Dollar steady as inflation data and central banks take focus

SINGAPORE – The dollar stabilised in early Asian trading hours on Thursday after an unexpected drop in US factory-gate prices bolstered expectations the Federal Reserve will cut rates next week, and traders awaited US consumer price data due later in the day.

The dollar index nudged upwards to 97.822, rising for a third consecutive day after the Producer Price Index for final demand fell 0.1% during August, the Labor Department’s Bureau of Labor Statistics said on Wednesday. The decline followed a 0.7% jump in July, which was also revised downwards.

“The market has positioned for the Fed to ease in September and potentially ease three times this year,” said Rodrigo Catril, currency strategist at National Australia Bank in Sydney. “The benign outcome from the PPI tells you pricing expectations look about right.”

Markets are trading on expectations that the prospect of the Fed easing is a certainty and the only remaining question is by how much. Traders are pricing in an 8% chance of a jumbo 50 basis points (bps) rate cut at the central bank’s September meeting, while a cut of at least 25 bps is viewed as a done deal, according to the CME Group’s FedWatch tool.

Appointments to the Fed’s rate-setting panel remained in focus, as President Donald Trump’s administration on Wednesday moved to appeal a federal judge’s ruling temporarily blocking Trump from taking the unprecedented step of firing Federal Reserve Governor Lisa Cook. The White House is seeking to remove her before the US central bank’s interest-rate-setting meeting next week.

Stephen Miran also moved closer to becoming a Federal Reserve governor, furthering Trump’s effort to exert more direct control over interest rate policy. The Senate Banking Committee voted to advance Miran’s nomination, though lawmakers involved said it is far from certain if the process can be completed in time for him to participate in the Fed’s September 16-17 policy meeting.

Against the yen, the dollar was trading flat at 147.41 yen, after data showing Japanese wholesale prices rose 2.7% in the year to August, accelerating from the previous month in a sign of sticky inflationary pressure in the world’s fourth-largest economy.

The euro edged upwards to USD 1.1698 EUR=EBS ahead of the European Central Bank’s policy meeting later on Thursday, where it is widely expected to keep rates on hold. Analysts said policymakers may strike a more dovish tone to counter a fraught trade and political outlook across the continent.

The single currency is recovering from a two-day streak of declines as geopolitical tensions continue on the bloc’s Eastern flank. Poland said it shot down suspected Russian drones in its airspace on Wednesday with the backing of aircraft from its NATO allies, the first time a member of the Western military alliance is known to have fired shots during Russia’s war in Ukraine.

The Australian dollar fetched USD 0.66165, up 0.04% in early trade after hitting the highest levels since November on Wednesday, buoyed by advances for commodities including iron ore, crude oil, and gold, which is near record highs.

The offshore yuan traded at 7.1184 yuan per dollar, strengthening 0.03% in early Asian trade. The kiwi slipped 0.03% to USD 0.59375.

Sterling traded at USD 1.3527, unchanged so far on the day.

(Reporting by Gregor Stuart Hunter; Editing by Jamie Freed)