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The U.S. dollar edged lower on Wednesday, with traders squarely focused on the conclusion of the Federal Reserve’s final policy meeting of the year, which is expected to shape global risk sentiment going into 2026.
At 04:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against a basket of six major peers, was down 0.2% at 99.002, extending its year-to-date decline to more than 8.5%.
Fed cut priced in, Powell in focus
The Fed is widely expected to cut interest rates by 25 basis points later in the session, with Fed funds futures assigning just under a 90% probability to such a move, according to CME’s FedWatch tool.
With the cut largely priced in, attention has shifted to Fed Chair Jerome Powell’s press conference and any signals about the rate path in 2026. Investors have recently scaled back expectations for aggressive easing next year amid lingering inflation concerns and a perception that the U.S. economy remains relatively resilient.
Data on Tuesday showed U.S. job openings rose slightly in October, following a sharp jump in September, suggesting labour demand is cooling but still holding up.
Euro supported by French outlook; sterling steady
In Europe, EUR/USD rose 0.1% to 1.1640, helped by a more upbeat outlook for the French economy after a spell of political tension.
Bank of France Governor Francois Villeroy de Galhau said the central bank would slightly raise its growth forecasts for France, noting that the economy has held up despite political uncertainty. His comments came after French lawmakers narrowly approved the 2026 social security budget on Tuesday.
GBP/USD added 0.1% to 1.3312, retaining a firmer tone ahead of Friday’s U.K. growth data and next week’s Bank of England meeting, where policymakers are expected to stay cautious on inflation and growth.
Further north, USD/CAD traded 0.1% higher at 1.3853 ahead of the Bank of Canada’s rate decision later in the day, with markets expecting the central bank to keep its key rate unchanged at 2.25%.
China’s deflationary backdrop weighs, yen stabilises
In Asia, USD/CNY was little changed at 7.0639, even after fresh Chinese data highlighted persistent disinflationary pressures.
China’s consumer price index rose 0.7% year-on-year in November, in line with expectations and the highest annual print since mid-2024, but prices fell 0.1% month-on-month, signalling weak underlying demand and base-effect support for the annual figure.
More concerning was the producer price index, which dropped 2.2% year-on-year in November after a 2.1% decline in October, marking nearly four years of continuous industrial price contraction and underscoring ongoing deflationary strains in the manufacturing sector.
The yen stabilised after a volatile overnight session. USD/JPY slipped 0.1% to 156.61, with the pair having briefly threatened a break above the 157 level and the yen touching a record low against the euro. The move followed a powerful 7.5-magnitude earthquake in northeast Japan, which initially triggered safe-haven flows into the currency before conditions steadied.
Aussie firms as RBA pushes back on more easing
The Australian dollar extended gains after the Reserve Bank of Australia kept its cash rate at 3.60% for a third consecutive meeting and signalled that the easing cycle is on hold.
AUD/USD rose 0.2% to 0.6652, building on the previous session’s advance after the RBA warned that inflation risks have “tilted to the upside.” Governor Michele Bullock later reinforced that message in a press conference, saying further rate cuts were not needed, supporting the Aussie against the softer U.S. dollar.
