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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market Analysis]: The Federal Reserve's decision to cut interest rates is imminent, and the U.S. dollar index remains volatile." Hope this helps you! The original content is as follows:
The U.S. dollar index fluctuated in Asian trading on Tuesday, and the U.S. dollar weakened against the euro and the Australian dollar on Monday as optimism about a possible trade deal boosted risk appetite and reduced demand for the U.S. dollar. Overall moves in currency markets were relatively muted as traders awaited several key central bank meetings this week. While the Federal Reserve is the focus of U.S. markets, both the European Central Bank and the Bank of Japan are scheduled to announce interest rate decisions on Thursday. The European Central Bank is expected to keep interest rates on hold, supported by strong euro zone data last week, which pushed the euro to $1.1628 and pushed the euro against the yen to a record 178.13 yen.
US dollar: As of press time, the US dollar index is hovering around 98.69. The Federal Reserve’s upcoming interest rate decision on Wednesday is generally expected to be another 25 basis point interest rate cut. After months of waiting and watching, the Federal Reserve finally launched a new interest rate cut plan at its last meeting, and the market is convinced that the Fed will cut interest rates for the second time in a row this week. The key point in the Fed's interest rate decision this week is whether the Fed will signal that it will cut interest rates for the third consecutive time in December. Technically, despite the weaker intraday trend, the U.S. Dollar Index was able to hold above the 98.797-98.714 support range and the 50-day moving average at 98.128, indicating underlying buying interest. The short-term directional bias depends on the Fed's decision on Wednesday, but any signs of a slowdown in the pace of quantitative tightening or an increase in the attractiveness of U.S. dollar yields could provide fresh support. While the U.S. Dollar Index remains range-bound, a sustained break above 99.139 would confirm short-term bullish momentum. On the contrary, failure to hold the 50-day moving average may lead to market conditionsThe mood turned bearish.
The French National Assembly passed an amendment on Monday, planning to increase taxes on large domestic jq.xmxmxm.cnpanies next year. It is an effort by the French government to rein in its fiscal deficit and reach a jq.xmxmxm.cnpromise with opposition lawmakers. The Finance Ministry initially aimed to increase revenue by 4 billion euros (approximately $4.7 billion) in 2026 by partially extending this year's temporary tax increase policy for large jq.xmxmxm.cnpanies. But as lawmakers rejected other revenue-raising measures - notably the lifting of a planned freeze on personal income tax brackets -Closing plan - the Ministry of Finance then proposed an amendment to increase the revenue target to 6 billion euros. "Recent amendments have resulted in a reduction of approximately 4 billion euros in revenue from the draft budget," Finance Minister Roland Lescuer said in the National Assembly. "At the same time, many party groups believe that large enterprises should bear more tax burdens."
On October 27, local time, Turkish President Erdogan met with British Prime Minister Starmer at the Presidential Palace in Ankara. The two parties jointly signed a cooperation agreement on the "Typhoon" fighter jets. It is reported that the total amount of the agreement reaches 8 billion pounds (approximately 10.7 billion U.S. dollars), including Turkey's purchase of 20 "Typhoon" fighter jets. Erdogan said that he regarded the "Typhoon" agreement as a new sign of the development of Turkey-UK strategic relations and believed that this move would open the door for joint defense projects between the two sides in the future. British Prime Minister Starmer said that the "Typhoon" fighter jet agreement will deepen the security cooperation between the two countries under the framework of NATO and further strengthen their partnership in the defense industry. In addition, Turkish Defense Minister Guler revealed that in addition to the 20 British fighter jets, Türkiye will also purchase 12 fighter jets from Qatar and Oman. The first batch of fighter jets is expected to be delivered early next year.
