Fed tricks, Dollar treats

October closed like a central-bank séance — full of half-whispered promises and traders, in the absence of tier-one U.S. data, trying to read the market by candlelight through Powell’s policy fog. What began as a month of tariff truces and headline diplomacy ended with the Fed donning its Dollar King costume, as the greenback feasted on a trick-or-treat bag filled with hawkish nuance.

The Fed didn’t tighten policy — it tightened the tone. Powell’s “this may be the last cut of 2025” was delivered like a quiet confession, but in a month starved of data, even a whisper sounded like a war drum. A dollar that had been drifting listlessly through the fall suddenly found direction, picking up nearly 2% for October as traders scrambled to reprice the new reality.

While Powell’s firmness put a sugar rush under the dollar, it hit the yen like a bitter pill. Japan’s currency was October’s biggest casualty — down almost 4% against the dollar, the weakest performer in the entire G10 pack. Traders dubbed it the “Takaichi trade,” a nod to Japan’s new prime minister and her pledge to resurrect the spirit of Abenomics with looser fiscal strings and growth-first rhetoric. It was the perfect cocktail for yen bears — a policy reboot wrapped in nostalgia.

With the BoJ sitting silently on the sidelines, the market didn’t hesitate to pile on. USD/JPY’s surge carried the kind of mechanical precision that only algorithmic conviction can deliver — a one-way march with barely a breath in between. It’s the kind of straight-line move that sends ripples through Tokyo dealing rooms, the sound of phones lighting up in the night as traders and policymakers alike watch the yen slide deeper into the danger zone.

And indeed, they rang. Finance Minister Satsuki Katayama warned that moves had become “one-sided and rapid,” the strongest verbal defence yet from Japan’s new economic leadership. In the past, such language has preceded intervention, but for now it’s more of a warning shot — a reminder that 155 isn’t just a number, it’s a tripwire. Traders are aware of this history: the last time Japan intervened was in July 2024, when it dropped over ¥5.5 trillion to defend the yen near 160.

This time, Tokyo’s words may not halt the slide, but they could slow its pace. The more profound irony is that domestic inflation is finally doing its job. Tokyo CPI rose to 2.8% in October from 2.5%, giving the BoJ a reason — or at least an excuse — to consider hiking in December instead of next year. That would mean far more to the yen than any jawboning could, but the BoJ moves with the grace of a glacier: slow, majestic, and rarely on time.

Beyond Japan, the global atmosphere has settled into a kind of artificial calm. The Trump–Xi meeting in South Korea produced another trade truce, this one lasting a full year — long enough to sell headlines, short enough to keep traders cautious. Tariffs were trimmed, rare-earth bans suspended, soybeans promised, and both sides scheduled reciprocal visits. For now, that’s enough to soothe markets and dampen volatility, keeping the carry trade alive and thriving.

Asian currencies — from the baht to the won to the Taiwan dollar — have quietly outperformed, even as the U.S. dollar flexed. But the yen, ever the funding currency, remains the punching bag of the trade — financing global risk appetites one short position at a time.

Despite the ECB pause — and no hint of a December cut as Frankfurt declared it’s “in a good place” — the EUR/USD slide is more about the dollar’s gravitational pull under a hawkish Fed than any euro weakness of substance.

We’ve honoured the 48-hour rule — don’t fade a central bank’s surprise, trade it. But as the dust settles, the asymmetry in FX is constantly shifting.. Still, it’s Friday, and pre-weekend liquidity can turn the market into a funhouse mirror. This feels like a battle better left for Monday, but there’s a case for slipping a toe back in — a smidgen of risk, some orders packed higher, just enough to catch the fade if Tokyo’s patience finally wears thin.

So, as October gives way to November, we’re left with a familiar picture: the Fed dressed as the adult in the room, the BoJ mumbling its cautionary mantras, and the ECB humming along to its own illusion of calm. The dollar reigns over the candy pile for now, while the yen wanders through the haunted house of policy divergence — jumpy, jittery, and still waiting for someone to turn the lights back on.