Dollar steadies after Fed holds rates in split 10-2 vote

The US dollar steadied on Thursday, October 29, after the Federal Reserve kept interest rates unchanged and Chair Kevin Warsh gave no clear signal about whether another hike is coming in December, Reuters reported. The Fed left its policy rate at 3.75% to 4.00% in a 10-2 vote on Wednesday. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented because they wanted an immediate rate increase, FXStreet noted.reuters.com+1

Warsh's silence read as dovish

The dollar had been trading near two-week highs going into the announcement. It turned lower after Warsh's press conference left out any guidance on December, according to Reuters. "Warsh's silence on further rate hikes was interpreted as dovish, or not hawkish enough," said Carol Kong, a currency strategist at Commonwealth Bank of Australia. The dollar index fell on Wednesday and was little changed in Asian trading on Thursday, just above 102, Investing.com reported. EUR/USD rose on Wednesday and gave back part of that gain early Thursday.au.investing.com+1

The Fed upgraded its view of the economy and now says it is growing at a "strong pace." Warsh said he was confident inflation can come down to 2% without the Fed having to "throw sand in the gears." Together, those messages led traders to scale back bets on rate hikes in 2027, Reuters said. The 2-year Treasury yield fell and the yield curve steepened. Markets still see about a 78% chance of a December hike, based on the CME ↘ 0.45% FedWatch tool. That is down from nearly 85% on Wednesday, Reuters reported from New York.reuters.com+1

Not every analyst read the meeting as a dovish turn. Rabobank called the decision "slightly less hawkish" than it had expected, but said Warsh "did prepare markets for another hike in December," FXStreet reported. Warsh also said the Fed will set aside one of its eight meetings in 2027, and two in 2028, to discuss strategy rather than policy. TD Securities analysts said that change "reads as dovish to us."fxstreet.com

PCE data and the ECB next

Investors are now waiting for the September personal consumption expenditures (PCE) price index, which comes out later Thursday. They are also watching the European Central Bank, which is widely expected to keep its deposit rate at 2.50%, Investing.com noted. The Bank of Japan will finish a two-day meeting on Friday, October 30, and is also expected to hold rates.au.investing.com

Other central banks have moved in different directions this week. The Bank of Canada raised rates for the first time in more than three years. The New Zealand dollar fell sharply after the Reserve Bank of New Zealand surprised markets by holding at 2.75%, Reuters reported. "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 analysts said.reuters.com