The US dollar held steady on Wednesday ahead of this week’s US inflation data, which may help shape expectations for Federal Reserve policy, while geopolitical tensions boosted safe-haven currencies such as the Swiss franc.

Employment data released last week showed the US economy created far fewer jobs over the past year than expected, making a Fed rate cut next week appear almost certain.

However, this weakness has not been reflected in stock market confidence, as indexes continue trading at record highs, and it has not had a direct impact on the dollar, even as investors assess the possibility of a half-point cut next week.

Investor concerns have intensified with recent geopolitical developments, as Israel launched an airstrike on Qatar targeting Hamas leaders on Tuesday, while Poland shot down drones that entered its airspace during a Russian attack on western Ukraine on Wednesday.

Jane Foley, Head of FX Strategy at RaboBank, said: “The market has made up its mind, rightly so, that the Fed will cut rates. But much of this easing has already been priced in through the end of next year.” She added: “On the other hand, geopolitical uncertainty, such as the news from Poland and Qatar, is not reassuring.”

The euro was steady against the dollar but jumped 0.5% against the Polish zloty to 4.268, its largest daily gain in three months.

As for Fed expectations, traders are currently fully pricing in a quarter-point cut next week, with only a small chance of a half-point cut. Analysts noted that wholesale inflation data due Wednesday and consumer inflation data on Thursday could influence the likelihood of a larger move.

Kieran Williams, Head of Asia FX Trading at InTouch Capital Markets, said: “The bar for a 50-basis-point cut is high. It would require a clear downside shock in core inflation for the doves to have cover.” He added: “Given the stickiness of services prices and the Fed’s preference for gradualism, a large cut next week looks unlikely, but the data will determine how aggressively the market prices the easing path through year-end.”

In another development, uncertainty increased with the resignations of the prime ministers of France and Japan this week, raising questions about the economic and political outlook in two of the world’s seven largest economies.

The euro was little changed at $1.1702 after falling 0.5% in the previous session, while the yen was steady at 147.49 per dollar, and the Swiss franc remained near a seven-week high, with the dollar trading at 0.798 francs.

The dollar index, which measures the US currency against six major counterparts, was flat. However, it has fallen 10% since the start of the year, pressured by turmoil in US trade and fiscal policy and growing concerns over central bank independence.

Markets showed little reaction to a court ruling that temporarily blocked President Donald Trump’s attempt to dismiss Fed Governor Lisa Cook, a case expected to end up at the US Supreme Court.

Data released Tuesday showed the US economy created 911,000 fewer jobs than previously estimated in the period through March, indicating that the slowdown in job growth had already begun before Trump’s imposition of strict tariffs on imports. However, this data did not provide a clear picture of job creation after March, leaving Fed rate cut expectations unchanged for now.

Matt Simpson, Senior Market Analyst at City Index in Brisbane, said: “I think a 50-basis-point cut could do more harm than good at this stage.” He added: “Moreover, the Fed will want to preserve its image and not appear to be bowing completely to Trump’s wishes.”

He continued: “Markets are already pricing in three cuts over the next three meetings, and the Fed is well positioned to align with these expectations or even boost the odds of further cuts in 2026 — without resorting to a 50-basis-point move next week.”

Gold prices rose in the European market on Wednesday, resuming gains that had paused yesterday amid correction and profit-taking, moving once again near all-time highs as safe-haven buying continues. Gains, however, were capped by the rebound of the US dollar in the foreign exchange market.

A series of weak US labor market data has increased expectations that the Federal Reserve will deliver deeper interest rate cuts. To reprice those expectations, investors are awaiting the release of key US inflation data starting today.

Price Overview

• Gold prices today: Gold rose by 0.6% to ($3,648.49), from the opening level at ($3,626.39), recording the lowest at ($3,620.79).

• At Tuesday’s settlement, gold prices lost 0.3%, marking the first decline in three sessions due to correction and profit-taking, after earlier reaching an all-time high of $3,674.80 per ounce.

US Dollar

The dollar index rose on Wednesday by 0.2%, extending gains for the second consecutive session as the recovery from a seven-week low continues, reflecting the rebound of the US currency against a basket of global counterparts.

In addition to buying from lower levels, the US dollar’s rebound comes ahead of the release of key US inflation data, which will provide decisive evidence on the likelihood of US interest rate cuts in September and October.

Concerns over Federal Reserve stability have eased, especially after President Trump was blocked from dismissing Fed Governor Lisa Cook while the lawsuit remains ongoing in US courts.

US Interest Rates

• Data from the Bureau of Labor Statistics showed payroll numbers were revised down by 911,000 jobs over the twelve months through March. In the preceding twelve months through March 2024, employment was revised lower by 598,000 jobs.

