By Rocky Swift and Sruthi Shankar
Oct 14 (Reuters) - The dollar fell further from 18-month highs against the euro on Wednesday as investors awaited US inflation data and comments from Federal Reserve policymakers for fresh clues on the pace of monetary policy tightening.
The euro edged higher as European Central Bank President Christine Lagarde dashed expectations of intervention to prop up France's battered bond market, though Brent crude at $106 a barrel put a lid on the currency's rise.
Attention
is now on the release of US consumer price index data, as well as speeches from Fed officials that could clarify the outlook for interest rates. Economists polled by Reuters expect the price index to have risen 0.6% month-on-month in September after increasing 0.4% in August, while annual inflation is seen accelerating to 3.6% from 3.4%.
"The risk is that US CPI hits 4% or that the core picks up as well. This would spark higher yields and a firmer dollar, with the euro being further battered below this week’s low of $1.1152," said Roberto Mialich, FX strategist at Unicredit.
The dollar index, which tracks the greenback against a basket of currencies, fell 0.05% to 102.15, as Treasury yields ticked lower. [US/]
The dollar had also fallen on Tuesday after comments that were interpreted as dovish from New York Fed President John Williams and Fed Governor Christopher Waller. "I don't think at this time I have any reason to believe that we would need to do more," Williams told Bloomberg News in an interview, referring to the possibility of further rate hikes in 2027.
Traders see a 78% chance that the Fed will leave rates unchanged at its October 27-28 meeting, up from 53% a month ago, while pricing in about 79 basis points of tightening by late 2027, CME Group's FedWatch Tool showed.
The US central bank raised its policy rate by a quarter of a percentage point to the 3.75%-4.00% range last month.
Fed officials Thomas Barkin and Michelle Bowman are due to speak later on Wednesday. Additionally, the Fed publishes its monthly Beige Book.
EURO TROUBLES
A host of global finance chiefs are in Bangkok, where the International Monetary Fund and World Bank are holding annual meetings. IMF fiscal affairs chief Rodrigo Valdes said the body has "dialed up" the urgency of its call for governments to rein in growing debts, while the IMF's Kristalina Georgieva said the US needs to make fiscal adjustments to put its debt on a more sustainable path.
French bonds have been among the worst hit by a recent global selloff, with investors concerned that political jostling ahead of next year's presidential election may hinder efforts to reduce its high deficit.
The ECB's Lagarde said at a CNN event in Bangkok that France should solve its debt woes through fiscal consolidation, damping speculation about whether the central bank might start buying French bonds to contain yields.
The euro was up 0.06% at $1.1205, having touched a fresh 17-month low against the dollar this week, as soaring French borrowing costs added to inflation concerns driven by higher energy costs.
"In the near term, I cannot rule out the risk that the euro might test to $1.10. Going towards the end of the year, we're less bearish. Our take is that bond yield in the US will probably ease although the situation in the euro zone could weigh on the euro," said Unicredit's Mialich.
The Financial Times reported on Wednesday that British finance minister John Healey is expected to pay for all new giveaways in this month’s budget with higher taxes or spending cuts rather than more borrowing. The IMF is not recommending that Britain speed up its fiscal consolidation, a senior official of the body said.
Sterling strengthened 0.08% to $1.3265. The Japanese yen inched up 0.03% to 158.395 per dollar.
(Reporting by Rocky Swift and Sruthi Shankar; Editing by Stephen Coates and Shri Navaratnam)
