The euro remained largely unchanged by data that showed German business morale fell unexpectedly in September, with Ifo’s business climate index dropping to 87.7 from 88.9 in August amid a weak economic outlook

The U.S. dollar edged higher on Wednesday, rebounding from its lowest level in nearly a week, after Federal Reserve Chair Jerome Powell struck a cautious tone on further easing overnight, though markets still priced in two more rate cuts this year.

The euro, meanwhile, remained largely unchanged by data that showed German business morale fell unexpectedly in September, with Ifo’s business climate index dropping to 87.7 from 88.9 in August amid a weak economic outlook.

It was last down 0.4% at $1.177, but was relatively steady against other currencies, like the pound and the Swiss franc, highlighting investor buying of the dollar. Sterling declined 0.3% to $1.34820.

Key for markets now is the expectation of quarter-point rate cuts at the remaining two Fed meetings this year and another in the first quarter of 2026, in line with the central bank’s guidance after last week’s meeting.

This week’s U.S. data will be in focus, particularly Friday’s release of the personal consumption expenditures (PCE) price index, a key input for shaping expectations on the Fed’s next policy steps.

We still see the balance of risks as skewed to the downside for the dollar into the core PCE release at the end of this week, with a 0.2% MoM print cementing expectations for two Fed cuts this year. That is, unless the geopolitical picture in Europe deteriorates, said Francesco Pesole, FX strategist at ING.

He added that moves in the dollar were contained, given Powell essentially reiterated the cautious view he offered last week.

At that time, the dollar bounced back from its lowest level since early 2022 after the Fed’s policy announcement and Powell’s subsequent news conference, which fell short of the market’s more dovish expectations following a recent, sharp weakening of the labour market.