The US dollar strengthened against major European currencies on Wednesday, led by gains versus the British pound, supported by signs that the United States and China are nearing a truce in their trade dispute. Traders also turned their focus toward the Federal Reserve meeting scheduled later in the day.

Speaking in South Korea, where he is set to meet Chinese President Xi Jinping on Thursday, US President Donald Trump said he believed both sides would reach a “great deal” beneficial to both nations. Sources told Reuters that China’s state-owned COFCO purchased three cargoes of US soybeans this week — another sign of easing trade tensions.

Trump also said he expects US tariffs on Chinese goods to be reduced in exchange for Beijing’s pledge to limit exports of chemicals used in the production of fentanyl.

Bart Wakabayashi, Tokyo branch manager at State Street Bank, commented that the dollar’s strength “could be a kind of relief rally after Trump’s tariff festival.” He added, “The dollar had been oversold for a long time, so the current rebound may simply reflect a market correction — though perhaps slightly exaggerated.”

The euro slipped 0.2% to 1.1628, ending a five-day winning streak, while the dollar rose 0.4% against the Swiss franc to 0.7969, pulling further away from multi-year lows reached last month.

Fed Meeting in Focus

The Federal Reserve’s policy meeting later today remains the key event for markets. Investors broadly expect the central bank to cut interest rates again, as policymakers navigate the economy using limited but concerning data showing softness in the labor market.

Market pricing also reflects expectations for another rate cut in December and potentially two more by July next year. Traders are watching whether Fed Chair Jerome Powell’s press conference — which will take place in the absence of fresh data — will alter those expectations.

Meanwhile, both the European Central Bank and the Bank of Japan are expected to leave interest rates unchanged in their respective meetings on Thursday.

The Japanese yen weakened slightly to 152.31 per dollar after briefly strengthening earlier in the session. The move came after Treasury Secretary Scott Bessent posted on X that “the Japanese government’s willingness to give the Bank of Japan sufficient space to continue its policy will be key to anchoring inflation expectations and avoiding excessive currency volatility.”

Bessent, who accompanied President Trump to Japan for talks with newly appointed Prime Minister Sanae Takaichi’s government, has repeatedly criticized the BOJ for its slow pace in normalizing rates.

Pound and Australian Dollar

Both the British pound and the Australian dollar saw notable moves driven by shifting rate expectations, even though the Bank of England (BoE) and the Reserve Bank of Australia (RBA) are not set to meet until next week.

The pound fell 0.45% to 1.3198 — its lowest in nearly three months — as markets increasingly bet on a BoE rate cut later this year, possibly as soon as next week. Goldman Sachs said Tuesday it now expects the BoE to lower rates next month after previously forecasting no easing in 2025.

Sterling also touched its weakest level in over two years against the euro and fell to its lowest since September 2022 versus the Swiss franc.

Meanwhile, the Australian dollar reversed earlier losses to rise 0.22% to 0.66005 after hotter-than-expected quarterly inflation data cast doubt on the likelihood of an RBA rate cut next week — or even in December.

Lucy Ellis, chief economist at Westpac, said: “The earliest the RBA board can gain sufficient confidence on inflation will be after the next quarterly reading ahead of the February 2026 meeting.” She added, “Even a February rate cut is no longer certain, given the upside surprise in this quarter’s inflation data.”

Gold prices rose more than 1.5% in European trading on Wednesday, rebounding from a three-week low and climbing back above $4,000 per ounce. The metal is on track for its first gain in four sessions, supported by renewed buying at corrective levels.

The Federal Reserve concludes its seventh policy meeting of 2025 later today, with markets widely expecting a 25-basis-point rate cut — the second consecutive reduction — as policymakers assess conditions in the world’s largest economy.

Price Overview

• Gold prices climbed about 1.7% to $4,019.76 an ounce, up from an opening level of $3,951.50, after hitting an intraday low of $3,915.48.

• On Tuesday, gold settled 0.75% lower — its third straight daily loss — marking a three-week low at $3,886.64 per ounce amid optimism over global trade negotiations.

Trade Developments

US President Donald Trump began the final leg of his Asian tour in South Korea on Wednesday, expressing optimism about making progress on a long-delayed tariff deal with President Lee Jae-myung and securing a trade truce with Chinese President Xi Jinping.

Trump and Xi are scheduled to meet Thursday in South Korea — their first encounter during Trump’s second term — in what is expected to be a pivotal moment for US-China relations, particularly regarding global trade policy and geopolitical tensions across Asia.

Federal Reserve

The Federal Reserve will announce its interest rate decision and policy statement at 18:00 GMT, followed by Chair Jerome Powell’s press conference at 18:30 GMT.

