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Forex Today: It's all about the Fed

Here is what you need to know on Wednesday, November 2:

As the US Federal Reserve gets ready to announce its interest rate decision at 1800 GMT, markets stay relatively quiet with investors moving to the sidelines. FOMC Chairman Jerome Powell's press conference will be watched closely by market participants amid expectations about a possible signal for a smaller rate increase in December. Ahead of the all-important Fed event, the ADP's private sector employment will be featured in the US economic docket. During European trading hours, Germany's Destatis will publish the Unemployment Rate data for October.

Federal Reserve Preview: Dollar buying opportunity? Why Powell is unlikely to cement a pivot.

The Fed is widely expected to raise its policy rate by 75 basis points (bps) following the two-day policy meeting. On Tuesday, the data from the US showed an unexpected increase in JOLTS Job Openings in September and the ISM reported that manufacturing activity continued to expand in October with the Manufacturing PMI arriving at 50.2. The upbeat US data helped the dollar find demand and the US Dollar Index (DXY), which dropped to a daily low of 110.70, ended up closing the day flat above 111.00. Meanwhile, the benchmark 10-year US Treasury bond yield recovered above 4% late Tuesday before going into a consolidation phase on Wednesday. Meanwhile, US stock index futures trade flat in the early European morning, reflecting the cautious market mood. 

Fed November Preview: Is it time for a dovish signal?

EUR/USD dropped below 0.9900 during American trading hours on Tuesday but managed to limit its losses. Bundesbank President Joachim Nagel told a German newspaper that the European Central Bank (ECB) had a long way to go with rate hikes and said that they could start shrinking the bond portfolio at the beginning of 2023. Early Wednesday, the pair trades in a relatively tight channel slightly below 0.9900.

GBP/USD closed flat near 1.1500 on Tuesday and continues to fluctuate at around this level early Wednesday. There won't be any high-impact macroeconomic data releases from the UK and the dollar's market valuation is likely to drive the pair's action.

USD/JPY trades in negative territory near 147.50 on Wednesday despite Bank of Japan Governor Haruhiko Kuroda's latest comments. Kuroda said that there was no need to change the currency policy easing or to tweak the yield curve control.

Gold took advantage of falling US Treasury bond yields on Tuesday and registered strong daily gains before going into a consolidation phase above $1,650 on Wednesday.

Bitcoin is struggling to make a decisive move in either direction and moving sideways above $20,000 for the third straight day on Wednesday. Ethereum extends its sideways grind at around $1,500 as crypto investors refrain from committing to large bets ahead of the Fed's policy announcements.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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