Fed’s Tone Limits October Gains Across Markets (3-7 November)

The final trading week of October closed with renewed dollar strength, cautious central banks, and uneven market sentiment across major assets.

The Federal Reserve’s hawkish tone, despite a second consecutive rate cut, kept the dollar near multi-month highs and weighed on gold and major currencies. While optimism around the Trump-Xi trade truce briefly improved risk appetite, fading expectations of further monetary easing and mixed economic data kept volatility high across commodities, bonds, and currencies before November’s policy decisions.

Currencies

Dollar Index: The dollar index climbed for a third straight session to 99.8, its highest since August, ending October up 1.8%. Gains followed the Fed’s cautious tone after a 25 bps cut, as Powell said a December move isn’t certain, cutting odds to 63%. The greenback also rose after the Trump–Xi meeting reduced tariffs, while the U.S. shutdown and Japan’s leadership shift lent support.
Euro (EUR/USD): The euro slipped toward $1.15, its weakest since July, after the ECB’s third rate hold. Officials, including Villeroy de Galhau and Lagarde, said the stance is appropriate but flexible if risks rise. With inflation near 2% and a stronger GDP, the ECB signaled little urgency for more easing.
British Pound (GBP/USD): Sterling fell below $1.32, its lowest since April, pressured by a firm dollar and growing BoE cut bets. The Fed’s cautious tone and weaker UK data weighed further. PM Starmer’s openness to tax hikes and softer inflation reinforced expectations of policy easing.
Japanese Yen (USD/JPY): The yen hovered near 154 per dollar, down 4% this month, as new PM Takaichi maintained a loose policy. The BoJ held rates, with Ueda warning of trade risks. Katayama softened earlier yen remarks, while stronger Tokyo inflation and a firmer dollar deepened losses.

Commodities

Gold (XAU/USD): Gold held near $4,020/oz, heading for a second weekly loss as fading Fed cut hopes and a U.S.–China truce weighed. The one-year deal covered rare earths and tariff cuts, but uncertainty persists. Despite pressure, gold is up 50% this year, with Q3 central bank buying at 220 tons, led by Kazakhstan and Brazil.
Silver (XAG/USD): Silver traded above $49/oz, posting a small weekly gain as volatility improved demand. Market swings over AI spending offset the limited Fed and trade deal impact. Powell’s tone and easing London lease rates improved liquidity, though profit-taking capped highs.
Brent Crude (Oil): Brent rose to $64.5/bbl, lifted by Venezuela risks despite ample supply. U.S. sanctions on Rosneft and Lukoil added pressure, while OPEC+ plans a 137,000 bpd hike in December. Record tanker inventories of 1.4 billion barrels underline global oversupply.

Fixed Income

U.S. Treasuries: The 10-year yield held near 4.1%, supported by a hawkish Fed. Despite the cut, Powell said December easing isn’t assured, with odds down to 63%. The Fed will end balance sheet runoff in December, reinvesting MBS into bills to ease liquidity.
UK Gilts: The 10-year gilt yield fell below 4.4%, the lowest since Dec 2024, on rising BoE cut bets. The OBR may trim productivity forecasts by 0.3 pts, widening a £20B fiscal gap. Soft CPI and food prices strengthened expectations of a 25 bps cut in December.
Japan Bonds: The 10-year JGB stayed near 1.65% after the BoJ held its 0.5% rate by a 7–2 vote. Ueda noted moderate growth but warned of trade risks. Stronger Tokyo inflation and PM Takaichi’s pro-growth stance complicate tightening.
Germany Bunds: The 10-year Bund rose to 2.65%, a three-week high, after hawkish ECB/Fed signals and firm German inflation at 2.3%. The ECB held rates, citing data dependence, as exports weakened and yields logged a mild weekly gain.

United States Fed Funds Rate

The Fed cut rates 25 bps to 3.75%-4.00%, its second straight reduction.
Miran backed a 50 bps cut, Schmid preferred none.
Powell said a December cut isn’t guaranteed.
The Fed’s runoff ends Dec 1, easing funding pressures.

U.S. CB Consumer Confidence (Oct)

Confidence fell to 94.6, a six-month low, from 95.6.
Job worries, tariffs, and the shutdown hit sentiment, mostly among low-income groups.
Only middle-aged and Independent consumers showed slight improvement.
Economists expect another 25 bps Fed cut this week.

Euro Area Interest Rate

The ECB held the refinancing rate at 2.15% and the deposit rate at 2.0% for a third meeting.
Inflation stayed near target, growth steady, and labor markets strong.
Policymakers cited trade risks and reaffirmed a data-driven stance.

China NBS Manufacturing PMI

The PMI fell to 49.0 in Oct from 49.8, marking a seventh month of contraction.
Output, orders, and exports declined; confidence hit a three-month low.
Input costs rose more slowly while selling prices dropped faster, reflecting weak global demand.

With the dollar holding firm near multi-month highs, gold consolidating around the $4,000 mark, and oil stabilizing near $64 per barrel, markets appear to be entering a period of recalibration. The coming weeks will test whether central banks’ cautious approach can sustain stability, or if renewed policy divergence will spark the next wave of volatility.

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