Dollar Rises as Fed Caution Lifts Greenback (03 – 07 November)

The dollar index climbed for a third consecutive session on Friday to near 99.8, its highest since early August, closing October with a 1.8% monthly gain. Despite delivering a 25bps rate cut, the Federal Reserve struck a cautious tone, with Chair Powell signaling that a December cut isn’t guaranteed, cutting market odds to 63% from 90%.

A U.S.–China trade deal and delayed economic data due to the government shutdown added to dollar strength, pushing the greenback higher versus the yen (+4%), pound (+2%), and euro (+1.4%).

Gold hovered around $4,020/oz, heading for its second weekly loss, weighed down by fading Fed easing bets and a partial U.S.–China trade truce. Meanwhile, Brent crude rose to $64.5/bbl, lifted by sanctions on Russian oil firms and geopolitical tensions in Venezuela, while supply remained ample. The U.S. 10-year Treasury yield held near 4.1%, reflecting mixed signals from policymakers and sustained inflation concerns.

The euro dropped toward $1.15, its weakest since July, as ECB officials emphasized a steady policy stance. The British pound slipped below $1.32, pressured by soft inflation data and growing expectations for BoE rate cuts. The Japanese yen weakened to 154 per dollar, hitting a nine-month low amid continued fiscal stimulus and the Bank of Japan's accommodative policy.

Market Drivers and Catalysts

• Currencies: Dollar rises on Fed caution and trade progress; euro and pound weaken on policy divergence; yen pressured by fiscal expansion
• Commodities: Gold falls for second week; silver firms amid volatility; oil rises on sanctions and Venezuela tensions
• Fixed Income: U.S. yields steady near 4.1%; gilt yields fall on soft inflation; Bunds rise on hawkish ECB; JGBs flat post-BoJ hold
• Macro Events: Fed funds rate, U.S. consumer confidence, ECB policy hold, China PMI, UK productivity forecast
• Macro Headlines: Fed trims rate but hints pause; Trump–Xi trade deal eases tensions; OPEC+ to raise output; record oil at sea

Fixed Income

• United States: The 10-year Treasury yield held around 4.1%, ending a three-day rally fueled by the Fed’s hawkish tone. While policymakers delivered a 25bps cut, the second in a row, Chair Powell emphasized caution on further easing, pushing rate-cut odds for December to 63% from 90%. Some Fed officials dissented, citing persistent inflation. The Fed also confirmed it will end balance sheet reduction in December, redirecting MBS and maturing Treasury proceeds into short-dated bills.
• United Kingdom: The 10-year gilt yield fell below 4.4%, its lowest since December 2024, as rate cut expectations firmed. The OBR’s downgrade of productivity growth by 0.3 points widened the fiscal gap by £20 billion ahead of the November budget. Easing food prices and stable inflation supported a dovish shift, with traders pricing a 68% chance of a 25bps cut in December.
• Japan: The 10-year JGB yield remained around 1.65% after the BoJ left rates unchanged at 0.5% in a 7–2 vote, with two members pushing for a hike. Governor Ueda noted moderate recovery but flagged risks from global trade. Meanwhile, Tokyo core inflation beat forecasts, and newly elected PM Takaichi’s pro-growth stance added to the BoJ’s accommodative bias.
• Germany: The 10-year Bund yield rose to 2.65%, the highest since October 9, as the ECB and Fed both signaled hesitance on further cuts. While the ECB held rates steady for the third meeting, President Lagarde emphasized a data-dependent stance. German inflation eased to 2.3%, but weak exports left GDP stagnant, limiting room for fiscal expansion.

Commodities

Gold hovered around $4,020 per ounce, logging a second straight weekly decline as Fed hawkishness and a U.S.–China trade agreement reduced urgency for rate cuts. Though down from highs, gold remains up 50% year-to-date, underpinned by central bank demand, with Q3 purchases totaling 220 tons, led by Kazakhstan and Brazil, returning after four-year pauses.

Silver rose above $49, posting a modest weekly gain, supported by safe-haven flows amid equity volatility and speculation-driven moves. Market liquidity improved, reflected in falling London silver lease rates, while Powell’s cautious tone and reduced rate-cut expectations capped further upside.

Currencies

• Dollar: The dollar index climbed to 99.8, its highest since August, closing the week and month stronger. Despite a 25bps Fed cut, the hawkish tone from Chair Powell and improving U.S.–China trade relations supported the greenback. The ongoing government shutdown, along with weak data from Japan and Europe, reinforced dollar dominance.
• Euro: The euro fell to $1.15, as the ECB’s steady stance and weak inflation data provided little support. Policymakers remained confident in their current approach, but flagged downside risks from trade and geopolitics. GDP and survey data beat forecasts, but the strengthening dollar and Fed tone outweighed the regional positives.
• Pound: The British pound dropped below $1.32, its lowest since April, weighed by dovish BoE expectations, soft inflation, and fiscal concerns ahead of the November budget. PM Keir Starmer’s refusal to rule out tax hikes, and the OBR’s lowered productivity outlook, added downside risk. Traders see an increased likelihood of easing by year-end.
• Yen: The yen traded near 154, down 4% in October, pressured by continued fiscal stimulus, BoJ accommodation, and a rising dollar. Despite hotter Tokyo CPI and geopolitical jitters, the yen weakened as Finance Minister Katayama walked back earlier support for yen strength, aligning with PM Takaichi’s pro-growth agenda.

Macro Calendar Highlights

• U.S. Fed Funds Rate Decision (Oct)
• U.S. CB Consumer Confidence (Oct)
• ECB Interest Rate Decision (Oct)
• China NBS Manufacturing PMI (Oct)
• Eurozone GDP & Inflation (Oct)
• BoJ Policy Decision (Nov)
• U.S.–China Trade Agreement Details