Markets expect the Fed to cut rates by 25 basis points, with investors looking for guidance on whether another reduction could follow later this year, as well as hints about the policy trajectory heading into 2026.

Market Outlook

• Peter Fertig, analyst at Quantitative Commodity Research, said: “Bargain-hunting may be driving gold’s rebound since it has lost over 10% of its value, making it attractive again — especially as fundamental supports for gold remain intact.”

• Fertig added that some central bank reserve managers may have seen the recent pullback as an opportunity to accumulate more gold.

• ANZ Bank noted in a research memo: “Progress in US-China trade talks continues to weaken demand for safe-haven assets like gold, which has declined as tensions ease. However, recent dips may offer central banks a chance to boost their gold holdings.”

SPDR Gold Trust

Holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Tuesday, remaining at 1,038.92 metric tons — the lowest level since October 16.

The euro fell in European trading on Wednesday against a basket of major currencies, retreating from a one-week high versus the US dollar and heading toward its first loss in six sessions, as the greenback rebounded ahead of the Federal Reserve’s policy decision.

Renewed inflationary pressure in the eurozone has dampened expectations that the European Central Bank (ECB) will cut interest rates during its meeting later today. The meeting’s outcome is expected to provide fresh clues on the path of European rates through the remainder of this year and into next.

Price Overview

• EUR/USD declined 0.2% to 1.1627, down from an opening level of 1.1651, after touching a session high of 1.1661.

• The euro had gained about 0.1% on Tuesday — its fifth straight daily rise — reaching a one-week high of 1.1669 amid improved risk sentiment.

US Dollar

The dollar index rose more than 0.2% on Wednesday, rebounding from a one-week low and heading for its first gain in three sessions, reflecting renewed strength in the US currency ahead of the Fed’s policy announcement later today.

The Fed is widely expected to deliver a 25-basis-point rate cut — its second consecutive reduction — though policymakers could adopt a slightly more hawkish tone given signs of renewed inflationary pressure in the US, potentially lowering the odds of another rate cut before year-end.

European Central Bank

• The ECB begins its policy meeting later today to assess appropriate monetary policy in light of recent economic developments across the euro area, with a decision due Thursday.

• The Bank is widely expected to keep interest rates unchanged at 2.15%, the lowest level since October 2022, marking a third consecutive hold.

• Markets are looking for guidance on when the ECB might resume its easing cycle and potentially lower rates again before year-end.

Euro Outlook

According to Economies.com: If the Federal Reserve’s comments turn out more hawkish than markets anticipate, expectations for another US rate cut this year will likely fade — a scenario that would support continued dollar gains against major counterparts, particularly the euro and the British pound.

The Australian dollar rose broadly in European trading on Wednesday against a basket of major currencies, extending gains for the sixth consecutive session versus the US dollar and hitting a three-week high. The currency has become one of the most attractive investment opportunities in the forex market following hotter-than-expected inflation data from Australia.

The strong inflation figures renewed pressure on policymakers at the Reserve Bank of Australia (RBA) and sharply reduced expectations for a rate cut at the November meeting.

Price Outlook

• AUD/USD climbed 0.4% to 0.6608 — its highest since October 9 — up from the opening level of 0.6583, after touching an intraday low of 0.6579.

• The pair ended Tuesday up 0.45%, marking its fifth straight daily gain, supported by positive trade developments between the US and China.

Inflation in Australia

Data from the Australian Bureau of Statistics on Wednesday showed that consumer prices rose 1.3% in the third quarter — the fastest pace since Q1 2023 and above market expectations of 1.1%, following a 0.7% increase in Q2.

On a monthly basis, headline CPI rose 3.5% year-on-year in September, the highest since July 2024, exceeding expectations of 3.1% and up from 3.0% in August.

Australian Inflation Hits 14-Month High

The figures confirm that inflation is accelerating again and remains above the RBA’s 2–3% medium-term target range, lowering the likelihood of further rate cuts this year.

Interest Rate Outlook

• Following the data, market pricing for a 25-basis-point RBA rate cut in November dropped from 70% to just 25%.

• The RBA held rates at 3.60% in September after three reductions earlier this year, awaiting more economic data before taking further action.

Analyst Views

Adam Boynton, Head of Australian Economics at ANZ Bank, said: “If the economy proves materially weaker than expected, the RBA retains the option to ease policy in December, but the bar for any cut this year is now very high.”

He added: “We expect the most likely path to be a final 25-basis-point cut in the first half of 2026, though there’s a risk that our February call could be delayed — or may not happen at all.”