Forex Today: Fed Holds Rates as Warsh Tempers Tightening Bets

The US Federal Reserve left its interest rate unchanged yesterday, as overwhelmingly expected. The FOMC voted 10–2 to maintain the federal-funds target range at 3.75%–4.00%, with two members preferring another 0.25% increase. The statement upgraded its description of economic growth to a “strong pace” while acknowledging that inflation remains elevated. This was a pause following September’s hike, not confirmation that tightening is finished.

Fed Chair Kevin Warsh’s press conference was interpreted as relatively dovish. He expressed confidence that inflation can return towards target without deliberately slowing growth or increasing unemployment but gave no clear commitment to a December move. Markets trimmed approximately 10 basis points of expected tightening from 2027, while the probability of a December hike eased towards 78%, from roughly 84% before the announcement.

US Treasury yields fell after the press conference. The 2-year yield declined by about 6 basis points late in the New York session, with longer-dated Treasuries also rallying during Asian trading. This matters because the market reaction was not simply to the unchanged rate: traders became less convinced that the Fed would need to deliver as much additional tightening next year.

The US Dollar initially weakened following the Fed meeting, then steadied this morning. EUR/USD gained approximately 0.3% yesterday following the Fed decision before easing towards 1.1145 during Asian trading. The pair remains close to its 17-month low price, so the bearish structure has not been convincingly reversed. Trend traders like me will remain short here. The US Dollar has lost some immediate momentum, but a relatively dovish press conference has not yet produced a decisive broader breakdown.

The ECB announces its policy decision today. Its deposit rate is expected to remain at 2.50%, with an unchanged decision almost fully priced in. President Lagarde’s assessment of inflation, the prospect of a December hike, and questions about French bond-market stress will therefore be more important than the rate announcement itself. EUR/USD could react sharply if the guidance differs from expectations.

The Bank of Canada raised rates yesterday, as was widely expected. Its first increase in more than three years took the policy rate from 2.25% to 2.50%. The Bank warned that further increases might be necessary to prevent higher energy prices from feeding into broader inflation. This contrasts with the RBNZ’s surprise decision to hold at 2.75%, underlining why traders should not assume that central banks facing similar energy shocks will respond identically.

Technology earnings have weakened today’s risk sentiment. Asian shares and US equity futures are lower after Alphabet’s results disappointed investors. This reverses some of the optimism surrounding yesterday’s AI-led recovery and shows why falling yields alone may not be enough to sustain the technology rally. Company spending, cash generation, and earnings expectations remain important risks.

WTI Crude Oil has stabilised on renewed diplomatic hopes. Brent futures declined approximately 1.2% towards $113.91 after a report that US Vice President JD Vance had written to Iranian Security Council chief Mohsen Rezaei in an effort to revive peace negotiations. Prices remain elevated, but the latest reaction again demonstrates how quickly diplomatic headlines can reduce the supply-risk premium.

Gold has slipped despite the Treasury rally. Spot Gold is around $4,038, down approximately 0.7% during Asian trading. It remains above $4,000 but well below the previously identified $4,200 resistance. The failure to build a stronger recovery leaves the bullish reversal unconfirmed, with today’s US inflation data providing the next potential catalyst. Note that Gold remains stuck within a descending price channel which can be drawn as a linear regression analysis, which strengthens the bearish case.

Bitcoin seemed to bounce off the key support level at $80,000 over the past few days, giving bulls some small hope, but the price is again trading below that big round number. Like Gold, Bitcoin's price action remains contained by a descending price channel, which is a bearish sign.

US inflation data will be another important event today. The PCE inflation release will offer a fresh test of the December Fed-hike outlook after yesterday’s policy pause. A stronger underlying reading could reverse part of the decline in yields and support the US Dollar, while softer inflation would reinforce the more restrained policy expectations that followed Warsh’s press conference.