Dollar Gains as Powell Pushes Back on December Rate-Cut Bets
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Fed Division Exposes Uncertainty in U.S. Monetary Outlook
The U.S. dollar extended its mid-week gains into Friday (Oct 31), after the Federal Reserve’s widely expected rate cut on Wednesday triggered a surprisingly hawkish market response. While the cut was largely priced in, the tone struck by Fed Chair Jerome Powell—combined with visible dissent within the Federal Open Market Committee (FOMC)—sparked a re-evaluation of how much easing remains on the table for the rest of the year.
Two policymakers broke ranks: Governor Stephen Miran favoured a deeper cut, while Kansas City Fed President Jeffrey Schmid opposed any cut altogether, citing persistent inflation risks. Schmid’s dissent captured the “hawkish minority” within the Fed—an increasingly vocal group worried that financial conditions have eased too quickly relative to inflation progress. As Adam Button, chief currency analyst at investingLive, noted,
“There could be some pressure on Powell to hold back market pricing for a December cut.”
The market reaction was swift. Odds of another rate cut at the December FOMC meeting fell from roughly 85 percent to 62 percent within hours of Powell’s press conference, reflecting traders’ perception that the central bank wants to pause and assess incoming data rather than commit to a new easing cycle.
Powell’s comments reinforced this caution: “We are still debating what lies ahead for monetary policy,” he said, stressing that markets should not assume another cut will follow automatically. The message was clear—the Fed wants flexibility, not pre-commitment.
Still, the Fed moved to counter tightening liquidity pressures by restarting limited Treasury purchases, a technical operation reminiscent of 2019’s repo-market interventions. This step is aimed at preserving market stability rather than delivering new stimulus. Analysts viewed it as a liquidity safeguard, not the start of a renewed quantitative-easing program.
Economists such as Steven Blitz of TS Lombard believe the central bank will now hold steady through the year’s end. “Between now and mid-December, it’s unlikely that data will shift dramatically enough for Powell to justify another move,” Blitz told CNA. The Fed, he suggested, will maintain its current stance until early 2026, when new inflation and employment data give clearer guidance on the durability of disinflation trends.
The overall message to markets: the easing cycle may be nearing its end, at least temporarily. That shift helped lift the dollar while putting modest pressure on Treasuries, with yields stabilizing after an initial surge.
Global Central Banks Diverge as Policy Gaps Widen
While the Fed’s caution buoyed the greenback, it also underscored a growing divergence in global monetary policy trajectories, with the Bank of England (BoE) and Bank of Japan (BoJ) still struggling to find equilibrium amid contrasting economic pressures.
Sterling Slips on Mounting BoE Easing Bets
The British pound was one of the session’s biggest casualties, sliding nearly 0.9 percent to $1.3151, its weakest level since May 12. Market sentiment turned after Goldman Sachs revised its forecast to project a BoE rate cut in November, abandoning its previous expectation of no change this year.
Recent data reinforced the dovish turn: U.K. inflation held steady in September, while wage growth slowed to its weakest pace since 2022 and the jobless rate ticked higher. These signs of softening momentum gave policymakers fresh room to pivot toward easing.
“The Bank of England is squarely focused on inflation,” said Eric Theoret, FX strategist at Scotiabank. “But with softer labour-market data and subdued price pressures, the case for a rate cut is increasingly compelling.” Markets now assign a high probability to a 25-basis-point reduction next week, which could further widen the yield gap with the U.S. and extend sterling’s downtrend into November.
Yen Weakens Despite Political Pressure for BOJ Tightening
In Asia, the Japanese yen retreated 0.56 percent to ¥152.86 per dollar, reversing earlier gains after U.S. Treasury Secretary Scott Bessent urged Japan’s government to let the Bank of Japan raise rates more decisively. Bessent’s comments—delivered during a visit with President Donald Trump to newly appointed Prime Minister Sanae Takaichi’s government—reflect Washington’s mounting discomfort with Japan’s ultraloose policy and a persistently weak yen.
Despite this political pressure, markets doubt that the BoJ will adjust meaningfully in the near term. The central bank faces fragile domestic demand and limited inflation pass-through, leaving it reluctant to tighten too quickly. Both the ECB and BoJ were expected to hold policy steady in their Thursday announcements, maintaining a contrast with the Fed’s data-dependent flexibility.
Markets Eye Trump-Xi Meeting and November Data Flow
Beyond rate dynamics, geopolitical attention is shifting toward the high stakes meeting between U.S. President Donald Trump and Chinese President Xi Jinping, scheduled for Thursday. Traders view the summit as a potential catalyst for risk sentiment, though expectations are tempered by past unpredictability in U.S.–China relations. Any constructive signal on trade cooperation or supply-chain coordination could support equities and emerging-market currencies heading into November.
In the meantime, investors are turning to incoming U.S. jobs and inflation reports for confirmation of whether Powell’s cautious tone is justified. A stronger-than-expected October nonfarm payrolls reading or sticky core CPI could further cement the case for a prolonged Fed pause. Conversely, a sharp slowdown might revive bets on another December cut.
The U.S. dollar index has stabilized near its weekly high, while Treasury yields hover in the mid-4 percent range, reflecting a market that has re-aligned with Powell’s “wait-and-see” message. Equity sentiment remains balanced: modest relief from liquidity operations is offset by the realization that the Fed’s patience could persist well into early 2026.
Outlook: From Rate Cuts to Rate Patience
As October closes, global investors are adjusting to the possibility that the Fed’s easing momentum has peaked. Powell’s resistance to December rate-cut pricing, combined with the split among policymakers, signals a transition toward a more data-driven and internally divided Fed.
This divergence has immediate currency implications: the dollar’s resilience is underpinned by policy uncertainty abroad and relative confidence in U.S. macroeconomic stability. For now, markets appear to have accepted that the Fed is entering a holding pattern—one that may persist until early 2026, barring a clear downturn in inflation or growth.
In contrast, the BoE and BoJ remain under pressure to deliver or defend looser policy stances, while Canada appears to have reached the end of its own cycle. The result is a fragmented global monetary landscape, favouring the dollar’s strength and reinforcing its safe-haven status heading into a volatile year-end marked by geopolitics, shifting trade ties, and uneven disinflation progress.
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