By Konstantinos Chrysikos, Head of Customer Relationship Management at Kudotrade
The dollar index was up slightly on Wednesday ahead of two major catalysts, the Federal Reserve’s policy decision and the meeting between US President Donald Trump and Chinese President Xi Jinping. Treasury yields rose slightly across maturities, with the 10-year hovering near the 4% threshold.
On the trade front, Trump said from South Korea that he expects to secure a “great deal” with China during his meeting with Xi on Thursday. Expectations were building up after reports suggested progress on agricultural purchases and rare earth policy. Positive developments in trade policy could support the dollar.
At the same time, markets have fully priced in a 25-basis-point rate cut from the Fed, but investors are focused on Chair Jerome Powell’s tone for signals about the pace of future easing. A more cautious message could support the dollar, while dovish guidance might reinforce expectations for another cut in December and drag both yields and the currency lower.
Elsewhere, attention also turns to central bank meetings in Japan and the euro area on Thursday. While both the Bank of Japan and European Central Bank are expected to keep rates unchanged, recent hawkish remarks from some BOJ board members have raised speculation that the next rate hike could come as soon as December, which could benefit the yen against the dollar.