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The U.S. dollar inched higher on Wednesday, stabilizing after its steepest daily decline in nearly three weeks, as traders continued to position for a potential interest rate cut by the Federal Reserve in December, while sterling held firm ahead of the U.K. Autumn Budget.
By 03:50 ET (08:50 GMT), the U.S. Dollar Index — which measures the greenback against a basket of six major peers — was up 0.1% at 99.727, after dropping 0.5% in the previous session.
The modest rebound followed a batch of softer U.S. data on Tuesday that reinforced expectations for further policy easing. Retail sales for September rose less than forecast, producer prices matched expectations, and consumer confidence weakened in November as households grew more concerned about employment and their financial outlook. These signs of cooling momentum came on top of dovish remarks from several Fed officials, keeping the prospect of a 25-basis-point cut in December very much alive.
Accordingly, Fed funds futures now assign around an 84% probability to a quarter-point cut next month, up sharply from roughly 40% a week earlier. Investors will scrutinize additional data due Wednesday, with particular attention on the Fed’s Beige Book, which ING analysts said effectively serves as an anecdotal replacement for the delayed third-quarter GDP report. Any signs of mounting job market worries, they added, would likely help “smooth the dollar’s convergence to lower short-term rates.”
In Europe, GBP/USD edged 0.1% higher to 1.3184 ahead of a fiscal update from U.K. finance minister Rachel Reeves later in the session. Reeves is widely expected to announce tax increases to keep public finances on a sustainable path, but she faces the challenge of doing so without further undermining already fragile growth. ING warned that postponing tough budget decisions until later in the decade would limit the Bank of England’s room to cut rates in the near term and could fuel investor doubts over the U.K.’s commitment to debt sustainability.
The euro also ticked higher, with EUR/USD up 0.1% at 1.1574, supported in part by tentative signs of progress on a Russia-Ukraine peace framework. Ukrainian President Volodymyr Zelenskiy said on Tuesday that Kyiv was ready to move forward with a U.S.-backed plan to end the war and to discuss remaining points of contention with U.S. President Donald Trump. According to ING, optimism over a potential truce is “smoothing the recovery” in the single currency, and a breakthrough in the coming days could help lift EUR/USD toward 1.1700.
