The U.S. dollar held steady at a 2.5-month high on Wednesday as investors recalibrated their expectations for a gradual interest rate decrease, while also keeping an eye on the competitive presidential election.
The yen remained under pressure as the dollar and U.S. Treasury yields rose, pushing it to a three-month low.
The greenback has appreciated for three consecutive weeks as expectations for aggressive rate cuts from the Federal Reserve have diminished in light of positive economic data.
Current market pricing indicates a 91% likelihood of a modest quarter-point cut in November, according to the CME FedWatch tool, a shift from a month earlier when investors were divided on a potential 50 basis point cut.
This less dovish stance from the Fed has supported rising Treasury yields, with the benchmark 10-year note reaching its highest level since July 26 at 4.222% on Tuesday.
With an otherwise quiet economic calendar on Wednesday, the highlight will be the release of the Fed’s Beige Book summary of economic conditions. The previous Beige Book indicated slowing economic growth with some areas of strength, a trend likely to continue in October’s report, according to Matt Simpson, a senior market analyst at City Index. However, he suggested an upside surprise could be more probable given the recent data has outperformed expectations.
“Still, the USD index and U.S. yields saw only slight gains on Tuesday, signaling that bulls should be cautious, especially if the two-year yield dips below 4%,” he added.
The dollar index, which measures the U.S. currency against six others, rose by 0.11% to 104.18 after reaching 104.19, its highest level since August 2. The index has gained over 3% so far this month.
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