Interest Rates Fall, Dollar Strengthens - How's That Possible?
The US dollar strengthened slightly on Thursday (October 30th) after Fed Chairman Jerome Powell declined to signal another interest rate cut this year. Previously, the Fed cut interest rates by 25 basis points (bps) as expected and stated that it would stop shrinking its balance sheet on December 1st. Powell's cautious comments led the market to trim bets on a December rate cut; the probability dropped to around 68%. The pound briefly weakened to a 5.5-month low before last at $1.3195, while the euro edged up 0.03% to $1.1604 after falling 0.43% overnight.
Market focus now shifts to the Bank of Japan (BOJ) decision. The BOJ is expected to hold interest rates but could reiterate its intention to continue with gradual normalization. Ahead of the announcement, the yen was under pressure, hovering near an eight-month low of 152.59 per dollar and also near a record low against the euro of 177.12. Analysts believe the outcome of the BOJ's internal vote will be crucial, given that at the previous meeting, two of the nine members supported a 25-bps hike.
The market is also watching the political situation in Japan. The election of Sanae Takaichi as the new prime minister is considered to make the prospect of a BOJ interest rate hike more challenging, as she is known for supporting loose monetary policy. Meanwhile, the Australian dollar remained relatively flat at $0.6575, and the New Zealand dollar weakened slightly to $0.5763, reflecting widespread caution among G10 currencies.
Beyond the BOJ, market participants are awaiting a crucial meeting between US President Donald Trump and Chinese President Xi Jinping. The hope is that both countries will pause tariff tensions and cool the trade war. Several market participants believe that the positive statements following preliminary talks in Malaysia last weekend signaled a clear tariff ceiling, and even the possibility of China withdrawing its planned rare earth metal export controls. If achieved, global risk sentiment could improve and the dollar's movement could potentially become more balanced. (az)
Source: Newsmaker.id
