Federal Reserve Chair Jerome Powell has signaled a “wait-and-assess” approach ahead of the upcoming Federal Open Market Committee (FOMC) meeting, creating uncertainty for traders focusing on the U.S. dollar’s trajectory. Markets are increasingly betting on a near-term rate cut, and the dollar index (DXY) has reached an important crossroad. It risks getting stuck between “good news” softening inflation data and new hawkishness expectations for more easing.
The next FOMC meeting is on Thursday, October 30th. Most are anticipating that the Federal Reserve will cut the federal funds rate by 25 basis points to a range of 4.00% from its current level of 4.25%. Historically, traders have reacted strongly to the release of last week’s Consumer Price Index (CPI) data that confirmed continued disinflation. Consequently, current market pricing indicates a 96.7% chance of this cut happening. The overall CPI was up 0.3% since last month, a tad below the forecasted jump of 0.4%. At the same time, the core CPI came in at 0.2%, exactly as expected, but down from last month’s 0.3% increase.
In light of the potential rate cuts, Powell’s upcoming statements during the Fed Press Conference, scheduled for 2:30 AM on October 30, will serve as a key market trigger. Analysts and investors alike will be looking at his tone with a hawkish eye. Any indication of a dovish pivot or disappointing GDP growth would be enough to send the DXY crashing below major support.
Now DXY is ranging between 98.78 and 99.13. This price fluctuation demonstrates that market participants are not overreacting, but rather, waiting for opportunities with calculated patience. Analysts warn that a break below 98.30 could initiate a new bearish leg for the dollar, particularly if Powell emphasizes a dovish tone. If he drops a hint of a pause post this cut, we’re likely to see a short-term bullish expansion. If so, we should expect to see prices lifting up into the range of 99.70 to 99.90.
The government shutdown has delayed several major economic reports, making the FOMC meeting and the upcoming U.S. GDP Growth Rate release pivotal for market clarity. Scheduled for October 30 at 8:30 PM, the advance Q3 GDP growth rate is forecasted to be 3.0%, down from the previous rate of 3.8%. This is the most important data point as a negative outcome would add more pressure on the dollar’s position.
FOMC week has become a pivotal inflection point for market dynamics. It usually brings an end to stagnation and heralds a change in macroeconomic tides as well. Traders are getting prepared for changes in sentiment. They seem to be ready to squeeze equities and metals, demonstrating a strong risk-on appetite in these asset classes.
The dollar is being stacked on one side as it trades a world where inflation is rolling over quickly and rate cuts are just around the corner. The interplay between these factors will likely influence how pairs such as EUR/USD and commodities like gold perform heading into November.