The dollar fell on Wednesday, as pressures eased in European bond markets, while investors awaited the minutes of the Federal Reserve meeting and the statements of a number of its officials, searching for indications of the path of interest rates in the coming months.
The dollar index, which measures the performance of the US currency against a basket of major currencies, fell 0.03 percent to 101.94, after falling 0.27 percent in the previous session. The euro fell 0.08 percent to $1.1249, while the Japanese yen fell 0.19 percent to 158.43 against the dollar, and the British pound fell 0.08 percent to $1.3262.
Later on Wednesday, the Federal Reserve will release the minutes of its meeting held on September 15 and 16, when it raised interest rates to confront inflation, amid a decline in the tone of central bank officials after the release of weaker-than-expected inflation and jobs data in the United States last week.
Gavin Friend, chief market strategist at National Australia Bank, said there was “less urgency” for the Federal Reserve to raise interest rates after weaker-than-expected personal consumption expenditures and jobs data.
Market bets on raising US interest rates in October declined sharply, as CME's Fed Watch tool indicates a 20.5 percent probability of raising interest rates by at least 25 basis points this month, compared to about 51 percent a week ago.
But markets still expect rate hikes to resume later in the year, pricing in an 84.5 per cent chance of a hike at the December meeting.
On the other hand, the head of the Federal Reserve in Kansas City, Jeff Schmid, said on Tuesday that the central bank still needs to raise the base interest rate further to reduce inflation, even with the impact of the rise in long-term bond yields on economic activity in some sectors.
Samara Hammoud, currency strategist at Commonwealth Bank of Australia, said that the markets react strongly to every release of US data and every statement by Federal Reserve officials, in light of the limited future guidance, adding that the bank is likely to wait until December before raising interest rates again.
Federal Reserve officials Christopher Waller, Neel Kashkari and Alberto Musalem are scheduled to speak later Wednesday, which may provide additional indications on monetary policy directions.
In Japan, member of the Board of Directors of the New Bank of Japan, Ayano Sato, said in an interview with Kyodo Agency on Wednesday that she supports raising interest rates in stages.
Sources familiar with the bank's thinking said that the Bank of Japan may indicate this month that core inflation is close to reaching its 2 percent target, an indication of its readiness to raise interest rates again.
Global bond yields have been rising in recent weeks due to expectations of interest rate hikes by central banks, in addition to concerns about public financial conditions.
In Europe, pressure on French bonds decreased after the far-right candidate for the French presidency, Marine Le Pen, pledged to reduce spending by up to 140 billion euros ($158 billion) if she came to power in 2027, compared to a previous plan that aimed to save 125 billion euros.
The call for early elections in Spain also added to the recent pressure on the euro.
The Australian dollar fell 0.04 percent to $0.6979, and the New Zealand dollar fell 0.07 percent to $0.5617.
In the cryptocurrency market, Bitcoin fell 0.22 percent to $85,438.59, and Ether fell 0.12 percent to $2,695.22.
Asian stocks fell on Wednesday, despite US stocks recording new record levels, at a time when oil prices rose, and a storm approached the oil producing areas in the Gulf of Mexico, while investors awaited the minutes of the last meeting of the Federal Reserve Board in search of indications about the path of interest rates.
The broader MSCI index of Asia-Pacific stocks excluding Japan fell 0.3 percent, after US stocks closed higher. The index has risen 1.5 percent since the beginning of October.
On Wall Street, the Standard & Poor's 500 index recorded a new record level on Tuesday, after rising about 0.6 percent. The Nasdaq index, which is dominated by technology stocks, rose 0.45 percent to a record level, while the Dow Jones rose 0.5 percent.
In Asian trading, West Texas Intermediate crude rose 1.05 percent to $90.38 per barrel, while Brent crude rose 1.06 percent to $101.65.
The rise in oil came as commodity investors balanced fears of supply restrictions due to a storm heading to oil production areas in North America, the escalation of Houthi attacks on Saudi Arabia, and increased crude flows from the Middle East.
Vitol's CEO, Russell Hardy, said on Tuesday that about 12 million barrels per day of crude and two million barrels per day of refined products had left the Middle East on board tankers during the past seven to ten days.
In bond markets, the stability of global yields during the previous session helped support investors' appetite for US stocks.
French bond yields, which were subject to heavy selling, fell on Tuesday after far-right French presidential candidate Marine Le Pen pledged to cut spending and reduce the budget deficit. The 10-year French bond yield fell by more than 11 basis points, while the difference between it and German bonds narrowed to 132 basis points, after approaching 160 basis points last week, according to LSEG data.
