The U.S. dollar weakened on Wednesday after softer economic data reinforced expectations of a December interest rate cut, while investors also bet that the leading candidate for the next Federal Reserve chair could guide policy in a more dovish direction.
The New Zealand dollar strengthened after the Reserve Bank of New Zealand cut rates as expected but signaled a more hawkish policy outlook ahead. The Australian dollar also briefly moved higher after domestic data showed inflation exceeded forecasts.
The kiwi rose 0.75% to $0.5663, while the Australian dollar traded 0.14% higher at $0.6478, having earlier climbed about 0.3% following the inflation release.
On Tuesday, U.S. data showed retail sales grew less than anticipated in September, while producer price figures matched expectations. Consumer confidence also slipped in November as households grew more concerned about employment and financial pressures.
These reports prompted traders to increase bets on a rate cut next month. According to the CME FedWatch tool, markets now assign an 84% probability to a 25-basis-point move, placing fresh pressure on the dollar.
“The overnight data paints a clear picture of a cooling U.S. economy and supports the case for a near-term rate cut by the FOMC,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.
Against the softer dollar, the euro edged toward the $1.16 level and last traded at $1.1567, buoyed slightly by signs of progress in peace discussions between Russia and Ukraine.
Ukrainian President Volodymyr Zelenskiy said Tuesday that the country was ready to advance a U.S.-supported framework to end the war with Russia and aimed to discuss remaining issues with President Donald Trump, alongside European partners.
Sterling was stable at $1.3166 ahead of a major budget announcement from U.K. finance minister Rachel Reeves. She is expected to unveil tens of billions in tax increases. Traders increased options hedging to guard against heightened pound volatility ahead of the announcement.
“Speculative and hedging activity around the pound has intensified in the weeks leading up to the Autumn Budget statement,” said Thierry Wizman, global FX and rates strategist at Macquarie Group. He added that sterling could see a temporary relief rally if the fiscal plan is viewed as responsible.
The dollar index was down 0.03% at 99.82 after falling 0.3% in the prior session—its biggest one-day drop in nearly three weeks.
A Bloomberg report also weighed on the dollar, stating that White House economic adviser Kevin Hassett has emerged as the frontrunner to become the next Federal Reserve chair. Hassett, like President Trump, has argued that interest rates should be lower than current levels under Chair Jerome Powell.
U.S. Treasury Secretary Scott Bessent said on Tuesday there is a good chance Trump will announce his choice before Christmas.
“Hassett is seen as closely aligned with President Trump’s preference for lower rates, and his appointment would likely reinforce the administration’s push for looser policy,” said Rodrigo Catril, senior FX strategist at National Australia Bank.
The dollar’s decline offered some support to the Japanese yen, which traded 0.1% lower at 156.24 per dollar, though still above last week’s 10-month low of 157.90.
Traders remain alert to the possibility of Japanese intervention to stabilize the yen, with the U.S. Thanksgiving holiday on Thursday potentially creating a window for a more impactful move.
“The holiday will reduce liquidity, making any intervention more effective,” said CBA’s Kong. “A direct intervention is definitely a risk this week, based on recent comments from Japanese officials.”
