The Dollar drifted lower on Monday, but the real action is ahead. The Fed, Bank of Canada, ECB, Bank of Japan and RBNZ all decide this week. We look at why the Euro, Sterling, Yen and Aussie are each waiting on their own central bank.
The US Dollar Index (DXY) slipped about 0.11% on Monday to hover around 101.6, extending its drift lower from the 18-month high it touched earlier in October. Very little actually happened, and that is the story. Traders are waiting for a week packed with decisions from the Federal Reserve, the Bank of Canada, the European Central Bank, the Bank of Japan and the Reserve Bank of New Zealand, plus US inflation and growth data. A pullback in oil prices and Treasury yields gave the Dollar a small push down in the meantime.
The Dollar: stalled below its highs
Even after the dip, the Dollar has done a lot of work recently. FOREX.com notes that the DXY is down more than 1.4% from its yearly highs, but only after a 4.4% rally from the September low. The Fed raised rates by 25 basis points in September, and it is widely expected to leave rates unchanged this week. Markets price about a 90% probability of a hold at the current 3.75%-4.00% range, and 94 of 100 economists in a Reuters poll expected no change.
The real question is December. A "hawkish hold" means the Fed keeps rates steady but signals that another hike is still possible. FOREX.com says Fed Chair Kevin Warsh's guidance will be watched for exactly that. FxPro's analysis adds that Warsh would likely prefer bond markets to do some of the tightening, because high medium-term yields can restrain inflation without a rate rise. Fed Governor Christopher Waller has said further hikes are likely needed to bring inflation down, but not necessarily at back-to-back meetings.
The Euro: a reprieve with strings attached
EUR/USD is trading near 1.12, after rising 0.15% to about 1.1218 when Moody's kept France's credit rating at Aa3 with a negative outlook on Friday instead of cutting it. The pair is stuck inside a narrow triangle pattern, which in plain terms means buyers and sellers are evenly matched and a breakout is waiting for a catalyst.
The cloud over the Euro has not gone. FxPro says the gap between French and German government bond yields (the "spread", a measure of how much extra investors demand to hold French debt) widened by 29 basis points last week to a peak of 170, about twice its May level. Hedge funds' net short positions on the Euro are at their highest since March 2020, and French flash PMI data fell back below 50, the line between growth and contraction. The ECB is expected to hold rates and sound hawkish, but higher ECB rates would make France's debt more expensive to finance.
Sterling: soft data before a big Budget
GBP/USD is near 1.3376 and has stalled repeatedly just above 1.34. The latest UK numbers were weak. Retail sales volumes fell 0.4% in September against an expected 0.1% drop, and the GfK consumer confidence index dropped 11 points to -24, its steepest one-month fall since the 2020 pandemic. Markets have still priced in a possible Bank of England rate hike in November, so Sterling is caught between weak consumers and a central bank that may keep tightening. The UK Budget on Wednesday adds another layer of event risk.
Yen, Aussie and Loonie: waiting on their own banks
USD/JPY barely moved, hovering below 157 as traders waited for the Bank of Japan on Friday. The BoJ is expected to hold at 1.25% after two 25 basis point hikes this year, and markets expect another hike in December. The Australian Dollar was flat at about 70.32 US cents, with markets putting the odds of a Reserve Bank of Australia hike at its meeting on November 3 near 61%, after four hikes this year took the cash rate to 4.60%. USD/CAD is down more than 2.3% from its monthly highs, with the Bank of Canada deciding on Wednesday.
What this means for the Dollar
The Dollar looks neutral rather than weak. FXEmpire describes the DXY as balanced between support near 101.6 and resistance around 102, and a clean break either way would need a trigger. That trigger is most likely to be Warsh on Wednesday. A Fed that leaves the door wide open for December would tend to support the Dollar, while a calmer tone, helped by lower oil and yields, would let the recent drift lower continue.
What traders should prepare for
Wednesday: the Fed decision and Warsh's press conference, the Bank of Canada decision, the UK Budget, and the RBNZ decision (expected to raise rates by 25 basis points to 3.0%)
Wednesday: Australian Q3 inflation, which feeds into next week's RBA decision
Thursday: the ECB decision, plus US Q3 GDP and the September PCE price index, the Fed's preferred inflation gauge
Friday: the Bank of Japan decision
November 3: the RBA decision (per the ABC report) and the US midterm elections
French bond spreads and any new Moody's or S&P commentary on France, which can move the Euro quickly
The sources give dates but not clock times, so check an economic calendar for the exact GMT release times
Bottom line: The Dollar is treading water because the market is waiting for the Fed, and the Euro, Sterling and Yen are all tied to their own central bank decisions this week.
This article is for informational and educational purposes only and does not constitute financial or investment advice. Trading involves risk of loss — always do your own research before making any decisions.
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