The U.S. dollar moved slightly higher on Wednesday, recovering part of the previous session’s sharp losses as traders positioned for a potential Federal Reserve rate cut in December. Meanwhile, sterling held steady ahead of the U.K.’s Autumn Budget announcement.
At 03:50 ET (08:50 GMT), the U.S. Dollar Index—which measures the greenback against six major currencies—rose 0.1% to 99.727 after dropping 0.5% on Tuesday, its largest daily decline in nearly three weeks.
Rising expectations of a December Fed rate cut
The dollar is attempting to bounce back after weaker U.S. economic data earlier in the week increased speculation that the Federal Reserve may deliver another 25-basis-point rate cut in December.
U.S. retail sales for September came in softer than expected, producer prices matched forecasts, and consumer confidence slipped in November as households expressed concern about jobs and personal finances.
These signs of cooling momentum followed dovish remarks from several Fed officials, reinforcing the view that a December cut remains a realistic possibility.
Fed funds futures now assign an 84% chance of a quarter-point cut next month, sharply higher than the roughly 40% probability seen a week earlier.
Markets will receive more clues on Wednesday with the release of the Fed’s Beige Book, which offers anecdotal insights into economic conditions.
ING analysts noted that any reference to increasing labor-market worries would likely support a further move toward lower short-term rates.
Sterling steady as Autumn Budget nears
In Europe, GBP/USD inched up 0.1% to 1.3184, ahead of a budget statement from U.K. Finance Minister Rachel Reeves.
Reeves is expected to raise taxes to meet fiscal goals, though she will avoid measures that could further weigh on the U.K.’s fragile economic growth.
According to ING, delaying difficult tax and spending decisions could limit the Bank of England’s ability to cut rates soon and raise investor concerns about the U.K.’s long-term debt sustainability.
EUR/USD also rose 0.1% to 1.1574, supported by signs of progress in U.S.-backed peace efforts between Russia and Ukraine.
Ukrainian President Volodymyr Zelenskiy said the country is ready to advance the proposed framework and discuss disputed points directly with President Donald Trump.
ING noted that optimism over a ceasefire is helping the euro recover and that a breakthrough could lift the pair toward 1.1700.
Bank of Japan signals possible rate hike
In Asia, USD/JPY increased 0.2% to 156.39, after sliding 0.5% the previous day following a Reuters report that the Bank of Japan may consider a rate hike as early as next month.
The report pointed to growing concern over yen weakness and reduced political pressure to maintain ultra-low rates.
USD/CNY slipped 0.1% to 7.0801, while AUD/USD climbed 0.6% to 0.6502 after data showed inflation remained persistently high in October, reducing expectations of further easing from the Reserve Bank of Australia.
NZD/USD jumped 1.1% to 0.5679 after the Reserve Bank of New Zealand cut its cash rate by 25 basis points to 2.25%, as expected, while signaling that its easing cycle may be coming to an end.
