Forex Market's Mixed Performance Ahead of Fed Policy Announcement

The global foreign exchange market displayed a mixed session as investors navigated cautiously ahead of the Federal Reserve's forthcoming policy decisions on interest rates and quantitative tightening (QT). Amid heightened anticipation, the U.S. dollar experienced relative weakness against several global currencies, while modest gains were observed in the Japanese yen and the euro.

U.S. Dollar Shifts Against Major Currencies

On October 29 (Korea Standard Time), the U.S. dollar depreciated against a basket of commodity and Asian currencies, including the Japanese yen, Canadian dollar, and Australian dollar. However, it demonstrated limited strength against the Swiss franc and New Zealand dollar. Reflecting this dynamic, the U.S. Dollar Index (DXY) fell by 0.13% to close at 98.305.

The dollar/yen pair recorded a marginal decline of 0.04%, closing at 152.03 yen after peaking earlier at 152.12 yen during the session. This retracement occurred as Japan’s government bolstered its vigilance over foreign exchange movements. Minoru Kihuchi, Japan’s Minister for Growth Strategy, hinted at potential intervention, commenting, "We will closely monitor the economic impact of the weaker yen." The yen’s moderate appreciation was a reaction to these signals.

Meanwhile, the euro gained slightly against the dollar, with the euro/dollar pair edging up 0.01% to finish at $1.1652. Similarly, the pound/dollar pair moved higher by 0.01%, reaching $1.3271. This uptick in the euro and pound against the dollar is partly attributed to investors interpreting diminished prospects for additional rate hikes by the European Central Bank (ECB), suggesting a reduced policy divergence between the Fed and the ECB—a supportive factor for the euro.

However, the euro/pound pair declined by 0.04%, settling at 0.8775 pounds, reflecting the euro's relative strength over the pound.

Swiss Franc and Risk Appetite Dynamics

The U.S. dollar weakened by 0.02% against the Swiss franc, closing at 0.7930 francs. Optimism surrounding U.S.-China trade negotiations bolstered investor confidence, enhancing demand for risk assets. Nonetheless, ongoing geopolitical uncertainties and the prolonged U.S. government shutdown sustained interest in safe-haven assets like the Swiss franc, offsetting some of the dollar's loses.

All Eyes on Federal Reserve's Upcoming Announcement

Market participants are heavily focused on the Federal Open Market Committee (FOMC) meeting scheduled for October 30 (U.S. time), anticipating critical updates on QT and interest rates. While a widely expected 25-basis-point rate cut has been nearly entirely priced in—supported by the 98% probability reflected in fed funds futures—investors are keenly awaiting any indication from Federal Reserve Chair Jerome Powell regarding the possible conclusion of QT measures.

Currently, market expectations for an additional rate cut by the end of the year sit at 94%, thereby heightening speculation over the Fed’s long-term policy trajectory. Analysts suggest that clear confirmation of QT cessation could amplify global pressures on the dollar, causing further depreciation across forex markets.

Volatility Driven by Trade Tensions and Economic Data

Despite the anticipation surrounding the Federal Reserve's actions, uncertainty persists due to unresolved U.S.-China trade negotiations and fluctuating U.S. economic indicators. These factors are expected to inject additional volatility into the short-term outlook of the foreign exchange markets, keeping investors on alert for possible disruptions.

In conclusion, the forex market exhibits a cautious stance as traders weigh the implications of the Fed’s policy decisions and broader macroeconomic factors. As key updates unfold, all eyes remain fixed on the potential shifts in the dollar’s trajectory and how these changes will resonate across global currencies and asset classes.