The US dollar fell against major currencies on Wednesday, October 28, after the Federal Reserve delivered an expected interest rate decision, while the New Zealand dollar dropped sharply following an unpredicted pause from its central bank.
Federal Reserve Policy Stays Steady Before US Elections
The Federal Reserve held interest rates steady on Wednesday, opting to delay any changes to borrowing costs until after the upcoming US midterm elections and awaiting further data on the path of inflation. The dollar showed little immediate reaction following the policy announcement, but it began losing ground later during a press briefing by Fed Chair Kevin Warsh.
“The US dollar is softer than it was going into the FOMC as there’s been a steepening in the yield curve,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. The Treasury yield curve steepened after Warsh started his conference, with the 2-year note yield falling 1.46 basis points to 4.722%. Based on data from the CME’s FedWatch tool, financial markets currently indicate an expectation of nearly an 85% probability for a Fed rate increase in December.
“This meeting landed right on target for what expectations were,” said James St. Aubin, chief investment officer at Ocean Park Asset Management. “There wasn’t much probability of a rate hike.” The dollar index, which measures the greenback’s strength against a basket of six other currencies, fell 0.2% to 102.15. The euro rose 0.32% against the dollar to $1.1160, while the dollar slipped 0.04% against the Japanese yen to 157.87 yen.
New Zealand Dollar Sinks After Surprise Rate Pause
Following the Reserve Bank of New Zealand’s decision to maintain interest rates at 2.75%, the New Zealand dollar experienced a steep decline of up to 1.74%, reaching $0.5583. That decision surprised a large majority of economists who had expected a rate hike.
“The Reserve Bank of New Zealand disappointed markets and the New Zealand dollar sold off in response. It’s the weakest of the G10 currencies,” Chandler said. Meanwhile, the Bank of Canada raised its key policy rate for the first time in more than three years, strengthening the Canadian dollar 0.37% versus the greenback to C$1.4 per dollar.
British Tax Changes and Upcoming Central Bank Decisions
Looking ahead to subsequent monetary policy verdicts, the European Central Bank and the Bank of Japan are scheduled to deliver decisions on Thursday and Friday, respectively. Both central banks are widely expected to leave their policy rates unchanged.
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