NEW YORK: The dollar was mixed on Wednesday before the Federal Reserve is expected to cut rates, with investors focused on Fed Chair Jerome Powell’s outlook for the economy even as the federal government shutdown leaves a vacuum of economic data.
The US central bank is viewed as likely to cut rates through the next year as it faces a softening labor market. Policymakers have been reluctant to commit to too much easing, however, on concerns about inflation.
Eric Theoret, FX strategist at Scotiabank in Toronto, notes that political pressure to cut rates has eased in recent months, which could offer the Fed more room to adopt a more dovish outlook without appearing to be caving to politics.
The greenback got some support from signs the US and China are set to agree to a trade war truce. US President Donald Trump on Wednesday sounded an optimistic note about a looming summit with China’s Xi Jinping and finalised details with South Korean President Lee Jae Myung of their fraught trade deal.
Trump is due to meet Xi on Thursday and said he expects to reduce US tariffs on Chinese goods in exchange for Beijing’s commitment to curb exports of fentanyl precursor chemicals. The dollar index was last up 0.19 percent on the day at 98.87. The euro fell 0.14 percent to USD1.1632.
Both the European Central Bank and the Bank of Japan are expected to hold rates steady on Thursday.
The yen was a fraction stronger at 152.04 per dollar. It strengthened after US Treasury Secretary Scott Bessent urged Japan’s government to give the central bank scope to raise interest rates, escalating his warning to Tokyo against keeping the yen too weak through prolonged low borrowing costs.
Britain’s pound and the Australian dollar were also big movers, linked to changes in central bank policy expectations, though the Bank of England and Reserve Bank of Australia do not meet until next week.
Sterling shed 0.5 percent against the dollar to USD1.3203, its lowest in nearly three months, as markets see an increasing chance of a BoE rate cut this year, and maybe as early as next week.
Data last week showed that British inflation unexpectedly held steady in September. A report earlier this month also showed that British workers’ pay grew at the weakest pace since 2022 and the jobless rate
nudged higher.
The Canadian dollar gained after the Bank of Canada reduced its key overnight interest rate to 2.25 percent on Wednesday, as widely expected, and signaled this could mark an end to its cutting cycle unless the outlook for inflation and the economy changed.
Bitcoin dipped 0.20 percent to USD112,630.
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