The dollar edged lower on Wednesday as currency traders weighed fresh inflation pressure tied to rising oil prices and positioned themselves ahead of next week’s Federal Reserve policy meeting, while the Australian dollar climbed on hawkish remarks from a central bank official.

The dollar index, which tracks the greenback against a basket of six major currencies, slipped 0.14% to 101.65 in New York afternoon trading. The euro was essentially flat at $1.1237, up 0.01%, and the yen firmed 0.02% to 158.12 per dollar.

“There’s not really an overarching theme for markets… and I think it’s going to stay that way at least until next week into the FOMC,” said Shaun Osborne, chief FX strategist at Scotiabank. “We need to get a sense of what the Fed’s thinking.”

The ongoing US war with Iran has intensified concerns that oil-driven inflation could complicate the Fed’s policy path. Fed funds futures traders see little chance of a rate increase at next week’s meeting, with the next hike expected in December. Fed Chairman Kevin Warsh is also seen as unlikely to signal future moves, though Osborne said he expects markets to firm up their views on the timing of rate increases next week.

Investors are also questioning how long the AI-driven rally can last. Optimism over the sector has supported the dollar by pulling capital into the US and lifting growth and inflation expectations, even after data last week showed US consumer price inflation accelerated in September.

“US growth has been very much driven by the whole AI trade,” said Noah Buffam, FX strategist at CIBC Capital Markets. “That has also kept inflation above target, so it’s been much more impactful for the US than other countries.”

Some equity-market anxiety eased after Elon Musk said Tuesday that merging SpaceX and Tesla would be “a good idea,” and SpaceX reported its first profit as a public company. AI server maker Super Micro also forecast quarterly revenue and profit margins above Wall Street estimates.

The euro remained under pressure from widespread anti-government protests in France and a deteriorating fiscal outlook, with French 10-year borrowing costs reaching 24-year highs on Wednesday.

“The French debt situation isn’t tractable. They do need to go in and make proper adjustments on the fiscal side to get this debt level down to at least show the seriousness around the trajectory,” said John Hardy, global head of macro strategy at Saxo in Copenhagen.

French President Emmanuel Macron has pledged to prevent a repeat of last weekend’s riots and looting. The Yellow Vest movement has filed plans for a major march in Paris on Saturday, presenting the government with its next significant test.

In Australia, the currency jumped after Reserve Bank of Australia Deputy Governor Andrew Hauser told a Citi conference that the inflation outlook looked “materially worse.” The Aussie gained 0.41% to $0.7031.

Sterling rose 0.16% to $1.34 after UK data showed inflation rose more than expected last month, reinforcing the case for a Bank of England rate increase in November. The pound reached its strongest level against the euro in 17 months.

The yen was little changed after Bank of Japan Deputy Governor Ryozo Himino said underlying inflation was close to the central bank’s 2% target and financial conditions remained loose, signaling room for higher borrowing costs.

Currency pairWednesday levelChangeDollar index (DXY)101.65-0.14%EUR/USD$1.1237+0.01%USD/JPY158.12 yenYen +0.02%AUD/USD$0.7031+0.41%GBP/USD$1.34+0.16%

Note: Levels reflect New York afternoon trading on Wednesday.

The broad wait-and-see tone reflects a market with few fresh catalysts before the Fed, European Central Bank and Bank of Japan all announce policy decisions on consecutive days starting next Wednesday. Traders do not expect rate changes at any of those meetings, though the Reserve Bank of New Zealand and Bank of Canada, which decide on the same day as the Fed, are both expected to deliver quarter-point hikes.

For investors, the near-term direction of the dollar hinges on whether policymakers acknowledge oil-fed inflation risks without committing to a faster tightening path. A stronger signal on the timing of the next rate increase could revive demand for the greenback, while continued fiscal strain in France and political uncertainty there may keep the euro capped. The Australian dollar’s move highlights how quickly rate expectations can shift on a single policy comment, a dynamic likely to persist as central banks weigh energy costs against slowing growth.