The US dollar rose slightly on Wednesday, recovering from its lowest level in nearly a week, after Federal Reserve Chair Jerome Powell struck a cautious tone regarding further monetary easing, even as markets continue to price in two additional rate cuts this year.

The euro, meanwhile, remained broadly steady despite data showing an unexpected decline in German business confidence in September, as the Ifo Business Climate Index fell to 87.7 from 88.9 in August amid weak economic expectations. The euro last traded down 0.4% at $1.177, though it was little changed against other currencies such as the British pound and Swiss franc, reflecting investor demand for the dollar. Sterling fell 0.3% to $1.34820.

Rate Cuts Under the Microscope

Market focus is now firmly on expectations for two quarter-point rate cuts at the Fed’s remaining meetings this year, along with another reduction anticipated in the first quarter of 2026, in line with the central bank’s guidance after last week’s policy meeting.

US data this week will be key, particularly Friday’s release of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, which will be critical in shaping expectations for the next steps in monetary policy.

Francesco Pesole, FX strategist at ING, said: “We still see the risks tilted toward a weaker dollar with Friday’s core PCE reading. A monthly print of 0.2% would reinforce expectations for two rate cuts this year, unless the geopolitical picture in Europe deteriorates.” He added that dollar moves have been limited given Powell essentially repeated the same cautious stance he laid out last week.

At that time, the dollar rebounded from its lowest level since early 2022 after the Fed’s policy announcement and Powell’s press conference, which turned out to be less dovish than markets had anticipated following a sharp deterioration in labor market data.

US Dollar Index Adds 0.35%

The dollar index, which tracks the currency against six major peers, rose 0.35% on Wednesday to 97.575, attempting to claw back losses after two straight sessions of declines. It had touched 97.198 in overnight trading, its lowest level since Thursday.

James Knifton, senior corporate FX dealer at Convera, said: “Powell acknowledged there are no risk-free policy options, warning that premature easing could entrench inflation, while excessive tightening could unnecessarily harm job prospects.”

Against the Japanese yen, the dollar rose 0.29% to 148.065 yen.

Candidates for the leadership of Japan’s ruling Liberal Democratic Party answered questions from reporters on Wednesday. Frontrunner Sanae Takaichi, known for her accommodative monetary stance, said policy is the responsibility of the Bank of Japan but cautioned that rate hikes could weigh on mortgages and corporate investment.

Asian Markets: Australian and New Zealand Dollars

The Australian dollar rose 0.23% to $0.66140, reversing earlier minor losses, after consumer price inflation accelerated to 3% in August from 2.8% in July, beating the 2.9% consensus forecast, less than a week before the Reserve Bank of Australia’s next policy meeting.

However, the picture was complicated as a key measure of core inflation slipped to 2.6%. Traders slightly trimmed bets on a rate cut by year-end to around 33%, according to LSEG data, while markets still expect no change at the September 30 meeting.

Data suggest persistently high prices may constrain the RBA’s ability to cut rates to support a weak labor market, though the inflation jump largely reflects the expiry of energy subsidies and may not be as negative as it appears, said Kyle Rodda, analyst at Capital.com.

The New Zealand dollar was steady at $0.5851 after the appointment of a new central bank governor. Finance Minister Nicola Willis announced on Wednesday that Swedish central banker Anna Breman will take over as governor of the Reserve Bank of New Zealand on December 1, becoming the first woman to hold the post.

Gold prices declined in the European market on Wednesday for the first time in the last four sessions, retreating from record highs, as correction and profit-taking activity intensified, in addition to pressure from the strong rise of the US dollar in the foreign exchange market.

This comes after cautious remarks from Federal Reserve Chair Jerome Powell regarding further monetary easing in the United States, which increased doubts about two additional rate cuts during the remainder of this year.

Price Overview

• Gold prices today: Gold fell by about 0.4% to $3,750.82, from the opening level at $3,764.29, with a session high at $3,772.33.

• At Tuesday’s settlement, gold gained 0.5%, marking a third consecutive daily rise and a new record high at $3,791.13 per ounce.

US Dollar

The dollar index rose on Wednesday by 0.4%, on track for its first gain in the last three sessions, reflecting a strong rebound in the US currency against a basket of major and minor counterparts.

This recovery comes amid growing doubts over two additional rate cuts before year-end, especially after Powell adopted a cautious tone on further monetary easing.

US Interest Rates

• Powell said on Tuesday that the central bank will continue to balance concerns surrounding labor market weakness and growing inflation risks.

• According to CME Group’s FedWatch tool: the probability of a 25-basis-point rate cut at the October meeting is currently priced at 92%, while the probability of no change stands at 8%.

