FX.co ★ Dollar Slips as Investors Assess Fed Rate Outlook

The US dollar index slipped below 102 on Tuesday as investors reassessed the Federal Reserve’s policy outlook ahead of its October 27–28 meeting. Market participants are also awaiting the latest reading of the PCE price index, the Fed’s preferred inflation gauge. Futures pricing currently implies an 83% probability that the central bank will leave interest rates unchanged next week, alongside a 94% chance of a rate increase in December. On Friday, Fed Chair Kevin Warsh declined to signal the likely outcome of this month’s FOMC meeting, but said that stronger-than-expected inflation had not altered his overall view of the US economy. Elsewhere, the euro posted a modest rebound as European governments moved to contain widespread unrest that turned violent over the weekend. In Japan, the yen weakened even after hawkish comments from Bank of Japan Governor Kazuo Ueda, who indicated that underlying inflation was approaching the central bank’s 2% target.