MORGANABLE BUSINESS / MARKETS & MONEY
The US dollar remained near a two-week high on Wednesday, October 28, as investors waited for the Federal Reserve’s latest interest-rate decision.
Akure —
The US dollar remained near a two-week high on Wednesday, October 28, as investors waited for the Federal Reserve’s latest interest-rate decision. Traders largely expected the central bank to leave rates unchanged.
However, they were watching for clues about whether policymakers might consider another increase in December.
The dollar’s strength reflected caution across currency markets. Investors have had to weigh interest-rate expectations, inflation risks and changing signals from other central banks.
As a result, even a decision to keep rates steady could move markets if the Fed’s statement changes expectations for the months ahead.
The dollar index, which measures the US currency against six major currencies, traded around 102.40 on Wednesday.
It rose 0.3% on Tuesday, reaching its highest level since October 14. The US 10-year Treasury yield rose 2.2 basis points to 5.0112%, Reuters reported.
FED DECISION IN FOCUS
Markets expected the Federal Open Market Committee to keep its policy rate unchanged at its October meeting.
CME Group’s FedWatch tool showed a 91% implied probability of a hold. That pricing reflected traders’ expectations, not a guaranteed outcome.
The official announcement was still ahead.
Investors were paying close attention to the Fed’s comments about inflation and the outlook for future policy.
If officials suggest that rates may need to rise again, the dollar could gain further support.
In contrast, a more cautious message could reduce expectations of a December increase and put pressure on the currency.
Chris Weston, head of research at Pepperstone, said the Fed could move markets without raising rates at the October meeting.
He explained that a change in the perceived likelihood of a December increase could be enough to affect trading.
His comments highlighted why investors were focused on the policy statement as well as the rate decision itself.
Higher US interest rates can make dollar-denominated assets more attractive to investors.
They can also increase pressure on other currencies, particularly when their central banks are expected to keep rates lower.
MAJOR CURRENCIES TRADE NARROWLY
The euro traded around $1.1124, while the British pound slipped 0.1% to $1.32945.
The US dollar was little changed against the Japanese yen at about 157.945 yen.
These moves showed that several major currencies were relatively steady as traders waited for clearer signals from the Fed.
However, currency movements were not uniform across the region. The New Zealand dollar fell sharply after the Reserve Bank of New Zealand unexpectedly kept its official cash rate at 2.75%.
The decision surprised markets because a Reuters poll had found that 22 of 27 economists expected the central bank to raise rates.
The New Zealand dollar dropped as much as 1.7% to $0.55831 before recovering some losses.
Governor Anna Breman said the rate-setting committee expected further increases at coming meetings.
She also indicated that future increases could be larger than the central bank had suggested in September.
The announcement showed how quickly exchange rates can react when central-bank decisions differ from market expectations.
Before the announcement, traders had positioned for a rate increase. Once the RBNZ held rates instead, those positions shifted and the New Zealand dollar weakened.
Mike Houlahan, director at Electus Financial in Auckland, said the market had misjudged the decision.
Other analysts suggested that the RBNZ had delayed tightening rather than ruled it out.
Nevertheless, the surprise added uncertainty to the outlook for New Zealand’s currency.
AUSTRALIA’S INFLATION ADDS PRESSURE
The Australian dollar edged up 0.1% to $0.70345 after new figures showed that consumer prices rose 1.3% in the third quarter.
That compared with an increase of 0.6% in the previous quarter. The trimmed mean measure of core inflation rose 1% during the quarter, keeping its annualised rate at 3.6%, above the Reserve Bank of Australia’s target range.
The data strengthened expectations that the RBA could raise rates at its meeting next week.
Governor Michele Bullock told lawmakers that policymakers would consider whether four rate increases this year had done enough to bring inflation back towards target.
Investors will watch the bank’s decision for signs of how it plans to respond to persistent price pressures.
CANADA AND OTHER MARKETS
The US dollar rose 0.1% to 1.4063 Canadian dollars ahead of the Bank of Canada’s policy announcement.
Money-market pricing implied a 77% chance of a 25-basis-point rate increase. However, economists in a Reuters survey were less certain: 19 of the 34 respondents expected the bank to raise rates.
Meanwhile, the Israeli shekel weakened by about 1% amid renewed political uncertainty.
Exit polls pointed to a deadlock following the country’s election, leaving investors without a clear picture of the next political steps.
Such uncertainty can affect currency demand as traders assess the possible economic and policy consequences.
Digital assets also recorded modest gains during the session. Bitcoin rose 0.4% to $81,062.47, while ether gained 0.8% to $2,360.81, Reuters reported.
These moves came as investors across asset classes considered the possible impact of US interest-rate policy on financial conditions.
WHAT INVESTORS WILL WATCH NEXT
The Fed’s decision remained the main event for currency traders on Wednesday.
Although markets largely expected no change in rates, the central bank’s wording could shape expectations for December.
Investors will look for any shift in how officials describe inflation, economic conditions and the possibility of further tightening.
The dollar’s recent gains also show how expectations can support a currency before a policy announcement.
However, a move that is already widely anticipated may have a limited effect if officials provide no new information.
The market reaction will depend on how the decision and guidance compare with what investors have priced in.
Developments in New Zealand, Australia and Canada offer another reminder that currency markets respond to local decisions as well as US policy.
Unexpected rate decisions can trigger sharp moves, while inflation data can change expectations for future action.
As central banks deliver their announcements, traders will continue to compare the direction of policy across economies.
For now, the dollar remains close to its recent high as investors wait for the Fed’s message.
The Reuters report had not confirmed the Fed’s decision, so expectations of a rate hold should not be described as an outcome.
The market’s next move will depend on the actual decision and the signals officials give about the months ahead.
