Dollar Holds Ground as Markets Await US Inflation Data

The US dollar opened the Asian trading session on Wednesday on a steady note, with investors largely looking past fresh disruptions to shipping in key Middle Eastern waterways. The focus instead remained firmly on the release of US inflation data later in the day, which is expected to provide clearer direction on the Federal Reserve's monetary policy trajectory.

The Japanese yen was little changed against the greenback at 159.275, hovering near its weakest levels of the month despite recent coordinated intervention by US and Japanese authorities to support the currency. The euro held its ground at $1.1542, while the British pound was steady at $1.3508. The Australian and New Zealand dollars were also flat at $0.7064 and $0.5879, respectively.

Traders are also keeping an eye on a meeting of New Zealand's governing party lawmakers in Wellington, amid growing speculation about the leadership of Prime Minister Christopher Luxon just months before a general election.

The main event for markets this week is the US inflation report, which comes on the heels of a softer-than-expected jobs report and a press conference by Fed Chair Kevin Warsh last month that left the policy outlook clouded. Analysts at ING noted that there is a plausible path for easing inflation through the remainder of 2026, assuming oil prices stay contained and the Strait of Hormuz reopens. They added that markets are already pricing in a mild inflation landing.

Oil prices edged higher in Asian trading, with Brent crude up 0.6% at $89.40 a barrel, following an attack by Iran-backed Houthis on a cargo ship in the Bab el-Mandeb strait and a US military strike on a container ship off Pakistan that was attempting to break a blockade of the Strait of Hormuz.

Federal Reserve Bank of Chicago President Austan Goolsbee said on Tuesday that the central bank is more worried about inflation running too high than about weakness in the labor market, though it remains unclear whether that puts him in line with the minority of policymakers who favored a rate hike last month.

Traders remain divided on the Fed's next move. Fed funds futures currently imply a 52% chance that the central bank will hold rates steady at its meeting ending September 16, versus a 48% probability of a quarter-point increase, according to the CME Group's FedWatch tool.

In cryptocurrencies, bitcoin slipped 0.2% to $63,554.30, while ether was down 0.1% at $1,879.62.