Tokyo: The U.S. dollar edged higher on Wednesday, recovering from its lowest levels in nearly a week, after Federal Reserve Chair Jerome Powell emphasized a cautious approach to further monetary easing. While markets continue to price in expectations for two additional rate cuts this year, Powell’s remarks reinforced the Fed’s commitment to balancing inflation control with employment stability, signaling that premature easing could exacerbate inflation risks.
Meanwhile, the euro remained largely unchanged after German business morale fell unexpectedly in September. The Ifo business climate index dropped to 87.7 from 88.9 in August, reflecting a weakening economic outlook in Europe. Sterling also softened, declining 0.3% to $1.34820, while the dollar strengthened modestly against the Swiss franc and Japanese yen, highlighting investor demand for the U.S. currency amid global uncertainty.
Traders are now focused on upcoming U.S. economic data, particularly the release of the personal consumption expenditures (PCE) price index on Friday. Analysts note that a 0.2% month-on-month increase in the PCE could solidify expectations for the two anticipated Fed rate cuts by year-end, barring any significant geopolitical developments in Europe. Market strategist Francesco Pesole of ING noted that, despite Powell’s caution, risks remain skewed to the downside for the dollar until the PCE data is confirmed.
Elsewhere, regional currencies saw mixed movements. The Australian dollar rose 0.23% after August’s consumer price index came in slightly higher than forecasts, while New Zealand’s dollar remained steady following the announcement of a new central bank chief. Analysts suggest that inflation trends and central bank policy decisions across these economies will continue to shape currency markets as investors navigate a complex landscape of economic signals and geopolitical uncertainties.
The U.S. dollar index, which tracks the greenback against six major currencies, added 0.35% to 97.575, attempting to regain ground after two consecutive sessions of losses that took it to its lowest since early 2022. Powell’s statements and the careful monitoring of economic data continue to underscore the markets’ delicate balance between cautious optimism and lingering uncertainty.