US FX WRAP: Dollar reverses initial PCE losses as AUD lags on CPI

The Dollar Index was more-or-less unchanged on Wednesday, despite seeing a bout of pressure following the cooler-than-expected US PCE report, although the signal was somewhat clouded by the BEA methodology changes. Following the dovish remarks from Fed's Williams on Tuesday and the soft PCE report, money markets now see around a 40% chance of a 25bps hike in October, versus roughly 70% prior to his remarks. Elsewhere, ADP private payrolls rose above expectations, while the advanced goods trade deficit was wider than expected and deteriorated M/M. There was little Fed speak of note.

G10 FX was largely in the red against the Dollar, although the Pound was the clear outperformer and eked out gains, while the Aussie lagged. AUD was pressured by cooler-than-expected Australian CPI. Sterling saw modest strength following an upward revision to Q2 GDP, although the details were somewhat more mixed than the headline suggested, with output and services revised higher but production revised lower.

JPY, EUR, NZD, CHF and CAD all saw losses to varying degrees, albeit with little currency-specific newsflow. The Euro had seen marginal strength during the European morning as it digested inflation metrics from across the bloc, before ultimately fading.