The dollar moved within narrow ranges on Wednesday, ahead of a series of US economic data releases that could shape Federal Reserve interest rate expectations, a factor traders view as more influential for currency markets than ongoing geopolitical tensions.
Markets largely ignored the deepening geopolitical divisions around the world, as equities continued to rise, while currencies and bonds showed little reaction following the US intervention in Venezuela and the arrest of President Nicolas Maduro.
Markets entered a wait-and-see mode ahead of a batch of US labor market data, including private-sector employment figures and job openings, due later in the day, ahead of the closely watched nonfarm payrolls report on Friday.
Ahead of the data, the dollar index edged slightly higher to 98.63 points.
Thierry Wizman, global foreign exchange and interest rate strategist at Macquarie Group, said:
“Traders seem comfortable with the rhetoric coming out of the United States as long as it does not imply the need for a direct military presence on the ground to govern Venezuela.”
He added: “A military invasion and a prolonged ground conflict could have triggered a sharp sell-off in the dollar, as seen during the Iraq and Afghanistan wars between 2002 and 2008.”
Investors are struggling to form a clear picture of the performance of the world’s largest economy following a record US government shutdown last year, which disrupted the collection and publication of key economic data.
Even so, investors remain convinced that the Federal Reserve will cut interest rates twice more during the current year. This expectation has weighed on the dollar, while growing divisions within the Fed and the approaching announcement by US President Donald Trump of his next nominee to chair the central bank have further complicated the outlook for US monetary policy.
The euro slipped slightly after declining the previous day, following a sharper-than-expected slowdown in German inflation in December, prompting traders to modestly scale back bets on an interest rate hike in early 2027.
Markets have priced in unchanged interest rates until 2026 since last summer, with expectations for policy tightening by the European Central Bank in 2027 as inflationary pressures rise due to German fiscal stimulus.
The single currency fell 0.10% to $1.1676, after dropping 0.28% on Tuesday.
In another development being monitored by traders, China on Tuesday banned exports of dual-use materials to Japan that could be used for military purposes, in the latest move by Beijing in response to remarks made by Japanese Prime Minister Sanae Takaichi in early November regarding Taiwan. Strategists said the move had little impact on foreign exchange markets.
The US dollar slipped 0.10% against the Japanese yen to 156.51.
The Australian dollar reached its highest level since October 2024 at $0.6766, after a mixed inflation report kept hopes of a near-term interest rate hike in check. The New Zealand dollar traded at $0.5783.
Jose Torres, chief economist at Interactive Brokers, commented on Wednesday’s data by saying: “The ADP monthly employment report will be the most influential, as a rise in the unemployment rate represents one of the key risks in the new year, alongside the possibility that massive investments in artificial intelligence fail to deliver outsized returns.”