Laura Cooper, head of macro credit and global investment strategy at Niven, said that the scale of the move is remarkable given that the 2027 elections are still months away, and that the deterioration of the French financial situation is not something new, adding that what has changed is the sharp rise in yields, which has made investors less willing to ignore financial vulnerabilities.
The decline in French bond yields helped the euro recover slightly and stabilize above the $1.1250 level.
Economists at ANZ wrote in a note that “a feeling of calm has returned to European bond markets,” with French, Italian and Greek bonds outperforming amid a broad rally.
In Asia, the yield of 10-year US Treasury bonds rose to 5.3 percent during morning trading, with long-term yields trending upward before an auction for 10-year bonds on Wednesday, and another for 30 years on Thursday. The auctions are expected to reveal the strength of demand for American debt.
Long-term US bond yields reached their highest level in 24 years on Monday, amid a continuing wave of selling since late August, against the backdrop of concerns related to inflation and debt.
As for Asian stocks, Australian stocks stabilized, while the Japanese Nikkei index fell 0.86 percent, and the Hang Seng Index in Hong Kong fell 0.63 percent in early trading, affected by a 4 percent decline in the index of biotechnology companies. Financial markets on the Chinese mainland remained closed for a holiday.
The dollar index, which measures the performance of the US currency against a basket of major currencies, rose 0.03 percent to 101.94, after falling 0.27 percent in the previous session. The Japanese yen fell 0.19 percent to 158.43 against the dollar, while the British pound fell 0.08 percent to $1.3262.
Commonwealth Bank of Australia analysts said that the stability of oil prices in US trading, the slight recovery of the euro, and movements in US Treasury bond yields put pressure on the dollar.
On Wednesday, the Federal Reserve will release the minutes of its meeting held on September 15 and 16, with investors scrutinizing the details of the discussion regarding interest movements during the coming months.
Traders' expectations for a US interest rate hike this month fell to 19 percent, compared to about 50 percent a week ago.
Oil prices rose on Wednesday, as markets balanced fears of supply disruption due to a storm heading towards oil and gas production areas in the Gulf of Mexico, attacks in Saudi Arabia, and increased crude flows from the Middle East.
Brent crude futures rose 93 cents, or 0.92 percent, to $101.51 per barrel by 00:22 GMT, while West Texas Intermediate crude rose 82 cents, or 0.92 percent, to $90.25.
The US Weather Service said on Tuesday that a storm forming in the Gulf of Mexico will turn into the first Atlantic hurricane in 2026 within two days, and is likely to affect oil and gas production facilities in the region. Marine areas in the storm's path produce about 15 percent of US crude oil production and 5 percent of natural gas production.
Tim Waterer, chief analyst at KCM Trade, said that the storm represents “unwanted complexity” for the crude market, in light of the potential disruption of production and refining operations, at a time when the market is already facing several pressures on the supply side.
The storm may also affect six refineries, while refineries located in the Gulf Coast states represent about half of the US refining capacity of 18.2 million barrels per day.
In the United States, preliminary data from the American Petroleum Institute, according to market sources, showed a decline in crude and gasoline stocks last week, while distillate stocks rose slightly. Crude inventories fell by 2.09 million barrels in the week ending October 2.
On the other hand, supplies from the Middle East are increasing, as Saudi Energy Minister Prince Abdulaziz bin Salman said on Tuesday that flows of the “East-West” pipeline had risen to 5.8 million barrels per day.
The head of Vitol said that about 12 million barrels per day of crude and two million barrels per day of refined products were leaving the Middle East on board tankers during the past seven to ten days.
But geopolitical risks returned to the forefront with the targeting of Jizan and Najran airports in Saudi Arabia in two attacks on Monday evening, according to the Saudi Civil Aviation Authority.
Mukesh Sahdev, senior oil analyst at XAnalysts in Sydney, said the attacks and refinery disruptions “are likely to keep refining margins high,” adding that the scarcity of products will spill over into the crude market. He expected prices to remain near the level of $100 per barrel “without any tangible calm appearing.”
Relations between the United States and Iran remain tense, with US President Donald Trump saying on Tuesday that no one knows who is running Iran after the eight-month war between the United States and Israel on the one hand and Iran on the other.
The Iranian Foreign Ministry spokesman said on Sunday that Washington knows well its counterpart in Iran and how its decision-making system works.
