Dollar holds losses as markets await Fed minutes, speakers

The US dollar experienced a downturn on Wednesday as investors awaited Federal Reserve minutes and speeches from policymakers for clues about the likelihood of a rate increase. The euro gained significantly in the previous session, surging to its strongest level in seven weeks, as French bond yields dropped following a presidential candidate's announcement of plans to cut spending.

The Japanese yen weakened even though a Bank of Japan board member suggested support for raising interest rates. The Federal Reserve's policy meeting from September 15-16, during which it raised interest rates to battle inflation, is set to release minutes later in the day, and comments from Fed policymakers have signaled a less aggressive approach following weaker-than-expected economic data.

Senior markets strategist Gavin Friend from National Australia Bank stated on a podcast that there appears to be less urgency for the Fed to raise rates due to softer personal consumption expenditures (PCE) and jobs data recently. The dollar index, which gauges the greenback's value against a basket of currencies, rose 0.03% to 101.94 after falling 0.27% the previous day.

The euro slipped 0.08% to $1.1249, while the Japanese yen declined 0.19% to 158.43 per dollar. Sterling also fell 0.08% to $1.3262. Global bond yields have risen over the past weeks due to expectations of central bank rate hikes and concerns about government finances. French debt has faced increased pressure as politicians strive to reduce the budget deficit ahead of a contentious election in 2027.

On Tuesday, the euro surged after far-right French presidential candidate Marine Le Pen increased her spending cut target to €140 billion from the initially planned €125 billion if she wins the 2027 election. Bank of Japan's new policymaker Ayano Sato stated on Wednesday that she backs the idea of raising interest rates in stages, signaling that underlying inflation has likely reached its 2% target.

Although expectations for a rate hike later in the month have softened, markets continue to anticipate more increases later in the year and next year. Kansas City Fed President Jeff Schmid said on Tuesday that the central bank still needs to raise rates further to lower inflation, even with higher long-term yields weighing on some sectors of the economy.

The probability of a 25 basis point increase in October is at 20.5%, down from about 51% a week ago, according to CME FedWatch, but markets price in an 84.5% chance of a rate hike at the December meeting. With limited guidance from Chair Kevin Warsh, markets have responded strongly to each US data release and policymaker speech.

Fed officials Christopher Waller, Neel Kashkari, and Alberto Musalem are expected to speak later on Wednesday, along with the release of consumer credit data, which is expected to show a decrease in August compared to July. The Australian dollar weakened 0.04% against the greenback to $0.6979, while the New Zealand dollar declined 0.07% to $0.5617. In cryptocurrencies, Bitcoin fell 0.22% to $85,438.59, and Ether dropped 0.12% to $2,695.22.