Key facts
- The euro struggled against the dollar ahead of US inflation data and Federal Reserve commentary.
- US consumer price index data for September is expected to show a 0.6% month-on-month rise.
- Annual US inflation is forecast to accelerate to 3.6% in September.
- New York Fed President John Williams indicated no immediate need for further rate hikes.
- Fed Vice Chair Michelle Bowman signaled a wait-and-see approach on future rate increases.
- Concerns over France's fiscal health and rising oil prices are weighing on the euro.
The euro struggled against the dollar on Wednesday as investors awaited US inflation data and comments from Federal Reserve policymakers for indications on the future path of monetary policy. The single currency dipped 0.05% to $1.1192 and reached a fresh 16-month low versus sterling, pressured by rising oil prices and ongoing concerns about France's fiscal health.
The dollar index, which measures the greenback against a basket of major currencies, edged up 0.04% to 102.50, recovering from earlier slight declines. Market participants are now focused on the release of US consumer price index (CPI) data, with economists polled by Reuters expecting a 0.6% month-on-month rise in September and annual inflation accelerating to 3.6%.
Roberto Mialich, FX strategist at Unicredit, noted the risk of higher-than-expected US CPI figures, which could lead to increased yields and a stronger dollar, further pressuring the euro below $1.1152. Earlier, comments from New York Fed President John Williams, suggesting no immediate need for further rate hikes, had weakened the dollar. Fed Vice Chair for Supervision Michelle Bowman also indicated a cautious approach to future rate increases.
Traders are pricing in a 78% probability that the Federal Reserve will maintain its current interest rates at its upcoming meeting, with CME Group's FedWatch Tool showing expectations for approximately 79 basis points of tightening by late 2027. The US central bank last raised its policy rate by a quarter percentage point to the 3.75%-4.00% range.
In broader financial discussions, global finance chiefs are meeting in Bangkok for the International Monetary Fund and World Bank annual meetings. IMF officials have urged governments to control growing debts, with Kristalina Georgieva specifically stating the US needs fiscal adjustments. French bonds have been particularly affected by a global selloff, with investor concerns about the country's high deficit and political maneuvering ahead of next year's presidential election. ECB President Lagarde advised France to pursue fiscal consolidation, dampening speculation of potential ECB bond purchases to manage French yields.
Mialich suggested the euro could test $1.10 in the near term, though Unicredit's outlook becomes less bearish towards the end of the year, anticipating a potential easing of US bond yields. Meanwhile, British finance minister John Healey is reportedly planning to fund new budget giveaways through tax increases or spending cuts, rather than increased borrowing, according to the Financial Times. Sterling strengthened 0.06% to $1.326, and the Japanese yen inched down to 158.46 per dollar.