By Kevin Buckland

Economic Overview

TOKYO (Reuters) – The dollar hovered close to a three-month peak on Wednesday in a significant week for macroeconomic data that could reveal the path for U.S. monetary policy.

The Australian dollar edged closer to a three-month trough after inflation showed stickiness, suggesting a Reserve Bank of Australia interest rate cut is unlikely this year.

Mixed U.S. indicators overnight, showing a loosening jobs market but confident consumers, provided little clarity on the Federal Reserve's easing outlook, allowing the greenback to drift lower with Treasury yields after a strong seven-year note auction.

Recently, though, economic readings have pointed to a resilient economy, especially in employment, spurring a reduction in bets on the pace of rate reductions. The ADP employment report is due later in the day, ahead of the crucial monthly payrolls report on Friday.

James Kniveton, senior corporate FX dealer at Convera, stated, "The U.S. dollar continues to garner strong support as markets adjust their rate path expectations. The American economy is currently firing on all cylinders."

Australian Economy

In Australia, the increased inflation number in services likely means that rate reductions this year are a distant prospect, according to Kniveton. The Reserve Bank of Australia's preferred inflation gauge, the trimmed mean measure, slowed to 3.5% from 4.0% in Q3, but service-sector inflation remained elevated. On a quarterly basis, the gauge increased by 0.8%, topping forecasts for a 0.7% rise.

The Aussie was little changed at $0.6562 as of 0101 GMT, close to Tuesday's low of $0.6545, a level not seen since Aug. 8.

Currency Performance

The U.S. dollar index, which measures the currency against six major rivals including the yen and euro, was little changed at 104.24, after reaching a three-month high of 104.63 on Tuesday before finishing nearly flat.

The 10-year Treasury yield slid to 4.2461% on Wednesday after reaching a high of 4.3390% in the previous session.

Political Influence

Both the dollar and U.S. bond yields have been buoyed in recent days by rising speculation regarding a potential victory for Republican presidential candidate Donald Trump on Nov. 5, whose tariff and immigration policies are seen as inflationary. This speculation also contributed to a surge in leading cryptocurrency Bitcoin, which approached its all-time high from March.

Currency and Market Adjustments

The dollar-yen pair slipped 0.06% to 153.27 after retreating from a three-month peak of 153.87. The yen has been weighed down by political uncertainty following a disastrous weekend election for Japan's ruling coalition, likely leading to expanded fiscal spending and possible delays in rate hikes.

The euro edged up 0.06% to $1.0824 ahead of the European GDP readings' release, which could indicate whether the European Central Bank will opt to cut rates at its next meeting in December.

Sterling traded flat at $1.3016 ahead of the Labour government's first budget. Finance Minister Rachel Reeves and Prime Minister Keir Starmer emphasized the need for tough fiscal measures to restore investor confidence after past tax-cutting plans sparked a market crisis.

Key for sterling will be estimates from the UK's Office for Budget Responsibility, which inform the government’s spending and tax plans.