FOREX: US dollar regains ground as markets await Fed minutes, policymaker remarks

The US dollar recouped some losses on Wednesday as eyes turned to the release of Federal Reserve minutes and speeches by its policymakers for signals on a potential rate hike.

The euro gave back some of its gains in the prior session when French bonds rallied after the frontrunner in next spring's presidential election outlined plans to slash spending. The yen weakened even after a dovish Bank of Japan board member said she would support interest rate increases.

Later on Wednesday, the US central bank is due to release minutes of its September policy meeting when it raised interest rates to contend with inflation. Comments from Fed policymakers have come across as less hawkish following lower-than-expected personal consumption expenditure (PCE) data and jobs figures last week.

"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, a senior markets strategist at National Australia Bank, said on a podcast.

The dollar index =USD, which measures the greenback against a basket of currencies, rose 0.16% to 102.07, recovering from a 0.27% slide on Tuesday. The euro EUR= fell 0.25% to $1.123.

The Japanese yen JPY= weakened 0.19% to 158.39 per dollar, and sterling GBP= lost 0.21% to $1.3244.

The greenback also benefited from safe-haven demand after Yemen's Iran-aligned Houthis attacked Aden International Airport. To end a war that's roiled energy markets and stoked inflation for eight months, Iran must make a "meaningful" reduction in its nuclear enrichment capacity, US Vice President JD Vance told Reuters.

Bond yields around the world have climbed in recent weeks due to expectations of central bank rate hikes as well as concerns about government finances. French debt is under growing pressure as politicians struggle to curb the budget deficit ahead of a divisive election in 2027. The calling of a snap election in Spain added to the recent stress on the euro.

The euro rallied sharply on Tuesday after far-right French presidential candidate Marine Le Pen raised her target for spending cuts to €140 billion ($158 billion) from €125 billion in savings originally planned if she wins power in 2027.

The Bank of Japan's new policymaker Ayano Sato said in an interview with the Kyodo news agency that she supports the idea of raising interest rates in several stages. The BOJ may signal this month that underlying inflation has roughly hit its 2% target, three people familiar with its thinking said, highlighting its readiness to raise interest rates again.

OCTOBER FED HIKE EXPECTATIONS RETREAT

Expectations for a Fed rate hike later this month have retreated but markets are still anticipating more increases later in the year and next year.

In contrast to the recent call for patience from some Fed officials, Kansas City Fed President Jeff Schmid said on Tuesday that the central bank still needs to raise its policy rate further to lower inflation, even if higher long-term yields are weighing on activity in some parts of the economy.

The chance of a hike of at least 25 basis points in October stands at 20.5%, from about 51% a week ago, according to CME FedWatch, but markets are pricing in an 84.5% chance of a hike at the December meeting.

"With little forward guidance from Chair (Kevin) Warsh, markets have reacted sharply to each US data release and policymaker speech," Commonwealth Bank of Australia currency strategist Samara Hammoud said in a report. "We expect the Fed to wait until December before hiking again."

Fed officials Christopher Waller, Neel Kashkari and Alberto Musalem are all due to speak later on Wednesday. The central bank is also scheduled to release consumer credit data, which is expected to show a decrease to $15 billion in August from $18.06 billion in July.

The Australian dollar AUD= weakened 0.14% versus the greenback to $0.6972, while New Zealand's kiwi NZD= sank 0.28% to $0.5605.

In cryptocurrencies, bitcoin BTC= fell 1.76% to $84,115.47, and ether ETH= declined 3.3% to $2,609.57.

-Reporting by Rocky Swift; Editing by Jamie Freed and Lincoln Feast./Reuters