The U.S. dollar is trading on a firmer footing as markets brace for August CPI and the European Central Bank’s policy meeting. Earlier losses against the yuan were reversed, leaving the greenback stronger on the day. Traders are pricing close to a 10% chance of a half-point cut at next week’s FOMC, but a fourth consecutive rise in CPI could shift expectations further and extend dollar strength. The ECB is widely expected to leave policy unchanged while publishing new forecasts. Political developments in France have kept investors alert, but spreads between French and German bonds narrowed again, and local equities outperformed Germany’s DAX.
Dollar-yen has edged higher after a quiet session, hovering toward JPY148 in European morning trade. A firm CPI outcome could encourage a push toward JPY148.50. Producer prices in Japan slipped 0.2% in August but the annual rate rose to 2.7%, leaving market expectations unchanged ahead of the BOJ meeting on September 18–19. The swaps market continues to discount only modest tightening this year. In Australia, the currency briefly set a fresh yearly high near $0.6635 before fading back. It has gained more than half a percent in three of the last four sessions, but momentum is waning. Consolidation is underway, and a break below $0.6580 would suggest a short-term top may be forming.
The euro remains pinned near recent lows after dipping below $1.1685 yesterday when news broke of Russian drones entering Polish airspace. Despite a rebound toward $1.1730, the single currency has failed to gain traction, with risks tilting lower if $1.1650 gives way. The ECB meeting carries little expectation for policy change, and President Lagarde is unlikely to signal new guidance. Updated staff projections may show sluggish growth after weak Q1 and Q2 figures, while inflation forecasts are also due. In the U.K., sterling faltered after testing $1.3565, slipping back toward $1.3500. A further slide below $1.3490 could expose $1.3460. Tomorrow’s GDP data is expected flat, reinforcing the lack of policy urgency at the Bank of England’s meeting next week.
The Dollar Index has been volatile, moving between 97.60 and just below 98.00, testing resistance ahead of today’s CPI release. A break above 98.25 would improve the technical picture. Yesterday’s PPI disappointed, falling 0.1% at both headline and core levels, while prior data were revised lower. Today’s inflation reading will be more pivotal, with headline CPI expected to climb 0.3%, lifting the annual rate to 2.9%, the highest since January. Core inflation is seen steady at 3.1%. With liquidity pressures also building in funding markets and Fed futures still leaning toward modest easing, today’s data may be decisive for near-term dollar direction.