The US Dollar (USD) gained ground against major currencies on Wednesday, with the Dollar Index (DXY) trading 0.22% higher at around 102.07 in early European trade, as investors awaited the release of the Federal Open Market Committee (FOMC) minutes from the September policy meeting later in the day [2][4]. The USD/CAD pair strengthened to approximately 1.4220, reflecting broad-based USD strength and a weaker Canadian Dollar ahead of the FOMC minutes [1]. The US Dollar was the strongest against the Euro and New Zealand Dollar, with percentage gains of 0.30% and 0.34% respectively, while it also rose 0.09% against the Canadian Dollar [2][4].
The market's focus is on the FOMC minutes for clues about the Federal Reserve's (Fed) future rate path. Recent soft US jobs data, with Nonfarm Payrolls (NFP) rising by only 29K in September versus 133K previously and below the 90K consensus, led traders to lower their bets on an October rate hike. The unemployment rate increased to 4.2% from 4.1% in August [1]. The odds of a 25 basis point rate hike in October dropped to 21.6% from 51% a week ago, but markets are still pricing in an 86.2% probability of a hike in December [1]. Fed officials, including Kansas City Fed President Jeff Schmid, maintained a hawkish tone, emphasizing the need for further rate increases to combat inflation, with Schmid highlighting AI-driven price pressures [1].
Rising oil prices also influenced currency movements. Brent crude climbed above $100 per barrel, driven by supply concerns from a storm threatening US oil production and geopolitical tensions in the Middle East [1][3][4]. Higher oil prices typically support the Canadian Dollar, but this effect was offset by USD strength and domestic political uncertainty in Canada, including separatist momentum in Quebec and an upcoming independence vote in Alberta [1].
The Euro (EUR) extended its decline against the USD, trading at session lows near 1.1225, despite upbeat German industrial production data showing a 2% month-over-month increase in September, beating expectations of 0.5% [3]. The Euro's rebound on Tuesday, following French political developments, was capped by resistance, and analysts at United Overseas Bank (UOB) noted that the broader EUR downtrend remains intact unless EUR/USD breaks above 1.1285 [5].
Market sentiment was cautious, with US stock index futures down 0.1% to 0.2% and analysts at Danske Bank warning of the risk of 10-year and 30-year US Treasury yields reaching 6% due to supply pressures and increased term premia [2]. Technical analysis indicated the DXY remains in a bullish trend, with the Relative Strength Index (RSI) in overbought territory at 71.92 [4].
CONCLUSION
The US Dollar strengthened broadly ahead of the FOMC minutes, supported by rising Treasury yields and hawkish Fed commentary, while the Euro and Canadian Dollar weakened despite positive domestic factors. Market participants remain focused on the Fed's policy outlook, with expectations for further rate hikes later in the year. Elevated oil prices and geopolitical risks add to the cautious market tone.