• According to the CME FedWatch tool: the probability of a 25-basis-point rate cut in September is currently priced at 100%, with a 10% chance of a 50-basis-point cut.

• The probability of a 25-basis-point cut in October is also currently priced at 100%, with an 8% chance of a 50-basis-point cut.

• To reaffirm these odds, investors are awaiting key US inflation data throughout this week ahead of next week’s Federal Reserve meeting.

• Later today, producer price data for August will be released, serving as a leading indicator for September’s consumer prices. Consumer price data for August will be released tomorrow, Thursday.

Gold Performance Outlook

• Kyle Rodda, market analyst at Capital.com, said: Sentiment is extremely optimistic. Several key factors are currently supporting gold prices, most importantly expectations of a US interest rate cut.

• Rodda added: The short-term outlook depends heavily on inflation data. If it comes in higher than expected, the odds of a rate cut could slip slightly from the curve, which may trigger a pullback in the gold market that is currently in technically overbought territory.

SPDR Fund

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, remained unchanged yesterday, keeping the total at 979.68 metric tons, the lowest since August 29.

The euro fell in the European market on Wednesday against a basket of global currencies, extending losses for the second consecutive day against the US dollar, moving away from a seven-week high, as correction and profit-taking activity continued, in addition to the rebound of the US currency amid easing concerns over Federal Reserve stability.

Later today, the European Central Bank begins its important monetary policy meeting, where interest rates are expected to remain unchanged for the second consecutive meeting.

Global financial markets are awaiting signals from the ECB on the possibility of resuming the monetary easing cycle during the remainder of this year.

Price Overview

• Exchange rate of the euro today: The euro fell against the US dollar by about 0.2% to ($1.1689), from today’s opening price at ($1.1708), recording the highest level at ($1.1710).

• The euro ended Tuesday’s trading down by about 0.5% against the US dollar, its first loss in the last three days, after earlier recording a seven-week high at $1.1780.

US Dollar

The dollar index rose on Wednesday by 0.2%, extending gains for the second consecutive session, as the recovery from a seven-week low continues, reflecting the rebound of the US currency against a basket of global counterparts.

In addition to buying from lower levels, the US dollar’s rebound comes ahead of the release of key US inflation data, which will provide decisive evidence on the likelihood of US interest rate cuts in September and October.

Later today, producer price data for August will be released, followed by consumer price data on Thursday. Additional hot data would reduce the likelihood of US interest rate cuts.

Concerns over Federal Reserve stability have eased, especially after President Trump was blocked from dismissing Fed Governor Lisa Cook while the lawsuit remains ongoing.

European Central Bank

• The European Central Bank meets later today, Wednesday, and tomorrow, Thursday, to study the appropriate monetary policy for recent economic developments in the euro area.

• The bank is widely expected to keep European interest rates unchanged at the 2.15% range, the lowest level since October 2022, for the second meeting in a row.

• Markets are awaiting further evidence on the timing of the ECB’s resumption of monetary easing and interest rate cuts before the end of this year.

The Japanese yen fell in the Asian market on Wednesday against a basket of major and minor currencies, giving up its highest level in four weeks against the US dollar, as correction and profit-taking activity picked up, in addition to the continued recovery of the US currency ahead of key US inflation data.

Reports indicated that the Bank of Japan sees a chance to normalize monetary policy this year despite political developments in the country, which has boosted the likelihood of a Japanese interest rate hike before the end of the year.

Price Overview

• Exchange rate of the Japanese yen today: The US dollar rose against the yen by about 0.15% to (¥147.58), from today’s opening level at (¥147.41), recording the lowest at (¥147.24).

• The yen ended Tuesday’s trading up by less than 0.1% against the US dollar, its second gain in the last three days, recording the highest level in four weeks at 146.31 yen, supported by hopes of a Japanese interest rate hike.

US Dollar

The dollar index rose on Wednesday by 0.2%, extending gains for the second consecutive session, as the recovery from a seven-week low continues, reflecting the rebound of the US currency against a basket of global currencies.

In addition to buying from lower levels, the US dollar’s rebound comes ahead of the release of key US inflation data, which will provide decisive evidence on the likelihood of US interest rate cuts in September and October.

Later today, producer price data for August will be released, followed by consumer price data on Thursday. Additional hot data would reduce the likelihood of US interest rate cuts.

Japanese Interest Rates

• Reports suggest the Bank of Japan sees a chance to raise interest rates this year despite the country’s political developments.

• Following the above reports, market pricing of a 25-basis-point interest rate hike by the Bank of Japan at the September meeting rose from 30% to 35%.

• Traders currently expect Japanese interest rates to reach the 0.75% range before year-end, implying strong odds of an additional 25-basis-point increase during the remainder of this year.

• To reprice those odds, investors are awaiting more data on inflation, unemployment, and wages in Japan, as well as remarks from some Bank of Japan members.