Forex Market Update: USD Mixed as Fed Signals Dovish Shift, Yen and Euro Strengthen

Forex investors focused on comments from Federal Reserve officials. Christopher Waller expressed support for a 25 bps rate cut in October due to a cooling labor market, noting that new White House tariffs have only a moderate impact on inflation, which is trending toward the 2.0% target. However, any signs of job market recovery amid strong economic growth could reduce the need for monetary easing. According to Steven Miran, current monetary policy remains overly restrictive and risks slowing economic growth. Minneapolis Fed President Neel Kashkari added that while both a labor market slump and a resurgence of inflation are possible, the former is more likely. Overall, most Fed remarks point toward a gradual shift to a dovish stance.

Eurozone

The euro strengthens against the pound but remains mixed versus the yen and the U.S. dollar.

Investors are digesting inflation data: in September, the consumer price index held at 0.1% month-over-month and rose from 2.0% to 2.2% year-over-year as expected, while the core index eased from 0.3% to 0.1% monthly and from 2.3% to 2.4% annually. Price pressures in the euro area are rising but not enough for the European Central Bank to consider rate cuts. Austrian National Bank head Martin Kocher emphasized that rates should remain unchanged while inflation stays near 2.0%.

United Kingdom

The pound weakens against the euro and trades mixed versus the yen and U.S. dollar.

Investors reacted to comments from Bank of England officials, who downplayed the likelihood of a near-term dovish pivot. Catherine Mann said the labor market slowdown remains insufficient to justify easing, while Chief Economist Huw Pill warned that rate cuts would likely be slower than previously expected due to persistent inflationary pressures. He added that any rate reductions next year should be made with caution.

Japan

The yen trades mixed against the U.S. dollar, pound, and euro.

Traders are monitoring statements from Bank of Japan officials. Governor Kazuo Ueda said the central bank is closely reviewing data before making policy decisions and reiterated that a return to a hawkish stance is possible if economic recovery and price growth align with forecasts. Deputy Governor Shinichi Uchida echoed this, adding that a rate hike could follow if conditions develop as planned, while noting high uncertainty from escalating trade tensions. According to a Reuters survey, most economists expect Japan’s core CPI to accelerate from 2.7% to 2.9% in September.

Australia

The Australian dollar trades mixed against the U.S. dollar, pound, yen, and euro.

Investors assessed labor market data: employment rose by 11.8K after a 14.9K decline, below the expected 20.5K increase, while unemployment climbed from 4.3% to 4.5% — a four-year high. This increases the likelihood of monetary easing by the Reserve Bank of Australia. Meanwhile, escalating trade tensions between the U.S. and China, which could dampen demand for Australian exports, may also influence the RBA’s policy path.

Oil

After a weak start, oil prices rebounded despite persistent bearish fundamentals. The U.S. Energy Information Administration (EIA) reported a build of 3.524 million barrels in crude stocks versus expectations of a 0.300 million increase. Distillate inventories fell by 4.529 million barrels, and gasoline declined by 0.267 million.

Additional downward pressure on oil comes from IEA forecasts of rising supply surplus and reports of an upcoming meeting between U.S. President Donald Trump and Russian President Vladimir Putin, which markets expect could ease geopolitical tensions.