Dollar Nears One-Week Low Ahead of Fed Rate Decision Amid Global Policy Shifts

The U.S. dollar hovered close to a one-week low against major currencies on Wednesday, as investors awaited the Federal Reserve’s widely anticipated interest rate cut later in the day. Market sentiment remained cautious, with traders closely watching policy cues from central banks in Japan, Australia, and Europe.

The greenback weakened further against the Japanese yen after U.S. Treasury Secretary Scott Bessent indicated that Japan’s new government is open to potential Bank of Japan (BOJ) rate hikes. The dollar slipped 0.2% to 151.84 yen, extending losses from Tuesday. Bessent, currently in Japan with U.S. President Donald Trump for talks with Prime Minister Sanae Takaichi, said Japan’s willingness to give the BOJ policy flexibility would be key to stabilizing inflation and curbing currency volatility.

Meanwhile, the Australian dollar reversed early losses and rose 0.3% to $0.6604 after stronger-than-expected consumer inflation data dampened expectations for a rate cut by the Reserve Bank of Australia next week.

Market attention now turns to Fed Chair Jerome Powell’s post-decision remarks, with analysts noting that investors have largely priced in a dovish tone. “A lot of dovishness is baked into the curve, with a December cut almost fully discounted,” said Kyle Rodda of Capital.com. “Any deviation could spark volatility.”

Adding to market uncertainty, traders are also monitoring an upcoming meeting between President Trump and Chinese President Xi Jinping in South Korea, expected to address trade tensions and rare-earth export policies.

The U.S. dollar index stood at 98.681 after two days of declines. The euro held steady at $1.1655, while the British pound edged up 0.1% to $1.3278. The European Central Bank, also set to meet Thursday, is expected to leave rates unchanged.