The US dollar extended its losses on Wednesday morning, with the dollar index retreating further from the recent 18-month high above 102.6, following a decline in the previous session. The pullback comes as investors reassess expectations for Federal Reserve monetary policy ahead of the release of key US inflation figures. A retreat in Treasury yields has also reduced support for the American currency. Recent comments from Federal Reserve officials have reinforced expectations that the central bank will leave interest rates unchanged at its October meeting. New York Fed President John Williams suggested that one further rate increase may be necessary before the end of the year, but indicated that additional tightening in 2027 might not be required. Meanwhile, Fed Governor Christopher Waller's comments that inflation expectations remain well anchored have also contributed to a reassessment of the outlook for interest rates. This has reduced some of the support that expectations of a more aggressive tightening cycle had previously provided to the dollar. Against this backdrop, all eyes are on today's US consumer inflation figures, followed by producer prices on Thursday. Higher-than-expected readings, particularly in core inflation, could revive expectations of a rate hike as early as October, pushing Treasury yields higher and providing renewed support to the dollar. Conversely, softer figures could reinforce expectations of a pause and extend the currency's recent decline.
Ricardo Evangelista, ActivTrades
Source: ActivTrader
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