The dollar index slipped to about 98.6 on Wednesday, marking a third consecutive decline and its lowest level in four months, driven largely by a sharp appreciation of the yen. The Japanese currency extended its rally after US Treasury Secretary Scott Bessent cautioned traders against shorting the yen, noting that he has “pretty good insight” into the Bank of Japan’s likely actions when he decides to intervene in the currency market.
At the same time, investors turned their attention to key US inflation data due this week, which could shape expectations for the Federal Reserve’s policy stance ahead of its meeting next week. Futures markets currently imply roughly a 60% probability of a 25-basis-point rate hike by the Fed, following stronger-than-forecast employment figures released on Friday.
The European Central Bank and the Bank of Japan are also expected to tighten policy later this month. In parallel, oil prices continued to climb amid intensifying conflict in the Middle East, amplifying inflation concerns and reinforcing expectations of further interest rate increases.
