Dollar drifts as markets await US inflation data for Fed clues

Dollar remained stable in early Asian trading on Wednesday, disregarding renewed attacks on vital shipping routes in the Middle East, as currency markets anticipated the release of U.S. inflation data later in the day. The Japanese yen remained stable against the dollar at 159.335 yen, near its lowest point this month following a joint intervention by U.S. and Japanese authorities to bolster the Japanese currency.

Meanwhile, the euro held steady at $1.1537, while the British pound and Australian dollar remained unchanged at $1.3503 and $0.7064, respectively. The New Zealand dollar saw a slight decline of 0.1% to $0.5876 after Prime Minister Christopher Luxon secured a confidence vote from ruling party lawmakers, following speculation about his leadership ahead of a general election.

Market focus this week is on the release of U.S. inflation data for insights into the direction of Federal Reserve interest rates, following last week's lower-than-expected jobs report and a Fed Chair Kevin Warsh press conference, which did little to alleviate concerns. Analysts from ING believe there is a chance for inflation easing by the end of 2026, assuming oil prices stay in check and the Strait of Hormuz reopens.

Currently, the U.S. dollar index, which gauges the dollar's strength against a basket of six currencies, stands at 99.858, up 0.1%. Oil prices rose slightly as trading restarted in Asia, with Brent crude climbing 0.8% to $89.61 a barrel after Iranian-backed Houthis attacked a cargo ship in the Bab el-Mandeb strait and a U.S. military strike on a container ship off Pakistan aimed at breaking its blockade of the Strait of Hormuz.

Federal Reserve Bank of Chicago President Austan Goolsbee expressed on Tuesday that the central bank is more concerned with high inflation than labor market weakness, though it is unclear if this position aligns him with the minority of policymakers advocating for an interest rate hike last month. Traders remain divided on the Fed's subsequent actions, with Fed funds futures suggesting a 52% chance of a rate hold at the September 16 meeting, compared to a 48% likelihood of a quarter-point increase.

In the cryptocurrency market, both Bitcoin and Ether remained flat at $63,708.64 and $1,881.91, respectively.