Dollar holds losses as markets await Fed minutes, speakers

The US dollar experienced a downturn on Wednesday as investors focused on forthcoming Federal Reserve minutes and speeches from policymakers, signaling potential rate hikes. The euro, however, surged to its highest level in seven weeks, buoyed by French bond yields dropping after the frontrunner in next spring's presidential election proposed substantial spending cuts.

The Japanese yen weakened even after a dovish Bank of Japan member expressed support for interest rate increases. The US central bank will release minutes from its September 15-16 policy meeting, where it raised interest rates to tackle inflation. Fed officials have appeared less hawkish following lower-than-expected personal consumption expenditures and job data released last week.

Gavin Friend, a senior markets strategist at National Australia Bank, noted that there is less urgency for the Fed to raise rates after the softer economic indicators. The dollar index climbed by 0.03% to 101.94, following a 0.27% decline the previous day. Meanwhile, the euro slipped by 0.08% to US$1.1249, the yen weakened by 0.19% to 158.43 per dollar, and the British pound dived by 0.08% to US$1.3262.

Global bond yields have risen due to expectations of central bank rate hikes and concerns over government finances. French debt has been particularly vulnerable as politicians grapple with budget deficits ahead of a contentious election in 2027. The Bank of Japan's new policymaker, Ayano Sato, indicated support for stage-by-stage interest rate hikes during an interview.

While some Fed officials have called for patience, Kansas City Fed President Jeff Schmid maintained the need for further rate hikes to combat inflation. The probability of a 25 basis point increase in October has dropped to 20.5% from 51% a week ago, but markets still anticipate hikes later in the year and next year.