The US Dollar (USD) lingered near a two-week low on Thursday as markets awaited U.S. inflation data, which will influence the Federal Reserve’s future policy decisions. This follows the cautious stance revealed by policymakers in the minutes from the Fed’s recent meeting.
The dollar index, measuring the USD against six major currencies, stood at 105.63, relatively stable for the day, but not far from its lowest point since September 25, at 105.53.
The euro and yen remained steady against the dollar, with the euro at $1.06245 and the yen at 149.13 per dollar, as significant moves were constrained by the impending inflation figures. The U.S. consumer price index data for September, expected to indicate a moderation in inflation, is scheduled for release at 1230 GMT.
Futures markets currently suggest a 26% probability of a 25 basis point hike at the Fed’s December meeting and only a 9% likelihood of a 25 basis point rise at the central bank’s next meeting in November, according to the CME FedWatch tool.
A downside surprise in inflation is likely to bolster the argument that the Fed has concluded its tightening cycle, leading to lower U.S. Treasury yields and a weaker dollar, as stated by Carol Kong, a currency strategist at Commonwealth Bank of Australia.
Conversely, an upside surprise would probably prompt the market to reassess the likelihood of the Federal Open Market Committee proceeding with its projected 25 basis point hike.
The recent weakness of the dollar has been influenced by declining Treasury yields as bond prices rallied due to the Fed’s more cautious approach to future rate hikes. Bond yields move inversely to bond prices.
The yield on 10-year Treasury notes slightly declined to 4.575%, having reached its highest level since 2007 last week at 4.887% but falling approximately 20 basis points this week.
In addition to the dollar’s dynamics, currency investors are also monitoring sluggish British growth figures that indicated a partial recovery in August following a sharp decline in July. The pound, initially unresponsive, was last down 0.16% at $1.2295.
The pound, which was the top-performing G10 currency in the first half of the year, had a challenging September after expectations of prolonged rate hikes diminished due to changing economic data and inflation trends.
Thursday’s CPI release followed Wednesday’s mixed report on U.S. producer prices and the minutes from the Fed’s September meeting, which emphasized the uncertainties around the economy and supported cautious policy adjustments.
The Swiss franc slightly strengthened for the seventh consecutive day, at 0.90155, marking the longest winning streak since July 2020.