Dollar edges lower as Warsh withholds December signal

The US dollar was little changed to slightly weaker on Thursday, Oct. 29. The day before, the Federal Reserve left interest rates unchanged and Chair Kevin Warsh declined to say what policymakers might do in December. The greenback had traded near two-week highs ahead of Wednesday's decision. It turned lower after Warsh's press conference gave no clear steer on the next meeting, and traders scaled back bets on rate hikes in 2027, Reuters reported.reuters.com

The Fed voted 10-2 to hold its benchmark rate at 3.75% to 4.00%. The hold followed September's quarter-point hike, the central bank's first increase since 2023, according to BabyPips. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of an immediate hike. Hammack's vote was expected, while Cook's was not, Newsquawk noted.babypips.com+1

Silence read as dovish

The dollar index edged lower in Asian trading. EUR/USD held the previous day's gains, and USD/JPY slipped, Newsquawk reported. During the press conference, Warsh said he doesn't believe in forward guidance outside of a crisis and won't pre-judge meetings, according to Newsquawk.newsquawk.com

"Warsh's silence on further rate hikes was interpreted as dovish, or not hawkish enough," Carol Kong, a currency strategist at Commonwealth Bank of Australia, told Reuters. Two-year Treasury yields fell and the yield curve steepened. The Fed also said it would set aside one of its eight meetings in 2027, and two in 2028, to discuss strategy with no rate vote. TD Securities The Toronto-Dominion Bank ↘ 2.14% called the schedule change dovish.reuters.com

Futures still point to a likely hike at the Dec. 8-9 meeting. Reuters cited 78% odds on the CME ↗ 2.27% FedWatch tool, while BabyPips put the figure near 85%.babypips.com+1

Limited room for gains

FXStreet argued that the dollar has little left to gain from a hawkish Fed. It noted that about three more hikes are already priced in, and that central banks behind the euro, pound, yen and Canadian dollar are raising rates or are expected to. The dollar index has not made a new high since Oct. 14. The Bank of Canada raised its policy rate on Wednesday for the first time in more than three years.fxstreet.com+1

Data and other central banks next

US data released Thursday showed real GDP grew at a 3.4% annual rate in the third quarter, up from 2.2% in the second, according to the Bureau of Economic Analysis. September PCE inflation rose 3.6% from a year earlier and core PCE rose 3.1%, both in line with forecasts, Trading Economics data showed. The European Central Bank held its deposit rate at 2.5% on Thursday. The Bank of Japan's two-day meeting ends Friday.tradingeconomics.com+2

"Barring major hawkish surprises at either of those meetings, we would expect the dollar to continue to consolidate towards the top of recent ranges," ING ↘ 2.42% analysts said, according to Reuters.reuters.com