Fed Uncertainty Keeps Dollar Supported
Markets have priced in about 43 basis points of easing across the Fed's two remaining meetings this year. But comments from policymakers, including Fed Chair Jerome Powell, have underscored that the timing of any additional cuts will hinge on incoming inflation and labor market data.
That uncertainty has cooled expectations for a near-term move. Traders are no longer fully pricing in a cut at the Fed’s next meeting, even after last week's widely anticipated rate reduction. The dollar has quietly ground higher since then, reflecting both caution and resilience.
San Francisco Fed President Mary Daly echoed the cautious tone, noting that while more cuts may be needed, the timing is far from clear. "Will they come right now, this year or going forward? It’s hard to say," Daly remarked, stressing the Fed’s dual mandate of balancing inflation and employment.
Dollar Index Nears Three-Week High
The dollar index (DXY), which tracks the greenback against six major peers, hovered at 97.813, close to a three-week high and on track to notch a monthly gain.
- The euro was steady at $1.17425, after sliding 0.6% in the prior session.
- Sterling held at $1.3451, also following a 0.6% drop on Wednesday.
- The yen firmed slightly to 148.62 per dollar, edging away from a three-week low after Bank of Japan minutes revealed some policymakers favor resuming rate hikes.
Markets now see about a 50% chance of a BOJ hike at its October 29–30 meeting, when updated growth and inflation forecasts will be released.
Tariffs and Inflation in Focus
Investors are also watching for signs of how U.S. tariffs under President Donald Trump are filtering through the economy. So far, the data hasn't fully captured the impact on prices, but analysts warn that tariff-led inflation could complicate the Fed's easing path.
"Tariff-led price pressures remain a wild card," said Laura Cooper, global investment strategist at Nuveen. She expects PCE inflation—the Fed’s preferred gauge—to peak near 3.2% later this year, keeping price growth above target for longer. That, she argued, "still argues for patience" despite market hopes for back-to-back cuts.
The spotlight now turns to the Personal Consumption Expenditures (PCE) report due Friday and the final estimate of Q2 GDP on Thursday. Both could sway expectations for the Fed’s next move, especially with the added wrinkle of a looming U.S. government shutdown.
Other Movers in FX
Elsewhere in currency markets:
- The New Zealand dollar ticked up 0.1% to $0.5813, a day after Anna Breman was named the country’s next central bank governor—the first woman to hold the role.
- The Australian dollar was last at $0.65905, little changed in early trading.
The Bottom Line
The dollar’s resilience reflects a market caught between Fed caution, sticky inflation, and global uncertainties. With Powell and other officials emphasizing a data-dependent approach, the next few days of economic releases could prove pivotal.
For now, the greenback remains firm, supported by skepticism that the Fed will move as aggressively as traders once hoped.