Dollar Steady Ahead of Fed Rate Cut Decision as Inflation Data Looms

The U.S. dollar held firm on Wednesday, maintaining overnight gains as traders awaited key inflation data that could influence the Federal Reserve’s rate cut decision at its September 16–17 policy meeting. Markets remain confident in at least a 25 basis point (bps) cut, with only a slim 5% chance priced in for a larger 50 bps move.

Investors are closely watching U.S. producer price inflation figures due Wednesday and consumer price data on Thursday. Analysts suggest only a significant downside surprise in core inflation would push the Fed toward a bigger cut. With services inflation proving sticky and the Fed’s preference for gradual easing, a jumbo cut appears unlikely.

The dollar index was steady at 97.834, after rising 0.3% on Tuesday, though it remains down about 10% in 2025 as rate cut expectations and trade policy uncertainty weigh on sentiment. The euro slipped to $1.1698, sterling traded at $1.3522, and the yen hovered at 147.42 per dollar. Meanwhile, the Australian dollar held near a seven-week high at $0.6587.

Recent data revealed U.S. job growth was weaker than initially reported, with 911,000 fewer jobs created in the 12 months through March, reinforcing Fed easing bets despite concerns over economic momentum. Analysts caution, however, that an outsized cut could hurt sentiment and appear politically influenced.

Global politics also added volatility. In Asia, Indonesia’s rupiah slid 1% after Finance Minister Sri Mulyani Indrawati’s removal shocked markets, raising concerns over fiscal discipline under President Prabowo. In Japan and France, leadership shifts are being watched closely amid economic and fiscal challenges.

With traders pricing in multiple rate cuts through year-end, the upcoming inflation data will be pivotal in shaping the Fed’s path and the dollar’s direction.