nuveen.
“A hawkish cut risks deflating the risk rally in the near-term,” she added.
YEN IN THE SPOTLIGHT
The Fed began a two-day meeting on Tuesday with a new governor on leave from the Trump administration joining the deliberations, and a second policymaker at the table still facing efforts by Trump to oust her.
A federal appeals court on Monday blocked Fed Governor Lisa Cook’s firing, paving the way for the Biden appointee to participate fully in the policy meeting this week.
Data on Tuesday showed U.S. retail sales increased more than expected, but a weakening labour market and rising prices pose a downside risk to continued strength in spending.
Some analysts reiterated they do not expect Powell to provide strong forward guidance at this juncture.
The Swiss franc eased 0.22 per cent to 0.7875 per U.S. dollar, near the decade high it touched in the previous session at 0.7857. The Australian dollar hit an 11-month high and was last at $0.6674.
The Japanese yen firmed to 146.22 per dollar, its strongest in a month ahead of the Bank of Japan policy meeting where the central bank on Friday is expected to stand pat on rates. It was last down 0.10 per cent at 146.63.
The spotlight is on an October 4 vote where the ruling Liberal Democratic Party will elect a new leader to replace outgoing Prime Minister Shigeru Ishiba.
“This (a strong yen versus dollar) may be because the more moderate Shinjiro Koizumi is entering the Liberal Democratic Party (LDP) leadership race against Sanae Takaichi, who is seen as yen bearish for her views on loose monetary and fiscal policy,” said Chris Turner, head of forex strategy at ING.
