The DXY Index’s modest recovery from 98 has stalled around 99 in the past two days. Many exchange rates have reached or are approaching pivotal levels, for example, EUR/USD and AUD/USD held their support levels around 1.16 and 0.65, respectively. USD/JPY’s recovery from Sanae Takaichi becoming Japan’s first female prime minister should become hesitant around the 153 high seen on October 9-10. China has been guiding the USD/CNY parity rate below 7.10 this month, signalling confidence ahead of upcoming US-China trade talks and the Fourth Plenum, which shaped China’s next Five-Year Plan towards technological self-reliance.
Markets are wary of multiple upcoming events, which may renew the greenback’s weakness.
Today’s US CPI inflation should not change the expectation for the two 25-bps Fed cuts this year – at next week's FOMC meeting (Oct 28-29) and the final one in December. The Fed is in risk management mode, driven by a prolonged US government shutdown that led to data lapses and increased uncertainty for furloughed federal workers, i.e., whether they would be rehired and receive back pay when the government eventually reopens. While the Fed is not expected to steer away from data dependency in its 2026 rate guidance, it is likely to announce the end of Quantitative Tightening (QT) to address the tightening liquidity – a dovish signal.
US President Donald Trump has a packed agenda in Asia over the fortnight. Trump will kick off with the ASEAN Summit in Malaysia on October 26 to witness the signing of a peace agreement between Cambodia and Thailand. Starting today, China’s top trade negotiator, Vice Premier He Lifeng, will lead a delegation for trade talks with US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer in Malaysia, which may extend the trade truce expiring on November 10 or affirm a Trump-Xi meeting at the sidelines of the APEC Summit in South Korea (October 27 to November 1).
Trump will visit Japan between the two summits on October 27-29, during which Japan’s new Prime Minister Sanae Takaichi may woo Trump with purchases of soya beans. Earlier on October 20, Trump signed a critical minerals framework agreement with Australian Prime Minister Anthony Albanese aimed at boosting the supply of rare earth elements and other critical minerals to reduce dependency on China. Both these agreements target essential issues aimed at increasing Trump’s leverage in a potential meeting with Xi.
Trump may repeat his longstanding criticism of the JPY’s weakness to gain unfair advantages over US manufacturers. Bessent recently stated that the JPY would find its own level if the Bank of Japan followed a "proper" monetary policy (tightening). Takaichi has appointed Satsuki Katayama as finance minister, who, before her appointment, expressed a preference for a USD/JPY rate of 120-130. Markets may scale back their initial excitement about Takaichi’s fiscal stimulus resembling Abenomics 2.0. Unlike Abe’s strong mandate to end deflation, Takaichi has inherited a LDP-led coalition that lost its majority in both houses of parliament, amid voter frustration over with higher living costs. The BOJ is expected to keep rates unchanged at its October 30 meeting and signal a hike in December. Japan’s national CPI inflation excluding food rose for the first time in four months to 2.9% YoY in September, keeping its prolonged hold above the 2% inflation.
Quote of the Day
”I have learned to seek my happiness by limiting my desires, rather than in attempting to satisfy them.”
John Stuart Mill
October 24 in history
“Bloody Friday” during the GFC in 2008 - many of the world's stock exchanges experienced the worst decline in their history, with drops of around 10% in most indices.
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