The Federal Reserve is expected to lower the federal funds rate target range by 25 basis points to 3.75%-4.0% on Wednesday. However, Generali Investments predicts that the vote among policymakers may be "three-split": one dissenter supporting a larger 50 basis point rate cut, and possibly some dissenters supporting keeping rates unchanged. Paolo Zangieri, senior economist at the agency, said this would create an "almost unprecedented" divergence. The agency expects the Fed to cut interest rates again in December and make a final cut in the first quarter of 2026. Zangieri said that at the press conference, Fed Chairman Powell may describe the interest rate cut as a risk management measure without giving any hints about the policy preference for the December meeting.
On October 27, local time, Mexican President Sheinbaum said that U.S. President Trump has agreed to once again extend the deadline for the two countries to reach an agreement on trade, security and immigration issues. Sheinbaum said she and Trump had a very brief and friendly phone call last week, in which both sides agreed that their respective officials would continue to work and that Trump would not impose additional tariffs. She said both sides agreed that progress was going very well and that they would hold talks in the jq.xmxmxm.cning weeks to try to reach an agreement.
Trump may replace the Chairman of the Federal Reserve at the end of 2025, although Powell will serve until 2026. Powell's resistance to steep rate cuts clashes with Trump'seconomic goals are in stark contrast. September's 25 basis point interest rate cut, as well as jitters within the Federal Open Market jq.xmxmxm.cnmittee (FOMC), further heightened tensions. The market may experience fluctuations of 1%-2%, which is similar to market performance during past Fed-related changes.
On October 27, local time, when asked whether he planned to meet Canadian Prime Minister Carney during the 32nd Asia-Pacific Economic Cooperation (APEC) jq.xmxmxm.cnrmal Leaders’ Meeting in South Korea, U.S. President Trump said, “I don’t want to meet him, and I won’t meet him for a long time.” It is reported that Trump and Carney had previously participated in the ASEAN meeting in Malaysia, but the two sides did not meet. Canadian Prime Minister Carney said in Kuala Lumpur on the 27th that he had not spoken with Trump since Trump announced the termination of negotiations with Canada on the 23rd. Carney said he was still ready to talk to Trump and Canada was always ready to sit down and talk. Canada-US trade negotiations have made considerable progress before. But if the United States is not prepared to resume negotiations, Canada will continue to build a diversified domestic economy and development partnership.
The Federal Reserve Policy jq.xmxmxm.cnmittee may take two decisive dovish measures at the same time on Wednesday: implement a 25 basis point interest rate cut and release further easing signals, and at the same time announce the end of the balance sheet reduction plan (a move that may put downward pressure on Treasury yields). Derek Tang, an analyst at LHMeyer, a Federal Reserve observer agency, pointed out: "The dual actions of cutting interest rates (plus expectations of subsequent easing) and stopping the balance sheet reduction in advance will significantly support market risk appetite." He added that although there are still variables whether to terminate the balance sheet reduction this week, the recent tightening of the financing market has significantly increased the possibility of this decision.
ApoBank economist Bjorn Orr said that due to the divergence of monetary policies between the United States and the Eurozone, the euro is expected to continue to appreciate against the US dollar. The Federal Reserve is expected to cut interest rates again this week and in the jq.xmxmxm.cning months, while the European Central Bank is expected to keep rates on hold. Orr pointed out: "Given that the key interest rates in the euro area are likely to remain unchanged until the end of 2026, and the Federal Reserve may further cut interest rates during the same period, from an interest rate policy perspective, there are signs that the euro will continue to appreciate against the dollar."
Morgan Stanley strategists said that U.S. dollar positions have turned positive for the first time since the first quarter of 2025. "Investors appear increasingly confident in the U.S. outlook." Events outside the U.S. have also reduced the appeal of non-dollar assets, including political uncertainty in Japan and France, they noted. In addition, the market remains uncertain whether investors will continue to buy more U.S. dollars.Skepticism about downside risk hedging tools is rising. However, in the medium term, the dollar still faces the risk of weakening again. If economic data fails to show meaningful signs of recovery, especially on the employment front, markets may price in more U.S. interest rate cuts. Meanwhile, pessimism in other parts of the world is likely already fully priced in and may even be overvalued, while further FX hedging remains a possibility.
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