In the slow-turning machinery of monetary policy, a single week's worth of softer inflation and disappointing jobs data was enough to shift the weight of market expectation from October to December, and the dollar felt that shift in its bones. Traders who had priced a coin-flip chance of a Federal Reserve rate hike this month retreated to a more patient posture, recalibrating not their destination but their timeline. The euro found brief relief in French fiscal pledges, the yen resisted good news from its own central bank, and currencies the world over waited — as they so often do — for a few
Dollar Weakens as Markets Await Fed Minutes, Rate Signals
The urgency to raise rates evaporated with softer data
Mark
So the dollar weakened because the Fed is less likely to raise rates in October. But that seems backward—shouldn't a weaker Fed be bad for the dollar?
Mimi
It would be, normally. But what happened is the market had been pricing in an October hike at 51% odds. When that collapsed to 20.5%, it meant the Fed was signaling patience, not weakness. The dollar fell because the urgency evaporated.
Luke
But wait—the Fed still raised rates in September. And Schmid said they need to keep tightening. So is the Fed actually dovish, or is the market just reading tea leaves?
Mimi
The market is reading the data. PCE came in soft, jobs disappointed. That's real. Schmid is one voice; other officials sounded less hawkish.
Luke
Right, but the minutes haven't come out yet. We're trading on expectations of what officials might say, not on what they actually said. That's fragile.
Mark
So December is the real test?
Mimi
December is when the market thinks the next move happens. 84.5% odds. But that's also a market forecast, not a guarantee.
Luke
And the euro surged on Le Pen's spending-cut promise. How solid is that? Is the market confident she'll win?
Mimi
The market is pricing in the possibility. She's the frontrunner. But French politics is volatile. The snap election in Spain added stress too.
Mark
So the euro's strength is partly political theater?
Mimi
It's real money responding to real political signals. Whether those signals hold is another question.
Luke
The yen is interesting. BOJ signals rate hikes, but the yen weakens anyway. That suggests the market doesn't believe the BOJ will actually move, or doesn't care.
Mimi
Or it suggests the yen is weak for other reasons—capital flows, risk appetite. A rate hike signal alone doesn't move a currency if the market thinks it's still far off.
Il Polso
- October rate hike odds collapsed from 51% to 20.5% in a single week after inflation and jobs data came in weaker than expected, draining urgency from the Fed's near-term calculus.
- The dollar index slipped 0.27% in the prior session and barely recovered, exposing how quickly sentiment can pivot when the data narrative changes.
- The euro surged its most in seven weeks after Marine Le Pen raised her spending-cut target to €140 billion, briefly calming fears over France's widening budget deficit ahead of a polarizing election.
- The yen weakened despite a Bank of Japan board member signaling staged rate increases, a reminder that currency markets weigh credibility and timing as much as intent.
- Markets are now pricing an 84.5% probability of a December hike, with Fed speeches from Waller, Kashkari, and Musalem — alongside the September meeting minutes — set to either confirm or complicate that trajectory.
- A lone dissent from Kansas City Fed President Jeff Schmid, insisting further tightening is still needed, underscored that the Fed itself remains divided on how much patience the inflation fight can afford.
In the slow-turning machinery of monetary policy, a single week's worth of softer inflation and disappointing jobs data was enough to shift the weight of market expectation from October to December, and the dollar felt that shift in its bones. Traders who had priced a coin-flip chance of a Federal Reserve rate hike this month retreated to a more patient posture, recalibrating not their destination but their timeline. The euro found brief relief in French fiscal pledges, the yen resisted good news from its own central bank, and currencies the world over waited — as they so often do — for a few officials to speak and a few numbers to land.
The dollar slipped lower as traders stepped back from the edge of an October rate hike and began looking further down the road. A week earlier, markets had assigned a 51% probability to a Federal Reserve move this month. By Wednesday, that figure had fallen to just 20.5% — the result of softer-than-expected inflation data and a disappointing jobs report that together took the urgency out of an immediate decision. When the Fed's preferred inflation gauge, the personal consumption expenditures index, printed below forecast, several officials began sounding less insistent on the need to tighten quickly. The market heard that shift and recalibrated.
The destination, however, has not changed — only the schedule. Markets are now pricing an 84.5% chance of a rate hike in December, and that reordering rippled through currency markets. The dollar index edged up just 0.03% to 101.94 on Wednesday, a modest recovery that masked the prior session's 0.27% decline. The euro, meanwhile, had surged its most in seven weeks on Tuesday after French far-right presidential frontrunner Marine Le Pen raised her spending-cut pledge to €140 billion, easing some anxiety over France's strained public finances. The euro gave back a fraction of those gains on Wednesday, slipping 0.08% to $1.1249, but the week's momentum held.
