Dollar languishes as focus turns to CPI, Fed speakers

The dollar struggled on Wednesday as investors awaited clues about when interest rate hikes may occur amid high inflation concerns. The greenback fell from a 18-month peak the previous day as oil prices dropped and traders reassessed gains from the AI-driven rally that boosted demand for US assets. The euro held onto its gains, as budget issues in France kept regional bond yields high and markets on edge.

Focus now shifts to the release of US consumer price index data and remarks by Federal Reserve officials that could shed light on rate outlooks.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, warned that a surprise jump in core CPI could push markets to price in an October Fed rate hike and benefit the USD. The dollar index, tracking the greenback against a basket of currencies, slipped 0.02 percent to 102.16, following a 0.35 percent decline on Tuesday. The euro climbed 0.04 percent to US$1.1203, the yen hovered steady at 158.32 per dollar, and the British pound gained 0.03 percent to US$1.3256.

The dollar's losses intensified on Tuesday after New York Fed President John Williams indicated he still expects one more rate hike this year but sees no need for further increases in 2027. The Labor Department plans to release September's CPI on Wednesday, with expectations of a 0.60 percent month-over-month rise, up from 0.40 percent in August, and annual inflation expected to accelerate to 3.60 percent from 3.40 percent. The Fed will also publish its Beige Book.

Trader sentiment points to a 77 percent probability that the Fed will hold rates steady at its October 27-28 meeting, up from 51 percent a month prior, with estimates of about 75 basis points of tightening by late 2027 according to CME Group's FedWatch Tool. Investors stopped betting on a Fed rate hike later this month after two policymakers urged for more evidence before deciding on additional tightening.

Fed Governor Christopher Waller said inflation expectations remain "well anchored". Richmond Fed President Thomas Barkin is set to deliver a fireside chat in Virginia, and Federal Reserve Vice Chair for Supervision Michelle Bowman is scheduled to attend talks in Bangkok. The IMF and World Bank's annual meetings continue in Bangkok, with European Central Bank President Christine Lagarde expected to make appearances on Wednesday.

The Australian dollar rose 0.06 percent against the greenback to US$0.6984, while New Zealand's kiwi gained 0.09 percent to US$0.5614.