The U.S. dollar gained against major peers on Wednesday, aided by higher oil prices, as investors awaited the Federal Reserve's September meeting minutes and remarks from policymakers for signals on the path of interest rates. The euro sank toward a 17-month low as French bonds came under renewed pressure over fiscal concerns, and the yen weakened against the greenback.
The dollar index rose 0.64% to 102.49 on Wednesday, recovering from a 0.27% slide on Tuesday and holding near Monday's 102.5, the highest level since April 2025. The greenback caught a safe-haven bid as Middle East supply concerns pushed Brent crude futures back above $100 a barrel. "We've been able to have that long-dollar view on for a few weeks now. It's worked quite nicely. But I think there's an element of momentum starting to slow here," said Dominic Bunning, head of G10 FX strategy at Nomura, adding that higher oil prices were lending the dollar short-term support.
The euro fell 0.83% to $1.1166, closing in on 17-month lows. Renewed selling of French government bonds on fiscal worries drove the gap between French and German 10-year yields to 146 basis points on Monday, the widest since the region's 2011 debt crisis; the roughly 32-basis-point widening over five days was the largest since 1990. Political risks kept weighing on the single currency, with France's 2027 presidential election unresolved and Spain's prime minister calling a snap election. Far-right presidential candidate Marine Le Pen, who leads the polls, said she would raise planned spending cuts to 140 billion euros ($158 billion) from 125 billion if she wins power in 2027.
The Fed will release the minutes of its September meeting later on Wednesday — the gathering at which it raised interest rates for the first time since 2023 to contend with inflation. Interest-rate swaps now show only about a 23% chance of an October hike, down from nearly 70% a week earlier. Recent comments from Fed policymakers have sounded less hawkish following lower-than-expected personal consumption expenditure data and last week's softer jobs figures. Spot gold fell about 0.5% on Tuesday as a stronger dollar weighed on bullion.
"For the euro-dollar to go below 1.10, you would have to price in more Fed rate hikes than it's currently priced in, and that is not our base case," said Adarsh Sinha, head of global G10 FX strategy at BofA Global. Bunning cautioned that any sign of improvement in the Middle East situation, or further signs of softening U.S. data, "could also be something that weighs on quite elevated rate expectations" and weaken the dollar. The yen weakened 0.09% to 158.265 per dollar, even after a dovish Bank of Japan board member said she would support interest rate increases. Looking ahead, the wording of tonight's minutes and the officials' remarks will drive the market's repricing of the rate path for the rest of the year.