The U.S. dollar ticked slightly higher on Wednesday, stabilizing after recent losses as markets prepared for crucial inflation figures that could shape the Federal Reserve’s monetary policy path in the months ahead.
At 04:45 ET (08:45 GMT), the Dollar Index, which measures the greenback against six major currencies, was up 0.1% at 97.820, following a 0.3% gain on Tuesday. Still, the index has fallen around 10% so far in 2025, with volatile U.S. trade policies and expectations of interest rate cuts weighing on the dollar.
Dollar edges up amid geopolitical concerns
The currency has recovered modestly this week after a sharp selloff late last week, while geopolitical tensions resurfaced following Poland’s scrambling of national and NATO air defenses to intercept drones during a Russian attack on western Ukraine.
However, the dollar remains pressured after weak U.S. employment data. The Bureau of Labor Statistics recently acknowledged that it overestimated payrolls by a staggering 911,000 in the 12 months to March 2025, signaling a cooling labor market.
This makes a Federal Reserve rate cut next week almost certain, although this week’s inflation reports could influence the size and trajectory of any policy easing. U.S. producer price inflation is due Wednesday, followed by consumer price inflation on Thursday.
Traders are pricing in a 25-basis-point cut next week, with a 5% probability assigned to a larger 50-basis-point reduction.
“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,” analysts at ING said in a note.
Euro under pressure from French politics
In Europe, the euro slid 0.2% to 1.1692 against the dollar, after a 0.5% drop in the previous session, following French President Emmanuel Macron’s appointment of loyalist Sébastien Lecornu as prime minister on Tuesday.
Lecornu’s nomination signals Macron’s intent to continue with a minority government while preserving his pro-business reform agenda, a stance that has contributed to ongoing political uncertainty this year. In an unusual move, Macron instructed Lecornu to consult all parliamentary forces to seek 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 held steady 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.
Yuan and Asian currencies
USD/JPY rose 0.1% to 147.48, recovering after volatility linked to the abrupt resignation of Japanese Prime Minister Shigeru Ishiba. USD/CNY slipped 0.1% to 7.1217, remaining near recent highs after a series of strong fixings.
China’s CPI declined 0.4% in August, more than expected, reflecting weakening domestic demand and private consumption as government subsidies waned. Producer prices fell 2.8% as forecast, marking the 35th consecutive month of decline. Wednesday’s data reinforced the ongoing disinflationary trend, compounded by economic uncertainty and U.S. tariff pressures.
Commodity-linked currencies supported
AUD/USD gained 0.2% to 0.6602, with the Australian dollar benefiting from higher commodity prices. Oil climbed on renewed Middle East tensions, while copper prices advanced following the closure of a major mine in Indonesia, which could tighten global supply.
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