Dollar languishes as focus turns to CPI, Fed speakers

The dollar suffered on Wednesday as traders awaited fresh clues about when the Federal Reserve might raise interest rates, amid ongoing worries about high inflation. The greenback slipped from an 18-month peak in the previous session, as oil prices softened and investors re-evaluated the impact of artificial intelligence on demand for US assets.

The euro held onto gains, buoyed by budgetary uncertainties in France that kept regional bond yields high and markets on edge. Traders are now focusing on upcoming US consumer price index figures and speeches from Federal Reserve officials that could shed light on the path of interest rates. Currency strategist Carol Kong warned that the core CPI could surprise upward due to robust consumer demand and rising costs, raising expectations for a potential Fed rate hike in October and potentially strengthening the dollar.

The dollar index, which gauges the greenback against a basket of currencies, slipped 0.02% to 102.16 after dropping 0.35% on Tuesday. The euro rose 0.04% to US$1.1203, the yen was flat at 158.32 per dollar, and the pound sterling gained 0.03% to US$1.3256. The dollar's decline on Tuesday stemmed from comments from New York Fed president John Williams, who still anticipates one more rate hike this year but sees no need for additional hikes in 2027.

The US Labor Department will release its September CPI report, expected to show a 0.6% month-over-month increase after August's 0.4% rise, with annual inflation projected to jump to 3.6% from 3.4%. The Fed will also release its Beige Book. Traders gauge a 77% probability that the Fed will hold rates steady at its Oct 27-28 meeting, up from 51% a month ago, and price in about 75 basis points of tightening by late 2027, according to CME Group's FedWatch Tool.

Investors abandoned expectations of a Fed rate hike later this month after two policymakers advocated for more evidence before deciding if more tightening is warranted, while Fed Governor Christopher Waller insisted inflation expectations remained well anchored. Richmond Fed president Thomas Barkin is set to appear at a fireside chat in Virginia, and Federal Reserve vice chair for supervision Michelle Bowman will join talks in Bangkok.

The International Monetary Fund and World Bank's annual meetings continue in Bangkok, with European Central Bank president Christine Lagarde expected to make several appearances on Wednesday.