• To reprice these probabilities, investors are closely monitoring upcoming US economic data and comments from Federal Reserve officials.

Gold Outlook

• Ole Hansen, Head of Commodity Strategy at Saxo Bank, said: “The recent gold rally is fueled by falling US funding costs, alongside a mix of investor concerns, including overvalued equities, Fed independence, and rising geopolitical risks.”

• Ricardo Evangelista, Senior Analyst at ActivTrades, said: “With geopolitical turmoil and economic uncertainty driving safe-haven demand, and expectations of a looser monetary stance by the Fed growing, gold is expected to hold above $3,750 in the short term, with potential for a new resistance level at $3,900.”

SPDR Fund

Gold holdings with the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, remained unchanged on Tuesday at 1,000.57 metric tons, the highest since August 3, 2022.

The euro declined in European trading on Wednesday against a basket of global currencies, heading for its first loss in three sessions versus the US dollar, as the greenback rebounded following cautious comments from Federal Reserve Chair Jerome Powell.

After the European Central Bank’s most recent meeting, which included more hawkish remarks than markets had anticipated, the likelihood of a eurozone rate cut before the end of the year has diminished. To confirm those expectations, investors are awaiting further evidence on the course of monetary easing in the euro area.

Price Overview

• EUR/USD today: The euro fell about 0.2% to $1.1795, down from an opening of $1.1815, after reaching a high of $1.1819.

• On Tuesday, the euro gained 0.1% against the dollar, its second consecutive daily advance, supported by weaker industrial and business activity in the United States during September.

US Dollar

The dollar index rose about 0.2% on Wednesday, on track for its first gain in three sessions, reflecting a rebound in US currency levels against both major and minor peers.

This recovery comes amid mounting doubts about the two additional rate cuts expected before year-end, particularly after Powell adopted a cautious tone on further monetary easing.

Powell stated that the Fed must continue balancing the competing risks of elevated inflation and a weakening labor market when setting policy, reiterating last week’s remarks. He described the policy dilemma as being in a “difficult” position.

James Neifton, senior corporate FX dealer at Convera, commented: “Powell’s remarks reinforced the Fed’s cautious approach.” He added: “Powell acknowledged the absence of risk-free policy options, warning that premature easing could entrench inflation, while excessive tightening could needlessly harm employment prospects.”

European Interest Rates

• Sources indicate that ECB policymakers see no need for further rate cuts to reach the 2% inflation target, despite updated forecasts pointing to lower rates over the next two years.

• Sources also noted that unless the eurozone suffers another major economic shock, borrowing costs are expected to remain at current levels for some time.

• Money market pricing for a 25-basis-point ECB cut in October is currently steady at around 10%.

• Traders have scaled back bets on ECB easing, pointing instead to the end of this year’s rate-cut cycle.

• To reassess these probabilities, investors will closely monitor incoming European economic data and remarks from ECB officials in the coming period.

The Australian dollar strengthened broadly in Asian trading on Wednesday against a basket of global currencies, hitting its highest level in about a week versus the US dollar, following the release of hot inflation data from Australia.

The data showed renewed inflationary pressures on policymakers at the Reserve Bank of Australia, which lowered the likelihood of an interest rate cut at next week’s meeting.

Price Overview

• AUD/USD today: The Australian dollar rose 0.4% to 0.6623, the highest in about a week, up from the session’s opening at 0.6597, after touching a low of 0.6589.

• The Australian dollar ended Tuesday flat against the US dollar, after gaining 0.1% the previous day in a recovery move from a two-week low at 0.6575.

Australian Inflation

The Australian Bureau of Statistics reported Wednesday that the overall Consumer Price Index rose by 3.0% year-on-year in August, the fastest pace since July 2024, above market forecasts of 2.9%, compared to 2.8% in July.

The figures confirm that inflation has accelerated back out of the RBA’s 2%–3% medium-term target band, reducing the likelihood of an additional rate cut this year.

Views and Analysis

• Tony Sycamore, IG Markets: “Today’s inflation update suggests the RBA will maintain a cautious approach to its easing cycle. September is off the table, but November remains in play.”

• Russel Chesler, VanEck: “The recent uptick in inflation, combined with continued labor market strength, reinforces our view that another rate cut is unlikely before November.”

Australian Interest Rates

• Following the inflation data, market pricing for a 25 basis-point rate cut by the RBA in September dropped from 25% to just 5%.

• RBA Governor Michele Bullock said Monday that the Australian economy is in good shape, with inflation expected to return to the middle of the 2%–3% target range and the labor market close to full employment.