Uncertainty is back on the table. The Fed’s cautious tone, BoC’s hawkish cut, and BOJ’s steady stance are reshaping FX markets heading into year-end.
Key Insights:
- Expectations for a December Fed rate cut remain up in the air.
Market Recap:
The U.S. dollar strengthened ahead of the Federal Reserve’s rate announcement, as investors fully anticipated a cut while awaiting Chair Powell’s comments for policy direction.
In Canada, the loonie advanced after the Bank of Canada delivered a hawkish 25 bps cut, signalling what many believe to be the end of its easing cycle. The move pressured GBPCAD, which pulled back from its highest level in nine years.
Sterling continued to weaken, hitting its lowest point since August, as markets prepared for potential tax increases and fiscal tightening in the upcoming UK budget.
Meanwhile, the Australian dollar extended its rally, supported by stronger inflation data that reduced expectations of near-term policy easing by the RBA.
Following the Fed’s decision, USD saw further gains after Powell emphasized that a December rate cut is not guaranteed. GBPUSD briefly revisited its May 2025 lows, with traders defending key support levels. The Fed’s 25 bps cut was accompanied by an announcement to conclude quantitative tightening.
Today's Market Watch:
The Bank of Japan held interest rates steady this morning, offering no clear signal on when a potential hike might occur. The lack of guidance weighed on JPY, which opened the session weaker.
Attention now turns to the eurozone, where third-quarter GDP is forecast to rise 1.2% year-on-year, and German inflation is expected to cool to 2.2%, reflecting a gradual easing trend while remaining above the ECB’s target. The European Central Bank is widely expected to keep policy rates unchanged at 2.00%.
In the U.S., some of the dollar’s recent strength has tapered off, though it remains broadly firm amid expectations that the Fed will show limited urgency for additional rate cuts. This backdrop leaves room for GBPUSD to potentially retest its May 2025 highs in the near term.
30th October 2025
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