The US dollar index remained steady around 106.3 on Wednesday, after experiencing three consecutive days of gains. Investors are gearing up for the release of the US Consumer Price Index (CPI), which is set to provide key insights into the nation’s inflationary pressures. The CPI report could significantly impact the Federal Reserve’s monetary policy. A stronger-than-expected inflation reading could potentially delay the Fed's plans to ease borrowing costs, thus supporting the US dollar.

Federal Reserve’s Rate Cut Plans and Market Expectations:

Currently, the markets are pricing in an 86% probability of a 25-basis-point rate cut by the Federal Reserve later this month. However, the outlook for 2025 remains highly uncertain, with market participants speculating on the pace and scale of future rate cuts. The Fed's actions on inflation and interest rates will be pivotal for the US dollar's performance in the coming months.

Global Central Bank Focus:

In addition to the US CPI report, traders are closely watching the Bank of Canada and the European Central Bank (ECB) this week, both of which are expected to implement further rate cuts. These actions could affect the relative strength of the US dollar against other major currencies.

China’s Economic Support:

Investors are also paying attention to developments in China’s Central Economic Work Conference. Following Beijing’s recent pledge for additional monetary support, market participants are assessing the potential impact of these measures on global economic growth and trade, which could influence currency markets.

Outlook:

As the US dollar holds its gains, the upcoming US inflation data and central bank decisions from around the world will continue to play a crucial role in shaping market sentiment and currency movements. While the US dollar remains supported by expectations of a Fed rate cut, global developments, including monetary policy shifts in Canada, Europe, and China, will be key factors to watch.

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