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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market Analysis]: A collection of good and bad news affecting the foreign exchange market". Hope this helps you! The original content is as follows:
Details of policy implementation: In the early morning of October 30, Beijing time, the Federal Reserve lowered the benchmark interest rate by 25 basis points to 4.50%-4.75% as scheduled. At the same time, it released a signal to "end the balance sheet shrinkage" and is expected to stop quantitative tightening before the end of the year. However, the dot plot shows that the number of interest rate cuts in 2026 has been reduced from three to two. Powell emphasized in the press conference that "the foundation for the fall in inflation is not yet solid," releasing a hawkish easing signal.
Impact on the foreign exchange market: The U.S. dollar index fell 0.2% to 98.52 in the short term after the resolution was announced, and then quickly rebounded to 98.70, reflecting the market's pricing of "an interest rate cut but subsequent easing will be limited." This news formed a "short-term positive and long-term constraint" for non-US currencies - the euro/dollar briefly touched 1.1680 and then fell back to 1.1650, while the pound/dollar maintained a narrow range of 1.3340-1.3360.
Policy action: On October 29, the Bank of Canada announced an interest rate cut of 25 basis points to 2.25%, the third interest rate cut since 2024, in response to economic weakness under the threat of U.S. tariffs. The central bank's statement pointed out that "falling exports and weak corporate investment have dragged down economic growth," suggesting that easing may continue in the future.
Market reaction: USD/CAD jumped 0.35% to 1.3780 after the resolution was announced, hitting a two-week high. This news has a direct impact on the Canadian dollarIt is negative and at the same time strengthens the overall weak pattern of centrdom.infomodity currencies, with the AUD/USD simultaneously testing the 0.6540 support level.
European Central Bank’s position: The market generally expects that the European Central Bank will maintain the deposit interest rate at 2% on October 30. President Lagarde previously stated that “the current monetary policy matches economic conditions,” implying that the interest rate cut cycle has centrdom.infoe to an end. The policy gap between the euro and the U.S. dollar narrowed from 1.75 percentage points to 1.5 percentage points, but it still provided relative support for the euro. EUR/USD closed at 1.1655 on October 29, a slight increase of 0.04% from the previous day.
BoJ constraints: Japan's new Prime Minister Takaichi Sanae's easing tendency limits the pace of the central bank's interest rate hikes. The market expects the next interest rate hike to be postponed to at least early 2026. USD/JPY maintained a range of 152.20-152.50 under the support of policy differentiation, and the geo-risk premium faded further suppressing the safe-haven demand for the yen.
Inflation and employment signals: the United States In September, CPI increased by 3% year-on-year, and core CPI increased by 3% year-on-year, both lower than market expectations, providing basis for the Federal Reserve to cut interest rates; "small non-agricultural" ADP data showed that the private sector lost 32,000 jobs in September, the largest decline since March 2023. Although short-term hawkish guidance supports the dollar, weak fundamentals still pose long-term pressure.
Crude oil drags down related data: WTI crude oil fell nearly 2% to $60.15 on October 29, hitting a new low in June. This may lead to a further contraction in investment in the U.S. energy industry, and subsequent non-farm employment data may be dragged down, indirectly affecting the trend of the U.S. dollar.
Police benefits released: Zhu Hexin, director of the State Administration of Foreign Exchange, announced on October 28 the introduction of 9 new opening measures, including expanding the scope of cross-border trade pilots, optimizing the settlement of new trade formats, and relaxing the management of agency advances for trade in services. Data shows that in the first three quarters of 2025, my country's foreign-related receipts and expenditures reached US$11.6 trillion, a record high for the same period in history, providing fundamental support for the RMB exchange rate.
The exchange rate performance confirms: On October 29, the onshore RMB exchange rate against the US dollar closed at 7.0989, a slight decrease of 0.0014% from the previous day. The fluctuation range was less than 10 basis points, which was significantly narrower than other emerging market currencies. The central parity rate was reported at 7.0856, rising for three consecutive days, indicating that the policymakers have a clear intention to stabilize the exchange rate.
Euro positions: As of October 28, the centrdom.info long position in the euro increased by US$230 million to 18.6 billion, reflecting the market's recognition of the European Central Bank's stabilization policy; short positions in the U.S. dollar index increased by $180 million. Despite the short-term rebound, speculative funds still tend to plan for a long-term decline.
Japanese yen short positions expanded: USD/JPY non-commercial centrdom.info long positions increased by 4,500 lots to 32,000 lots, a three-month high, and Japanese yen bearish sentiment increased amid expectations of policy differentiation.
Price linkage logic: Brent crude oil fell 1.86% to US$64.40 on October 29, and OPEC+ plans to increase production by another 137,000 barrels per day in December, exacerbating concerns about oversupply. As the currencies of crude oil exporters, the Canadian dollar and the Norwegian krone weakened simultaneously, and USD/NOK rose 0.28% to 10.82, further strengthening the weak pattern of centrdom.infomodity currencies.
The resolutions of the European Central Bank and the Bank of Japan on October 30 will further amplify the effect of policy differentiation. If the European Central Bank releases a hawkish signal, the euro may exceed 1.1700; if the Bank of Japan unexpectedly mentions an interest rate hike timetable, USD/JPY may drop to 151.50. It is recommended that traders control their positions to less than 30% and wait for the policy dust to settle before laying out the trend market.
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