The Japanese yen told a quieter, more stubborn story. Despite a Bank of Japan board member signaling support for staged interest rate increases — and the BOJ itself expected to soon acknowledge that underlying inflation has reached its 2% target — the yen weakened 0.19% to 158.43 per dollar. Currency markets, it seemed, were waiting for more than signals. Sterling, the Australian dollar, and the New Zealand dollar all dipped modestly.
What traders were truly watching for was the release of the Fed's September meeting minutes and scheduled remarks from policymakers Christopher Waller, Neel Kashkari, and Alberto Musalem. Strategists noted that without clear forward guidance from Fed Chair Kevin Warsh, markets had been lurching from one data release to the next. One voice cut against the patient consensus: Kansas City Fed President Jeff Schmid argued on Tuesday that rates still needed to rise further, even with long-term yields already weighing on parts of the economy — a reminder that the Fed's internal debate is far from settled. Consumer credit data, bitcoin's modest decline, and a broad sense of transition rounded out a day defined less by what happened than by what everyone was waiting to hear.
The dollar slipped lower on Wednesday as traders shifted their focus from immediate rate concerns to the longer game ahead. European bond markets, which had been under strain from political uncertainty and fiscal worries, began to find their footing. The real story, though, was what traders expected to hear—and what they no longer expected to happen soon.
For weeks, markets had been bracing for the Federal Reserve to raise rates again in October. A week earlier, the odds of a quarter-point hike this month sat at about 51%. By Wednesday, that had collapsed to just 20.5%. The reason was simple: the inflation data that arrived last week came in softer than expected, and job growth disappointed. When the central bank's own preferred inflation measure, the personal consumption expenditures index, printed lower than forecast, it took the urgency out of an immediate move. Some Fed officials began sounding less aggressive about the need to keep tightening. The market heard that and recalibrated.
But the Fed is not done raising rates. Markets are now pricing in an 84.5% chance of a hike in December. That shift—from "maybe this month" to "probably later"—rippled through currency markets. The dollar index, which tracks the greenback against a basket of major currencies, rose just 0.03% to 101.94, a modest gain that masked the weakness from the prior session, when it had fallen 0.27%. The euro, meanwhile, gained ground. It had surged the most in seven weeks on Tuesday after Marine Le Pen, the far-right frontrunner in France's 2027 presidential election, raised her spending-cut target to 140 billion euros from 125 billion. That pledge eased some of the anxiety about French government finances, which have been under pressure as politicians struggle to control the budget deficit ahead of a divisive election. The euro eased back slightly on Wednesday, down 0.08% to $1.1249, but the week's gains held.
The Japanese yen told a different story. Despite comments from a new Bank of Japan board member, Ayano Sato, signaling support for raising interest rates in stages, the yen weakened 0.19% to 158.43 per dollar. The BOJ itself may signal this month that underlying inflation has roughly reached its 2% target, a move that would underscore its readiness to tighten policy. Yet the currency market was unmoved. Sterling dipped 0.08% to $1.3262. The Australian dollar fell 0.04% to $0.6979, and the New Zealand dollar slid 0.07% to $0.5617.
What traders were really waiting for was the release of the Federal Reserve's minutes from its September 15-16 meeting, when it had raised rates to combat inflation. They also wanted to hear from Fed policymakers—Christopher Waller, Neel Kashkari, and Alberto Musalem were all scheduled to speak on Wednesday. Gavin Friend, a senior markets strategist at National Australia Bank, captured the shift in sentiment: with the softer inflation and jobs data, there seemed to be less pressure on the Fed to move quickly. Samara Hammoud, a currency strategist at Commonwealth Bank of Australia, noted that without clear forward guidance from Fed Chair Kevin Warsh, markets had been reacting sharply to each data release and speech. She expected the Fed to hold off until December.
There was one dissenting voice. Kansas City Fed President Jeff Schmid said on Tuesday that the central bank still needed to raise its policy rate further to bring inflation down, even if higher long-term yields were weighing on some parts of the economy. His comments stood in contrast to the more patient tone from other officials, a reminder that the Fed itself was not entirely unified on the path ahead.
Consumer credit data was also due on Wednesday, expected to show a decline to $15 billion in August from $18.06 billion in July. In the cryptocurrency markets, bitcoin fell 0.22% to $85,438.59, and ether declined 0.12% to $2,695.22. The broad picture was one of a market in transition—no longer convinced the Fed would move in October, but still pricing in tightening later in the year and into 2027. The dollar's weakness reflected that recalibration: less urgency now, but more pain ahead.
Citazioni salienti
There seems to be a little bit less urgency on the Fed to hike rates after the softer PCE and then the nonfarm payroll reports recently— Gavin Friend, senior markets strategist at National Australia Bank
With little forward guidance from Chair Kevin Warsh, markets have reacted sharply to each US data release and policymaker speech— Samara Hammoud, currency strategist at Commonwealth Bank of Australia
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