Dollar on backfoot ahead of expected Fed cut, Aussie gains on CPI

TOKYO: The US dollar hovered close to a one-week low versus major peers on Wednesday ahead of a widely expected interest rate cut from the Federal Reserve later in the day.

The greenback lost additional ground against the Japanese yen after U.S. Treasury Secretary Scott Bessent signaled the new Japanese government is open to Bank of Japan rate hikes, ahead of a policy decision on Thursday.

Australia’s dollar reversed an earlier small decline to rise 0.3% to $0.6604 after hotter-than-expected consumer price data raised doubts about a rate reduction from the central bank next week.

“The interest is in the guidance provided by (Fed) Chairperson Jerome Powell at his press conference,” said Kyle Rodda, an analyst at Capital.com.

“A lot of dovishness is baked into the curve, with a cut in December almost fully discounted,” he said.

“Anything that upsets that pricing could lead to volatility.”

Currency traders are also keeping a close eye on a scheduled meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping on Thursday in South Korea to decide on a framework that could pause tougher U.S. tariffs and China’s rare-earth export curbs.

The U.S. dollar index , which measures the currency against six rivals, was steady at 98.681 after slipping 0.1% on Tuesday for a second straight day of declines.

The dollar fell 0.2% to 151.84 yen , declining for a second day after Bessent posted on X that the Japanese government’s “willingness to allow the Bank of Japan policy space will be key to anchoring inflation expectations and avoiding excess exchange rate volatility.”

Bessent, who is in Japan with Trump for talks with the newly formed government of Prime Minister Sanae Takaichi, has repeatedly criticised the BOJ for its slow pace of rate hikes.

Takaichi, viewed as a fiscal and monetary dove, has asked the BOJ to maintain an easy monetary environment, but has said the conduct of monetary policy is up to the central bank.

The BOJ is expected to hold rates steady when it concludes its two-day meeting on Thursday and the focus will be on any clues on the potential for a hike at its next meeting in December.

The Fed, meanwhile, is widely expected to cut rates by a quarter point later on Wednesday, and traders will be looking for hints on whether the market’s high expectations for a December reduction are warranted.

The European Central Bank also decides policy on Thursday, and is expected to leave rates unchanged.

The euro was little changed at $1.1655. Sterling added 0.1% to $1.3278.