Due to the lack of official data, the outlook for the US economy and the Fed’s interest rate path remain unclear, and the US dollar has had its second-best month of the year.
The Bloomberg Dollar Spot Index rose for a third consecutive trading day on Friday, posting a 1.7% gain for October. This week, Federal Reserve Chair Jerome Powell said that another rate cut this year is far from certain, which boosted the dollar. Meanwhile, the dollar’s major developed-market counterparts – the euro, the pound and the yen – were under pressure due to their own domestic issues.
Dow Jones Securities strategist Jayati Bhardwaj said, “We expect the upward momentum of the US dollar to continue for some time as there are no significant US economic data releases in the near future. The market focus will remain on the outside world. There are currently many fiscal and electoral concerns – first in France, then in Japan, and finally in the UK.”
But the federal government shutdown – now in its 31st day – has strengthened the dollar. It is unclear when key economic indicators will be released between now and the Fed’s next meeting in December.
“Due to the lack of US economic data, investors find it difficult to judge the direction of the US economy,” said Parash Upadhyaya, director of fixed income and currency strategy at Vanguard Investments, adding that this was one of the reasons for the dollar’s strength in October. “I think there are signs that the US economy will bottom out in the fourth quarter, and there are upside risks to growth in 2026.”
Some investors who were bearish on the US dollar are changing their views. Morgan Stanley strategists on Thursday downgraded the dollar to neutral, citing “strong US economic growth and the possibility that the Federal Reserve may raise interest rate expectations”. They no longer recommend going long on the euro or the yen against the dollar.
After the Federal Reserve meeting, several Fed officials said they did not support a rate cut this week, confirming Powell’s warning on Wednesday. The interest rate swap market currently prices the possibility of a Fed rate cut in December at around 50%, while before the meeting, the market’s expectations for a rate cut were almost fully priced in.
Goldman Sachs strategist Kamakshya Trivedi wrote in a report on Friday: “In recent weeks, developments abroad have driven the dollar higher, but hawkish policy shocks have also played an important domestic role, although we admit that we did not expect this to be so significant.”
Claudio Pirrong, emerging Asia fixed income strategist at Bank of America, wrote in a report: “Short-term interest rate changes seem to be the biggest driver of depreciation pressure, as Asian central banks have cut rates more aggressively than the Federal Reserve.”
Traders also expect the US dollar to strengthen further by the end of this year and in early 2026. The one-month risk reversal indicator for the US dollar index is currently at its highest level since mid-October, while the three-month risk reversal indicator also points to a stronger US dollar.
Technical analysis:
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Gold: The green buy limit area we alerted last Friday via the plugin performed very well, achieving a profit-to-loss ratio close to 2:1. As we clearly pointed out in our previous article, as long as 3960 is not broken, we remain optimistic about the rebound and correction trend this week. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
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The Nasdaq: The easing of TACO trading and the possible progress in Sino-US trade negotiations have continued to push the Nasdaq to new highs. The two yellow zones we provided in the plugin last Friday for up and down sweeps have not been triggered yet. Today, we will focus on the pullback opportunities after the price sweeps up and down with high liquidity. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: Positive news emerged from the OPEC meeting. The increase in production is less than expected, and production will be suspended in the first quarter of next year. Focus on bullish signals within the day. Blue indicates a buy after a breakout and pullback, while yellow indicates a buy after sweeping the liquidity below. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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