Dollar languishes as focus turns to CPI, Fed speakers

The dollar experienced a downturn on Wednesday, as traders awaited new clues about when interest rate hikes might occur to tackle ongoing inflation. The greenback slipped from its 18-month peak in the previous trading day as oil prices declined and investors reevaluated the AI-driven rally that fueled demand for US assets. Meanwhile, the euro held onto gains due to concerns about France's budget, which kept regional bond yields high and kept markets on edge.

Focus is now shifting towards the release of US consumer price index data, as well as speeches from Federal Reserve policymakers, which could shed light on the outlook for interest rates. Carol Kong, a currency strategist at Commonwealth Bank of Australia, warned that there's a risk of the core CPI figures surprising upwards due to robust consumer demand and higher costs, which could bolster market expectations for an October Fed rate hike and weaken the USD.

The dollar index, which tracks the greenback's performance against a basket of currencies, slipped 0.02% to 102.16, following a 0.35% decline on Tuesday. The euro climbed 0.04% to $1.1203, while the yen remained relatively stable at 158.32 per dollar, and the British pound rose 0.03% to $1.3256. The dollar's slide on Tuesday continued after New York Fed President John Williams suggested that another rate hike this year is still likely, but he does not see the need for additional increases in 2027.

US Labor Department will release its CPI for September, which is projected to have risen 0.6% month-on-month, up from 0.4% in August, while annual inflation is expected to accelerate to 3.6% from 3.4%. Fed's Beige Book will also be published. Traders believe there is a 77% chance that the Fed will keep rates unchanged during its October 27-28 meeting, up from 51% a month earlier, with about 75 basis points of tightening anticipated 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 on further tightening, and Fed Governor Christopher Waller stated that inflation expectations remain "well anchored."

Richmond Fed President Thomas Barkin is set to participate in a fireside chat in Virginia, while Federal Reserve Vice Chair for Supervision Michelle Bowman is scheduled to speak at talks in Bangkok. The annual meetings of the International Monetary Fund and World Bank are ongoing in Bangkok, with several appearances by European Central Bank President Christine Lagarde on Wednesday.