Dollar steadies off four-year euro low as Fed day dawns; yen firms on Japan politics

The dollar caught its breath on Wednesday, nudging higher against the euro after sliding to a four-year low the day before, with traders eyeing a near-certain Fed rate cut and waiting to parse Chair Jerome Powell’s guidance.

Most majors hugged tight ranges—classic pre-FOMC paralysis.

“Currencies are treading water… as FX traders sit on their hands and wait for clarity from the Fed,” said Matthew Weller at StoneX.

Snapshot

• EUR/USD: down 0.2% around $1.1849 after touching $1.1879 Tuesday, its strongest since Sept 2021.
• DXY: up 0.1% near 96.76.
• Sterling: flat around $1.3652, hovering just shy of 2½-month highs after in-line UK inflation.
• USD/JPY: down to ~146.21, the firmest yen in eight weeks, with the LDP leadership vote on Oct. 4 in focus and the BoJ expected to hold steady Friday.
• Bitcoin: off 0.7% near $116,055.

Markets have a 25 bp cut locked in for Wednesday, with softening US labor data driving the pivot. Traders price ~68 bps of easing by year-end and ~147 bps by end-2026. With so much dovishness baked in, a merely cautious Powell could spark a buck bounce:

“With 80% odds of another 25 bps in October already priced, anything less than a full-throated endorsement of more cuts could lift the greenback,” Weller said.

Still, the medium-term vibe is dollar-softer.

“A hawkish tone could pop the dollar, but doubts would linger about whether the Fed needs to accelerate cuts,” said HSBC’s Paul Mackel, pointing to cooling employment indicators.

Housing data didn’t help the growth story, with August single-family starts and permits slipping amid a glut of unsold homes.

The two-day meeting started Tuesday with Stephen Miran—on leave from the Trump administration—at the table as a new Fed governor, while a court ruling blocking the firing of Governor Lisa Cook ensures she participates fully.

The yen’s firmness comes as the ruling LDP picks a successor to outgoing PM Shigeru Ishiba on Oct. 4. ING’s Chris Turner notes some see Shinjiro Koizumi as the more moderate option versus Sanae Takaichi, perceived as yen-bearish given her looser policy stance.

Positioning is tight, the cut is (almost) a given, and the next leg hinges on Powell’s tone. If he sticks to cautious, the dollar may get a reprieve; if the dots lean decisively dovish, Tuesday’s euro highs may not be the last.

The original story by Saqib Iqbal Ahmed for Reuters.