The US Dollar slipped in Wednesday's Asian session after New York Fed President John Williams said he still expects one more rate hike this year but sees no need for more in 2027. The US Dollar Index (DXY) eased to around 102.15, EUR/USD edged up to about 1.1205, GBP/USD rose to near 1.3260, and USD/JPY held in the mid-158.00s. The move is small and cautious, because everyone is waiting for the same thing: the US September inflation report, due later today.

What Williams actually said

Williams told markets, "I haven't changed my view that it may be appropriate to have one more rate hike," and added, "I don't think at this time I have any reason to believe that we would need to do more." The Fed official also expects inflation to slow "quite a bit" toward the 2% target next year. That is a calmer message than the Dollar has been hearing from other Fed speakers recently.

The numbers back this up. The speech scored 3.4 out of 10 on the FXS Speechtracker, well below the 5.8 historical average, and the FXS Fed Sentiment Index fell 3.09 points to 133.86. That index is still far above the neutral 100 mark, so the Fed is still hawkish overall, just a little less so than yesterday.

Pricing has shifted with it. According to the CME FedWatch tool, markets now see about a 77.3% chance that the Fed holds rates at its October 27-28 meeting, up from 51% a month ago, with roughly an 87.8% chance of a hike in December. Scotiabank notes that Fed messaging has been "generally softening the intensity of the hawkish rhetoric," which has delivered "a clear moderation in tightening expectations overall," and says the DXY still trades above its fair value estimate.

The CPI test

Economists expect headline US CPI to rise 3.6% year on year in September, up from 3.4% in August, and core CPI to rise 2.5%, up from 2.4%. Bob Haberkorn of StoneX said the market is "kind of waiting to see how that plays out." A hotter-than-expected print could push the Fed back toward hiking and lift the Dollar, while a cooler one would back up the softer tone. Producer prices follow on Thursday, and Fed Chair Kevin Warsh speaks in Bangkok on Friday.

The Euro: France is still the problem

EUR/USD is holding above 1.1200, but France's finances limit the upside. The bond sell-off has pushed French borrowing costs to their highest in nearly 25 years, and the extra yield investors demand to hold French 10-year debt over Italian bonds hit a record on Friday. ING estimates EUR/USD is about 1.5% undervalued relative to short-term fundamentals, pointing to a moderate France-related risk premium. The bank says "it's hardly a welcoming environment for EUR bulls," warns that "a test of 1.110 remains the risk," and has lowered its EUR/USD forecast to 1.13 for the fourth quarter of 2026 and the first quarter of 2027. It notes markets are already fully priced for a December ECB hike.

ECB President Christine Lagarde added little new. She said inflation has risen "predominantly but not exclusively" because of energy, that the ECB is "not seeing any second round effects yet," and that "we cannot wait until they are in full view." On French debt, she said the first solution lies in French fiscal policy. She called 1.1% growth in 2026 "not brilliant" but "not bad." Her speech scored 4.6 on the Speechtracker against a 5.6 average, a mildly cautious tone that gave the Euro no clear push.

The Pound: a Bank of England hike is nearly priced in

Bank of England Governor Andrew Bailey said UK companies are focusing intensely on containing costs during the energy price surge caused by the Iran war, and that the pressure on broader inflation has so far been subdued. Traders see a quarter-point BoE hike next month as a near certainty. ING thinks expectations for 2027 (100 basis points by July) are too hawkish, but accepts that "one or two hikes are looking increasingly likely." The next risk is the UK Budget on October 28, which ING calls "a potential risk for sterling" since markets price in little fiscal concern, although it does not expect lasting damage.

The Yen: BoJ hike bets fade

USD/JPY is stuck in a familiar range. Reports that Bank of Japan officials lean against a rare back-to-back hike have reduced October hike bets and pressured the Yen. On the other side, traders fear Japanese authorities could step in to support the currency, which holds buyers back from pushing USD/JPY higher. Geopolitical stress from the Middle East also supports the Dollar as a safe haven. AUD/USD, meanwhile, is holding near 0.7000 after mixed Chinese inflation data and a wider-than-expected Chinese trade surplus.

What the charts are showing

The DXY stays above its 20-day and 100-day averages with the Relative Strength Index at 64.47, which suggests firm momentum without being overbought. The upper Bollinger band near 102.95 is the next barrier, with support at 101.50, then 100.40. EUR/USD stays below its 100-day average with an RSI of 31.0, resistance at 1.1310 and 1.1480, and support at 1.1100. GBP/USD faces resistance between 1.3375 and 1.3395, with support near 1.3150. USD/JPY has resistance near 158.75 and support at 157.93 and 157.60.

What this means for the Dollar

The Dollar is easing because the Fed is hinting that the hiking cycle will end sooner than feared, not because the Fed is turning dovish. With a hold in October still the base case and a December hike mostly priced, the CPI report decides whether this softer tone survives. Europe's fiscal stress and war-related safe-haven demand will keep limiting how far the Dollar can fall.

What traders should prepare for

  • US September CPI later on Wednesday, with headline expected at 3.6% and core at 2.5%

  • US PPI on Thursday and Fed Chair Warsh's speech at the IMF and World Bank meetings in Bangkok on Friday

  • The Fed's October 27-28 meeting and the UK Budget on October 28

  • More ECB speakers, and French bond spreads versus Germany and Italy

  • Any signal of Japanese intervention or fresh BoJ guidance

Bottom line: The Dollar eased because the Fed is looking past 2027, but until CPI confirms it, the market is only taking the hint, not the whole message.