US Dollar Set for Best Month Since June as Traders Await PCE Inflation Data

The U.S. dollar retreated slightly from a nearly two-month peak on Wednesday, though it remains on pace for its strongest monthly gain since June. The dip came after a senior Federal Reserve official's moderate comments led traders to scale back bets on aggressive interest rate hikes ahead of a crucial U.S. inflation report.

Fed Remarks Temper Rate Hike Bets

The U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, fell 0.2% to 101.22. The move followed remarks from New York Fed President John Williams, who stated that further increases in borrowing costs were "not urgent."

Following his comments, money markets adjusted the probability of a Fed rate hike in October to approximately 50%, down from over 70% earlier in the week, according to Investing.com. This shift has tempered the dollar's upward momentum as market participants await the August Personal Consumption Expenditures (PCE) price index, the Fed's preferred measure of inflation.

Ad

Despite the daily pullback, the dollar's strong monthly performance has been underpinned by rising U.S. Treasury yields and ongoing geopolitical tensions in energy markets, which have bolstered its safe-haven appeal. For September, the dollar is poised to gain about 2% against the Japanese yen.

Moves in Other Major Currencies

• Japanese Yen (JPY): The yen was the top performer among G10 currencies, strengthening 0.3% to 156.77 per dollar. The rally was fueled by heightened warnings of potential government intervention, with Japan's top currency diplomat reiterating that officials would not tolerate disorderly currency depreciation. This stance overshadowed weak domestic data, including lower-than-expected retail sales and a surprise contraction in industrial output.
• Australian Dollar (AUD): The Aussie dollar fell 0.3% to $0.6900, touching a nine-week low. The currency came under pressure after monthly inflation data came in below market expectations, cooling speculation of further near-term rate hikes by the Reserve Bank of Australia (RBA). The soft inflation print came just one day after the RBA raised its benchmark rate to a 15-year high of 4.60%.
• Euro (EUR): The euro edged up 0.1% to $1.1354, trading within a narrow range as institutional investors avoided placing significant directional bets ahead of the U.S. PCE data release.