Dollar drifts as markets await US inflation data for Fed clues

The dollar remained relatively stable in early Asian trading on Wednesday, unaffected by fresh threats to shipping lanes in the Middle East. Investors were holding their breath, waiting for the release of US inflation data that could provide hints about the Federal Reserve's plans for interest rates. The yen, euro, British pound, Australian dollar, and New Zealand dollar all remained unchanged against the dollar.

New Zealand's Prime Minister Christopher Luxon had recently secured a confidence vote, following speculation about his leadership in the run-up to a general election. Analysts from ING predicted that inflation could ease in 2026, provided oil prices stay manageable and the Strait of Hormuz reopens. The US dollar index, which gauges the greenback's strength relative to a group of six currencies, rose slightly to 99.858.

Oil prices ticked higher as trading resumed in Asia, buoyed by an attack by Iran-backed Houthis on a cargo ship in the Bab el-Mandeb strait and a retaliatory US military strike on a container ship off Pakistan. Federal Reserve Bank of Chicago President Austan Goolsbee had expressed concern about high inflation over the previous day, but it was unclear if his sentiment aligned with the minority of policymakers who had backed a rate hike the previous month.

Traders were still uncertain about the Federal Reserve's next move, with Fed funds futures suggesting a 52% likelihood of the central bank keeping rates steady during their meeting on September 16, and a 48% chance of a quarter-point increase. In the cryptocurrency market, both Bitcoin and Ether remained flat, trading at US$63,708.64 and US$1,881.91 respectively.