Dollar rebounds as euro hits 17-month low after ECB hold

The U.S. dollar eased after the Federal Reserve left interest rates unchanged on Wednesday, Oct. 28. Fed Chair Kevin Warsh declined to say whether the central bank would raise rates in December, and traders took his silence as a mildly dovish signal. The greenback had been near two-week highs before the decision and turned lower once Warsh's press conference began. Even so, markets still expect another hike before the year ends.reuters.com

The Federal Open Market Committee voted 10-2 to keep its benchmark rate at 3.75% to 4%, where it has been since a quarter-point increase in September. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented because they wanted another quarter-point hike. It was Cook's first dissent since she joined the board in 2022. Fortune noted it was also the first time since October 1992 that a governor and a regional bank president dissented on the same side.cnbc.com+2

Markets read silence as dovish

"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. The U.S. Dollar Index slipped after the hold, and two-year Treasury yields fell. Warsh called the coming weeks an "information-rich" period for the Fed. He also said the Fed will set aside one meeting in 2027 and two in 2028 for strategy discussions with no rate decision, a change TD Securities The Toronto-Dominion Bank ↘ 2.14% analysts said "reads as dovish to us."politico.com+2

Futures still show a December hike as likely. Estimates from CME Group's ↗ 2.27% FedWatch tool put the odds at between 78% and 85% at different points after the decision. The Fed's next meeting ends Dec. 9.reuters.com+1

Dollar regains ground against the euro

By Thursday, Oct. 29, the dollar had steadied and then strengthened against the euro. The European Central Bank held its deposit rate at 2.5%, and the euro fell to its lowest level since May 2025 as EUR/USD dropped. Earlier the same day, ECB President Christine Lagarde said she would step down early.cnbc.com+1

U.S. data released Thursday added to the case for tighter policy. The economy grew at a 3.4% annualized rate in the third quarter. The PCE price index rose 0.5% in September, bringing annual inflation to 3.6%, while core inflation reached 3.1%.reuters.com+1

Limited room to rally

According to an FXStreet analysis, the dollar index has not set a new high since Oct. 14, even with about three more Fed hikes already priced in. The analysis noted that the central banks behind the euro, pound, yen and Canadian dollar are also raising rates or expected to. The Bank of Canada raised its policy rate on Wednesday for the first time in more than three years.fxstreet.com+1

Kerry Craig of J.P. Morgan Asset Management JPMorgan Chase & Co. ↘ 1.90% said that with tightening already priced in, yields are likely to stay range-bound "unless there is a clearer signal for more aggressive policy tightening or a pivot to cuts."reuters.com