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The U.S. dollar held near its recent losses on Wednesday, October 7, as investors weighed easing stress in European bond markets against the prospect of further Federal Reserve rate increases. Attention shifted to minutes from the Fed’s September meeting and remarks by several policymakers for clues about the timing and likelihood of another hike.
The dollar index, which tracks the currency against a basket of peers, was up 0.03% at 101.94 in early trading after falling 0.27% in the previous session, Reuters reported from Tokyo. The euro eased 0.08% to $1.1249, while the yen weakened 0.19% to 158.43 per dollar and sterling slipped 0.08% to $1.3262.
Investors look for a signal on the next Fed move
The Fed was scheduled to publish minutes from its September 15-16 policy meeting at 2 p.m. Eastern time on October 7. The central bank raised interest rates at that meeting as it sought to contain inflation, and investors were looking for detail on officials’ views about further tightening.
Market expectations for an October increase had retreated after lower-than-expected personal consumption expenditures inflation and employment data the previous week. Gavin Friend, a senior markets strategist at National Australia Bank, said the softer figures appeared to have reduced the urgency for a hike, according to Reuters.
Pricing tracked by CME FedWatch put the probability of an increase of at least a quarter percentage point in October at 20.5%, down from about 51% a week earlier. The probability of a hike in December stood at 84.5%, Reuters reported, underscoring that traders had pushed expectations later rather than ruling out further increases.
Fed officials present differing emphasis
Remarks from policymakers offered investors another source of information alongside the minutes. Kansas City Fed President Jeff Schmid said on Tuesday that rates still needed to rise to bring inflation down, even as higher longer-term borrowing costs weighed on activity in some parts of the economy.
Fed officials Christopher Waller, Neel Kashkari and Alberto Musalem were scheduled to speak later on Wednesday. Commonwealth Bank of Australia strategist Samara Hammoud said in a report that markets had reacted sharply to each data release and policymaker speech in the absence of much forward guidance from Fed Chair Kevin Warsh; she expected the Fed to wait until December before raising rates again.
European bond jitters had eased
The dollar’s earlier losses came as European bond-market stress eased. The euro had posted its largest one-day gain in seven weeks in the previous session, supported by a fall in French bond yields after far-right presidential candidate Marine Le Pen raised her proposed spending cuts to €140 billion from €125 billion if she wins the 2027 election, Reuters reported.
French public finances remained a concern as political divisions complicated efforts to curb the budget deficit ahead of the 2027 election. A snap election in Spain had also contributed to recent pressure on the euro. More broadly, bond yields worldwide had risen in recent weeks amid expectations of central-bank rate increases and concerns about government finances.
Yen and other currencies also in focus
The yen weakened despite comments from new Bank of Japan policymaker Ayano Sato, who told Kyodo News she supported raising rates in stages. Three people familiar with the central bank’s thinking told Reuters that the BOJ might signal this month that underlying inflation had roughly reached its 2% target, a development that could indicate readiness to raise rates again.
The Australian dollar traded 0.04% lower at $0.6979, and the New Zealand dollar slipped 0.07% to $0.5617. Bitcoin was down 0.22% at $85,438.59 and ether fell 0.12% to $2,695.22, according to the report.
What was scheduled next
Alongside the Fed minutes and scheduled policymaker appearances, U.S. consumer-credit data for August was due on Wednesday. The report was expected to show credit growth slowing to $15 billion from $18.06 billion in July, Reuters reported.
The minutes could add detail about the discussion at the September meeting, but the immediate market focus remained on how officials would respond to incoming inflation and labor-market data. The next policy decision was not due until the Fed’s October 27-28 meeting, leaving traders to reassess the outlook as new data and public comments emerged.
