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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market Analysis]: The Federal Reserve & European Central Bank interest rate decisions are www.stofoco.coming!". Hope this helps you! The original content is as follows:
On Tuesday, investors focused on the upcoming Federal Reserve interest rate decision, and the U.S. dollar index remained volatile. As of now, the U.S. dollar is quoted at 98.90.
The U.S. government’s “shutdown” continues, and the Senate rejected the temporary appropriation bill for the 13th time.
ADP released its weekly estimate of the U.S. national employment report. In the four weeks ending October 11, the average number of new jobs was 14,250.
Trump: Fed Chairman Powell is either incompetent or bad and will leave his post "within a few months."
Israel claimed that Hamas violated the ceasefire agreement and ordered multiple air strikes on Gaza.
Hamas denies violating the agreement and delayed handing over the bodies of the hostages after the air strikes. The United States says the ceasefire agreement remains in effect.
London Bullion Market Association survey: Gold price is expected to reach US$4,980.3 per ounce in one year, and silver price will reach US$59.1 per ounce.
Citibank: Lowered the short-term price targets for international spot gold and international spot silver, lowering the 0 to 3-month international spot gold price forecast from US$4,000 per ounce to US$3,800, and the international spot silver price forecast from US$55 to US$42 per ounce.
The market has formed a highly unanimous expectation on the Fed's interest rate cut path. Not only is there no suspense about the 25 basis point interest rate cut this week, but the probability of another 25 basis point interest rate cut in December is as high as 95%. This means that barring major surprises, the Fed's policy direction this year is already clear. After expectations are fulfilled, market focus will immediately turn to subtle changes in the wording of the policy statement and Powell's press conference. No economic forecasts including dot plots will be released at this meeting, making forward guidance even more important. Although official employment data is missing due to the government shutdown, Amazon's latest announcement of 30,000 layoffs confirms that the labor market is cooling, which has become the Federal Reserve's most pressing concern.
The most critical variable in this meeting is the fate of the quantitative austerity plan. If the Fed announces the end of QT, it will mark a www.stofoco.comprehensive shift in monetary policy towards easing. Although its actual stimulus effect on the economy may be limited, its symbolic significance is significant - it is usually beneficial to risky assets and suppresses the trend of the US dollar.
It is worth noting that although the Federal Reserve is likely to maintain its easing path during the year, more and more officials have expressed doubts about continuing to cut interest rates in 2026. At the same time, President Trump has continued to put pressure on the Federal Reserve by appointing Governor Millan and trying to replace Cook. I expect Powell to avoid any direct confrontation and instead abide by the central bank's dual mandate as he hopes to preserve his legacy by achieving a soft landing for the economy and keeping inflation as close as possible to the central bank's 2% target.
The yen’s quiet recovery could be attributed more to a tweet than the threat of intervention or changes in interest rate differentials. The message sent by U.S. Treasury Secretary Bessent to Japanese Prime Minister Sanae Takaichi may seem simple, but in fact it is profound: Give the Bank of Japan sufficient policy space - including stabilizing inflation expectations, maintaining policy independence, and stopping the continued pressure on the currency in the pursuit of stability. The market immediately read between the lines. After Bessent's speech, the U.S. and Japan quickly fell from 152.12 to 151.54. This was not because traders expected an imminent interest rate hike, but because they had insight into the intention of a policy shift. His meeting with Finance Minister Katayama Satsuki two days ago had sent a signal of coordination. The emphasis in the Ministry of Finance’s statement on sound monetary policy formulation and www.stofoco.communication was actually diplomatic rhetoric urging Japan to cautiously advance policy normalization.
This coincides with the view we have always emphasized, that is, Japan's economic revival relies on policy credibility rather than currency depreciation. A stronger yen will provide financial support for Japan's industrial and fiscal reforms by attracting capital repatriation, stabilizing inflation and strengthening the domestic balance sheet. GPIF, the world's largest pension fund, life insurance www.stofoco.companies and large banks will all feel the attraction of rising domestic returns. Even Japanese retail investors who were once keen on overseas earnings have begun to pay attention to the local market again.
The Bank of Japan does not need to act immediately, the market only needs to obtain positive policy expectationsPermission to normalize. Bessant’s tweet provided just that permission—a hint of a policy shift wrapped in diplomatic decorum. We are witnessing the yen transforming from a symbol of policy distortions into a tool for correction. The traditional "weak yen - strong Japanese stocks" logic is giving way to a more www.stofoco.complex balancing relationship. The strength of Japanese stocks is not due to currency depreciation, but the result of the maturation of fiscal and monetary policy coordination. The yen is no longer the market's liquidity sponge but is becoming a pressure regulator.
We expect the European Central Bank to keep interest rates unchanged at its October policy meeting. The preliminary Purchasing Managers Index (PMI) for October showed a rebound in service sector activity, with Germany performing strongly this month. These data are encouraging and support our view that economic growth will gradually consolidate next year. The data are also consistent with our judgment that the European Central Bank has ended its current interest rate cutting cycle - although we still retain an easing policy bias and expect another 25 basis point rate cut. While we hold a constructive view, the growth environment in the euro area remains fragile and any setback could exacerbate the risk of lower-than-expected inflation next year.
The European Central Bank will maintain policy unchanged at its October meeting. Since March, the overall inflation rate has been within 0.2% of the target, and the deposit rate is also at the level of the neutral rate. Policymakers have www.stofoco.come out to emphasize the "good position" the central bank is currently in. Since the September meeting, economic data has been broadly in line with expectations and the short-term market outlook underlying the central bank's forecasts still looks valid. As the September meeting minutes put it, "waiting for more www.stofoco.comrmation has high option value." This position still holds.
In short, this will be a low-key meeting. There will be no new economic forecasts, and changes to policy guidance (i.e., a “data-reliant, meeting-by-meeting approach”) are unlikely. The focus will be on risk assessments and press conferences. Even then, big news may be hard to www.stofoco.come by, but President Lagarde is likely to share her views on risks to global financial stability in light of an International Monetary Fund report this month and recent www.stofoco.comments from Bank of England Governor Bailey.
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