The U.S. dollar rose on Wednesday as investors awaited whether Federal Reserve Chair Jerome Powell would endorse market expectations for a dovish policy path during his press conference later in the day.
On Tuesday, the dollar had fallen to a four-year low against the euro, with markets focused on the Fed meeting, where a 25-basis-point rate cut is widely expected.
Markets are currently pricing in about 68 basis points of easing by year-end and a total of 147 basis points by the end of 2026. Attention is also on whether policymakers discussed a larger 50-basis-point cut, at a time when President Donald Trump continues to push for a structural reshaping of the U.S. economy, raising concerns over the central bank’s independence.
The euro fell by 0.25% to 1.1838$, after reaching 1.18785$ on Tuesday, its highest in four years. The pound declined 0.13% to 1.3630$, though it remained near a two-and-a-half-month high after U.K. inflation data matched expectations.
Thierry Wizman, global currency and rates strategist at Macquarie Group, said: “Powell will keep the balance. He will reiterate downside risks to job growth, but refrain from signaling a long series of cuts beyond September.”
He added that this stance could support the dollar, weigh on gold, and shake up the trajectory of tech stocks.
The dollar index, which measures the U.S. currency against six major peers, rose 0.20% to 96.84 after hitting 96.554 on Tuesday, its lowest since early July. Still, the index remains down about 11% year-to-date, with expectations of further losses after a temporary pause.
Laura Cooper, senior macro strategist at Nuveen, said: “With six rate cuts priced in over the next year, the real story is not about the size of this week’s move but about how Powell maps out the policy path.”
She added that “an aggressive cut could derail the risk rally in the short term.”
Yen in focus
The Fed began its two-day meeting on Tuesday with a new administration-appointed member participating after being granted leave to join the deliberations, while another member faced Trump’s efforts to oust her. A federal appeals court on Monday blocked the dismissal of Governor Lisa Cook, allowing the Biden appointee to take part fully in this week’s policy meeting.
Tuesday’s data showed U.S. retail sales rose more than expected, but labor market weakness and rising prices pose risks to the durability of spending.
The Swiss franc fell 0.22% to 0.7875 per dollar, near a decade high of 0.7857. The Australian dollar touched an 11-month high at 0.6674$.
The yen rose to 146.22 against the dollar, its strongest in a month, ahead of Friday’s Bank of Japan meeting where rates are expected to remain unchanged, before easing slightly to 146.63.
Focus is also turning to the October 4 vote, when the ruling Liberal Democratic Party will choose a successor to outgoing Prime Minister Shigeru Ishiba.
Chris Turner, head of FX strategy at ING, said: “The yen’s strength against the dollar may reflect Shinjiro Koizumi’s entry into the leadership race against Sanae Takaichi, whose support for loose monetary and fiscal policies is seen as negative for the yen.”
