SINGAPORE, Oct 30 (Reuters)
The dollar remained stable on Thursday as traders appeared to pull back some expectations regarding additional U.S. interest rate cuts this year. This hesitation comes while they await more details from President Trump’s meeting with Chinese leader Xi Jinping.
During their conversation in South Korea, President Trump remarked that a trade deal with China could be signed soon. Meanwhile, President Xi indicated that both countries’ trade negotiators had achieved a preliminary agreement.
The much-anticipated meeting did not generate significant excitement, and the resulting currency fluctuations were quite muted. Still, investor sentiment improved as hopes grew for a warming in trade relations between the U.S. and China.
This positive outlook allowed the dollar to maintain its overnight gains, holding steady around 99.025 against a variety of currencies, marking a two-week peak. The euro increased by 0.13% to $1.1616, having previously dipped by 0.43%. In contrast, the pound hovered near a five-and-a-half-month low, trading at $1.3204.
Interest Rate Updates
In a related move, the Federal Reserve lowered interest rates by 25 basis points as expected and announced the conclusion of its balance sheet reduction by December 1.
However, Chairman Jerome Powell hinted at possible complications ahead. He suggested that policy disagreements within the Fed and data uncertainty due to the government shutdown might prevent any further rate cuts for the rest of the year. According to Carol Conn, a currency strategist at the Commonwealth Bank of Australia, there seems to be division within the Fed on future policy directions. With the ongoing shutdown, Powell’s cautious stance could possibly delay any rate cuts until 2026.
Before the Fed’s latest decision, market expectations for another half-point cut in December were nearly fully priced in. Following the announcement, this probability fell to around 68%.
Market Watch: Bank of Japan
Attention now shifts to the Bank of Japan’s policy decision expected later today. The central bank is likely to keep interest rates unchanged but may underscore its commitment to gradually increasing borrowing costs, which are currently very low.
As the market awaits this outcome, the yen has dropped to near an eight-month low against the strengthening dollar, last quoted at 152.46 yen. Additionally, its exchange rate against the euro is close to an all-time low of 177.12.
“The voting results will be crucial,” commented Kong from the Commonwealth Bank. Notably, at the previous meeting, two out of nine board members supported a 25 basis point rate increase. It will be interesting to see if this sentiment changes at the upcoming meeting. There is also an awareness that the Bank of Japan operates with considerable political sensitivity, especially now that the Takaichi administration is solidifying new economic policies.
Some investors speculate that Sanae Takaichi’s new role as prime minister might affect the Bank of Japan’s interest rate strategies, since she is known for her advocacy of monetary easing policies.
In other currency movements, the Australian dollar edged up by 0.26%, reaching $0.6591, while the New Zealand dollar gained 0.24% to $0.5778. Both currencies received a boost from a strong yuan, which climbed to its highest level against the dollar in nearly a year due to optimism about trade relations between the U.S. and China. The onshore yuan reached 7.0955 to the dollar, the highest since November 4, 2024.
