The U.S. dollar was stable on Wednesday after October consumer price inflation was greater than expected and Federal Reserve Chair Jerome Powell offered an optimistic outlook for the economy, further solidifying the case for the central bank to pause its monetary easing cycle.
Expectations for an interest rate cut do not rise above 30% before July 2020, according to CME Group's FedWatch tool. And the slim chances of a cut in the months prior on Wednesday became slimmer.
U.S. consumer prices jumped by the most in seven months in October, a report from the Labor Department on Wednesday showed, as the cost of healthcare surged by the most in more than three years. The Fed uses interest rate hikes to rein in inflation, making a near-term cut slightly less likely.
In addition, Powell on Wednesday said he saw "sustained expansion" ahead for the country's economy, with low unemployment boosting household spending and the full impact of the three interest rate cuts in the past three months still to be felt.
Powell was "very consistent with the message from the (October) press conference, which is what we expected - that they're on hold unless something goes unexpectedly wrong," said Daniel Katzive, head of foreign exchange strategy for North America at BNP Paribas.
"Now the burden of proof is on the data to force the Fed to do something to ease."
The dollar index was up 0.05% to 98.36 and the greenback gained 0.08% against the euro to $1.0998.
Also on Wednesday, the Swiss franc rallied to a one-month high against the euro as hedge funds unwound some of their negative bets against the currency and as appetite for risky assets faltered.
Boosting demand for safe-haven assets were the police crackdown against protesters in Hong Kong and a speech by U.S. President Donald Trump in which he threatened to raise tariffs on China and criticized European Union trade policies before a Nov. 14 deadline to decide whether to raise tariffs on European and Japanese carmakers.
Hedge funds had ramped up short bets against the franc in the last two weeks on expectations a trade pact between Washington and Beijing would fuel demand for risky assets and boost carry-trades where investors borrow in cheap currencies and invest in riskier ones.
"The main thing we seem to be doing in FX today is following a bit of a risk-off tendency," said Katzive. "The thinking there is that the market had gotten priced for a pretty constructive outlook of reduced recession risk, reduced trade risk and (is) now paring back some of that optimism."