US dollar steadies as Fed hike bets cool

Summary

The US dollar steadied after US inflation figures and weaker July payrolls reduced expectations for a September Federal Reserve rate increase. Asian shares advanced, while FTSE 100 futures pointed modestly higher and US crude and Brent oil moved lower. The Japanese yen remained in focus as stronger wholesale inflation increased expectations for a September Bank of Japan rate rise. In Australia, the central bank warned that inflation risks remain tilted towards further tightening.

Equities

The FTSE 100 closed 0.1% lower at 10,833.15 on Wednesday, extending its decline to a third consecutive session. The FTSE 250 performed slightly better, rising 0.1% to 24,814.88, while investors also looked ahead to Thursday’s UK GDP figures.

Balfour Beatty jumped 7% on Wednesday to a record high after the construction group raised its annual operating profit forecast, supported by demand from British energy projects and US infrastructure work. Ocado climbed 15.6% after JPMorgan said further customer wins were achievable for the online grocery group, while infrastructure supplier Hill & Smith fell 4.9% despite forecasting underlying operating profit modestly ahead of its previous guidance.

Precious metals miners Fresnillo and Endeavour Mining also finished higher on Wednesday as gold prices rose following the latest US inflation figures. Oil prices fell during volatile trading after forecasters lowered their projections for global oil demand in 2026, while shipping attacks in the Middle East continued.

In the US, the S&P 500 closed 0.26% higher at 7,748.50 on Wednesday, while the Nasdaq gained 0.54% to 26,588.49. The Dow Jones slipped 0.04% to 53,770.27 after US consumer prices rose broadly in line with expectations in July, increasing expectations that the Federal Reserve will leave interest rates unchanged in September.

CoreWeave surged 19% on Wednesday after the AI cloud company beat second-quarter earnings estimates and raised its annual capital spending forecast. Super Micro Computer also jumped 19% after forecasting fiscal 2027 revenue above Wall Street expectations, while Nebius Group climbed 34% following better-than-expected second-quarter results.

Nvidia rose 3% on Wednesday and Micron Technology gained 4.9%, helping the semiconductor index advance around 2.5%. Cava climbed 14.2% after beating second-quarter sales and core profit expectations, while Lumentum surged 13.6% after issuing a stronger-than-expected first-quarter revenue forecast and beating fourth-quarter estimates.

Forex & Commodities

The US dollar was steady early this morning, with the dollar index at 99.98 after softer US inflation reduced expectations for another Federal Reserve interest rate increase. The dollar traded at 159.4 yen, close to the 160 level being watched after coordinated US-Japan intervention late last month pushed the exchange rate as low as 155.2.

The euro was little changed early this morning at $1.153, while the British pound edged lower to $1.349 ahead of new UK economic data. The Australian dollar slipped to $0.7048 after reaching a 10-week high on Wednesday, while the New Zealand dollar fell to $0.5833 following a weaker-than-expected reading on inflation expectations.

US consumer prices rose 0.1% in July, while annual inflation eased to 3.4% from 3.5% in June. Markets have subsequently reduced the probability of a Federal Reserve interest rate increase in September to around 40%, compared with 54% a week earlier, with US producer price data due later today providing the next update on inflation.

Spot gold fell early this morning to $4,384 an ounce after earlier reaching its highest level since 5 June. Gold has risen more than 8% so far in August as expectations for further US interest rate increases have weakened following softer economic data.

Oil prices also moved lower early this morning. Brent crude fell to $88.56 a barrel and US West Texas Intermediate declined to $82.72 after several sessions of gains, as both OPEC and the International Energy Agency lowered their 2026 demand forecasts. US crude inventories also rose by 17.4 million barrels last week, the largest increase since January 2023, while US-Iran talks remained deadlocked and there was no progress towards reopening the Strait of Hormuz.