The U.S. dollar traded within a narrow range on Wednesday, as investors waited for a series of U.S. economic releases that could shape expectations for future interest rate moves by the Federal Reserve. Traders largely viewed upcoming data as more important for currency markets than ongoing geopolitical developments.
So far, markets have mostly looked past rising global tensions. Equities continued to rally, while currencies and bonds showed limited reaction following the U.S. intervention in Venezuela and the capture of President Nicolas Maduro.
Investors remained in wait-and-see mode ahead of key U.S. labor market indicators. Data on private payrolls and job openings were due later in the session, before Friday’s closely watched nonfarm payrolls report.
Ahead of these releases, the dollar index edged slightly higher to 98.63.
Thierry Wizman, global forex and rates strategist at Macquarie Group, said markets appeared comfortable with U.S. rhetoric as long as it did not signal a prolonged military presence in Venezuela. He noted that a full-scale ground conflict could have triggered sharp dollar weakness, similar to the impact seen during the Iraq and Afghanistan wars in the mid-2000s.
Market participants have struggled to assess the true strength of the U.S. economy following last year’s record government shutdown, which disrupted the release of key economic data. Despite this uncertainty, investors remain confident that the Fed will cut interest rates twice more this year.
These expectations have weighed on the dollar. At the same time, divisions within the Fed and U.S. President Donald Trump’s upcoming choice for the next Fed Chair have added further uncertainty to the outlook for U.S. monetary policy.
Euro slips as data pressure rate expectations
The euro edged lower after declining in the previous session, as German inflation slowed more than forecast in December. The data prompted traders to slightly reduce expectations for a rate hike in early 2027.
Markets have largely priced in stable policy rates through 2026, while anticipating tightening by the European Central Bank in 2027 as inflation pressures build, partly due to increased German fiscal spending.
The single currency fell 0.10% to $1.1676, following a 0.28% drop on Tuesday.
Elsewhere, traders monitored developments in Asia after China banned exports of certain dual-use goods to Japan that could have military applications. The move followed comments made in November by Japanese Prime Minister Sanae Takaichi regarding Taiwan, although strategists said the decision had little impact on currency markets.
The dollar slipped 0.10% against the Japanese yen to 156.51.
The Australian dollar climbed to its highest level since October 2024 at $0.6766, as mixed inflation data kept the possibility of a near-term interest rate hike alive. The New Zealand dollar last traded at $0.5783.
Looking ahead, economists highlighted the importance of upcoming U.S. labor data. Jose Torres, senior economist at Interactive Brokers, said ADP’s monthly employment report could be particularly influential, as rising unemployment remains a key risk this year alongside concerns that heavy investment in artificial intelligence may fail to deliver expected returns.
