Dollar Stabilizes Ahead of U.S. Inflation Data as Global Politics Stir Markets
The U.S. dollar ticked higher on Wednesday, regaining stability after sharp losses last week as traders turned their focus to critical inflation figures that could set the tone for the Federal Reserve’s next policy move.
At 04:45 ET (08:45 GMT), the Dollar Index, which measures the greenback against six major peers, rose 0.1% to 97.820 after climbing 0.3% on Tuesday. Despite the rebound, the index remains down nearly 10% in 2025, weighed by expectations of U.S. rate cuts and uncertainty around trade policy.
Geopolitics also reemerged as a market driver after Poland reported intercepting drones in response to a Russian strike on western Ukraine.
Fed Outlook and Inflation in Focus
The dollar’s rebound has been tempered by softer labor market signals. Last week’s disappointing nonfarm payrolls report was followed by a Bureau of Labor Statistics revision showing that U.S. job growth between March 2024 and March 2025 had been overstated by 911,000 jobs.
With the labor picture weaker than initially thought, traders see next week’s Fed rate cut as nearly guaranteed. Current expectations point to a 25-basis-point reduction, though inflation data this week could determine whether policymakers consider a larger 50-basis-point move.
Producer price inflation is due later Wednesday, with consumer price data following on Thursday. ING analysts noted that markets anticipate up to 125–150 basis points in rate cuts over the next nine months, a scenario that would weigh further on the dollar.
Euro Pressured by French Politics
In Europe, the euro slipped again, with EUR/USD down 0.2% at 1.1692, extending Tuesday’s 0.5% drop. The currency has been unsettled by French political developments after President Emmanuel Macron appointed Sebastien Lecornu as prime minister.
While the appointment underscores Macron’s commitment to a pro-business agenda, political instability has persisted. Macron’s call for cross-party talks on the budget before finalizing the cabinet reflects mounting challenges in maintaining a functional government.
Bond markets highlighted investor caution, with French borrowing costs now aligned with those of Italy.
Sterling Steady, Yen and Yuan Hold Range
Sterling held firm, with GBP/USD trading near 1.3524 ahead of next week’s Bank of England meeting. Analysts suggest the pound will likely stay supported unless upcoming labor market and inflation figures deliver significant downside surprises.
The Japanese yen steadied after volatility earlier in the week triggered by Prime Minister Shigeru Ishiba’s abrupt resignation. USD/JPY was last seen up 0.1% at 147.48.
In China, the yuan held near 10-month highs, with USD/CNY dipping 0.1% to 7.1217 after strong daily fixings from the central bank. Still, economic data painted a fragile picture, with consumer prices dropping 0.4% in August and producer prices contracting for the 35th straight month, underlining persistent deflationary pressure.
Commodity Currencies Supported by Rising Prices
The Australian dollar gained 0.2% to 0.6602, helped by stronger commodity markets. Oil prices advanced amid escalating tensions in the Middle East, while copper prices firmed after the shutdown of a major Indonesian mine raised supply concerns.
