The US Dollar Index climbed to a two-week high above 99.00, boosted by rising US Treasury yields and comments from Chair Jerome Powell after a recent Federal Reserve rate cut. Fed officials Bowman and Logan are also scheduled to speak soon. The EUR/USD pair dropped to about 1.1580 as attention shifts to the European Central Bank’s upcoming rate decision and Germany’s key economic data. Key Eurozone statistics, including Q3 GDP, Consumer Confidence, and the Unemployment Rate, are also on the horizon.

British Pound Weakness

The GBP/USD fell to multi-month lows around 1.3140 as the US Dollar strengthened and expectations for a Bank of England rate cut increased. Nationwide Housing Prices data is due on October 31. The USD/JPY rose above 153.00, continuing its upward trend. The Bank of Japan is expected to keep its policy rate unchanged, with Foreign Bond Investment data pending. The AUD/USD dropped below the 0.6600 mark as the US Dollar gained strength. Upcoming data will include Australia’s Export and Import Prices. WTI crude oil bounced back to $61.00 per barrel, influenced by trade news and a significant drop in US crude inventories. Gold fell for the fourth consecutive day due to a stronger US Dollar, while silver climbed above $48.00 per ounce.

Impact of Federal Reserve Rate Cut

The recent Federal Reserve rate cut appears to be a “one and done” event for now, which is why the US Dollar is strengthening. The US Dollar Index is now above 99.00, supported by last week’s unexpected 2.5% Q3 GDP growth report, suggesting the economy doesn’t require further cuts immediately. This makes short-term bets on dollar strength appealing over the next few weeks. On the other hand, the European Central Bank is likely to adopt a more cautious stance, creating a clear policy gap with the Fed. Germany’s preliminary Q3 GDP figures show almost no growth at just 0.1%, putting pressure on the ECB to indicate potential easing. Traders might consider buying puts on the EUR/USD, aiming for a drop below the 1.1500 level. The British Pound is also facing challenges, testing lows near 1.3140, as the market anticipates a 60% chance of a Bank of England rate cut by year-end. UK inflation fell to 2.8% in September, faster than expected, giving the BoE room to act. This suggests that any short-term jumps in GBP/USD will likely be seen as selling opportunities. The Bank of Japan’s steady policy supports a strong US Dollar against the Yen, pushing USD/JPY above 153.00. This strategy worked well in 2023 and 2024, where the large interest rate gap was the main factor. As long as the BoJ remains steadfast and US yields stay high, buying dips in this pair is a solid strategy. Crude oil prices are close to $61 a barrel, bolstered by yesterday’s EIA report that showed a larger-than-expected 4.1 million barrel drop in US inventories. However, the strong dollar acts as a headwind for commodity prices, likely limiting any significant upward movement. Caution is advised for those considering large long positions until WTI can break decisively above the $65 resistance level. Gold’s decline is directly linked to rebounding US Treasury yields, with the 10-year note rising above 4.1% after the Fed meeting. This makes the non-yielding metal less appealing to investors looking for returns. Interestingly, silver rising above $48 an ounce indicates that its industrial demand is currently outpacing the trend for precious metals, a divergence worth keeping an eye on. Create your live VT Markets account and start trading now.

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