The US dollar (USD) traded mixed but slightly weaker on Tuesday as the Dollar Index (DXY) continued to drift back from the 99 level, where it appeared to have peaked following its recent advance, according to Scotiabank Chief FX Strategists Shaun Osborne and Eric Theoret.
Markets await Wednesday’s FOMC outcome
The Japanese yen (JPY) led gains among major currencies, climbing as the market reacted to signals of stronger economic cooperation between Japan and the United States.
President Trump’s visit to Japan saw both countries reaffirm bilateral ties and agree to collaborate on rare earth supply chains. The president also welcomed Japan’s plans to increase defense spending. Meanwhile, Japanese officials noted they would continue to monitor the economic impact of yen weakness, providing additional support for the currency.
Scotiabank noted that “the JPY is still lagging the recent narrowing in US-Japan rate spreads by a significant margin,” but a continued short-term recovery could “see spot retest recent lows just under 150,” potentially triggering a deeper rebound. Regional Asian currencies have followed the yen higher, while the Chinese yuan (CNY) has lagged slightly. The USD has slipped below CNY 7.10 — its weakest level in a year — which could act as a broader headwind for the greenback.
With few major catalysts elsewhere, investors are largely in wait-and-see mode ahead of Wednesday’s Federal Open Market Committee (FOMC) policy decision. Global equities were mixed to slightly weaker, major bond markets were firmer, and gold extended its decline — down nearly 2% on the session and approaching the $3,900 level.
Limited data ahead of key Fed meeting
Scotiabank highlighted that Tuesday’s US data calendar is light, with housing figures at 9:00 ET followed by the Richmond Fed Manufacturing Index and consumer confidence data at 10:00 ET — none of which are expected to move markets significantly.
Regional manufacturing data for October have been mixed so far, suggesting potential further weakness in the national ISM Manufacturing Index, which printed at 49.1 in September. The next ISM reading is due November 3.
Elsewhere, Australia is set to release quarterly inflation data this evening at 20:30 ET, while Reserve Bank of New Zealand (RBNZ) Governor Hawkesby is scheduled to speak on central bank independence — a topic closely tied to the RBNZ’s pioneering adoption of inflation targeting in the early 1990s.
