Market Outlook
28 October 2026
Focus on the FOMC and UK Budget; Dollar Rally Pauses, While the NZ Dollar and Pound Remain Under Pressure
Market Overview
The dollar is holding near recent highs ahead of tonight’s FOMC decision, although its upward momentum has eased for now.
The US Dollar Index rose to around 102.491, supported by higher Treasury yields, reaching its highest level since 14 October. It later pulled back into the 102.30s as some pre-event position adjustment set in.
USD/JPY is trading in the upper 157s and softened to around 157.73 in London. With the FOMC tonight and the Bank of Japan meeting beginning tomorrow, traders are reluctant to build large positions in one direction.
Among individual currencies, the New Zealand dollar has fallen sharply after the RBNZ unexpectedly held rates steady. The pound is also struggling ahead of the UK Autumn Budget, slipping below 1.3300.
US FOMC
The FOMC decision is due at 18:00 London time on 28 October.
The central expectation is that the target range for the federal funds rate will remain at 3.75%–4.00%. Money markets have priced in a hold with a probability of more than 90%.
If the decision is as expected, attention will turn to the statement and Fed Chair Warsh’s press conference, which begins at 18:30 London time. Markets have priced in more than an 80% chance of a rate hike in December, so it will be important to see whether the Fed’s message supports that expectation.
If the Fed strongly signals the need for further hikes, citing persistent inflation or the effects of higher oil prices, Treasury yields could rise and the dollar could strengthen.
On the other hand, if the Fed focuses on the burden that high rates place on the economy or stresses the need to assess incoming data, the dollar rally built on rate-hike expectations could unwind.
The key is not simply whether rates are held, but how hawkish the press conference sounds relative to market expectations.
USD/JPY
USD/JPY is looking for direction in the upper 157s.
Higher US yields and rising oil prices are supportive, but traders are cautious about chasing the pair higher ahead of the FOMC and the BOJ meeting. Finance Minister Katayama has also said the government is monitoring markets with a strong sense of urgency, keeping the risk of official action in focus if the yen weakens further.
The first level to watch is around 157.73, the low recorded in London. A break below it would bring the mid-157s and then 157.00 into view.
On the upside, the first test is whether the pair can recover 158.00 and hold above it. Beyond that, the 200-day moving average in the mid-158s, which had acted as resistance through the previous session, will be important.
Even if USD/JPY rises after the FOMC, buying may not persist ahead of the BOJ meeting. Watch whether the pair can hold near its highs alongside US yields, rather than focusing only on the initial move.
RBNZ and the New Zealand Dollar
The Reserve Bank of New Zealand held its policy rate at 2.75%. Markets had expected a hike to 3.00%, prompting a sharp fall in the New Zealand dollar.
The decision was close, with a 4–3 split, reflecting differing views on the timing of policy action. Governor Breman said a rate hike at a future meeting was likely, but this was not enough to stop the sell-off from investors who had expected a hike today.
NZD/USD briefly fell to 0.5585. Its subsequent rebound was capped just below 0.5620.
The near-term focus is whether 0.5585 holds and whether a rebound can recover around 0.5620. The possibility of future rate hikes remains, but short-term position unwinding may continue.
The market reaction shows that the timing of a policy change, relative to expectations, mattered more than the RBNZ’s tightening bias alone.
Australian CPI and the Australian Dollar
Australia’s September CPI rose 4.3% year on year, above the 4.2% market forecast and the previous 4.0%.
The trimmed mean CPI for the third quarter also exceeded expectations, rising 3.7% year on year against a forecast of 3.6%. RBA Governor Bullock said persistent high inflation could not be tolerated, while Deputy Governor Hauser described the latest CPI reading as too high.
These developments support expectations of further RBA rate hikes. However, gains in the Australian dollar have been limited; the strong inflation data has not, by itself, been enough to sustain buying.
The divergence between the RBA and the RBNZ, which unexpectedly held rates, may support AUD against NZD. Against the US dollar, however, the FOMC is likely to be the dominant influence tonight.
UK Autumn Budget and the Pound
The UK Autumn Budget is due at 12:30 London time.
GBP/USD came under pressure from dollar buying, partly linked to higher oil prices, falling from around 1.3300 to 1.3273. It later recovered to around 1.3289, but the rebound has been limited.
The key question is whether the government can win market confidence in its plan to contain the budget deficit.
If the Budget is seen as expanding spending without credible funding, both gilts and sterling could come under pressure. In that case, higher UK gilt yields would not necessarily translate into a stronger pound.
Conversely, if the fiscal plan is well received, the pound could recover some of its recent losses.
The immediate downside level is around 1.3273. If the pair rebounds, watch whether it can recover and hold above 1.3300. GBP/JPY may find resistance around 210.00; depending on the Budget’s reception, it could test the low 209s.
Euro and ECB Meeting
EUR/USD remains under pressure from selling on rallies.
Dip-buying has emerged just above 1.1100, but the rebound has been limited. The first priority is to see whether this level holds.
The ECB is also expected to keep rates unchanged at tomorrow’s meeting. Attention will turn to President Lagarde’s press conference and the outlook for policy.
If tonight’s FOMC is hawkish, EUR/USD could break below 1.1100 and test the 1.10 area. If dollar buying unwinds, the euro could recover, although expectations ahead of the ECB meeting may limit aggressive buying.
EUR/JPY is trading mainly in the 175s, weighed down by euro weakness against the dollar. A firm USD/JPY may provide support, but a sharp fall in EUR/USD would likely cap EUR/JPY.
Bank of Canada
The Bank of Canada announces its policy decision at 13:45 London time. The market expects the policy rate to remain at 2.25%.
If the decision is as expected, attention will turn to the statement and Governor Macklem’s press conference, particularly how the Bank weighs inflation against economic growth.
Higher oil prices are supportive for the Canadian dollar, but concerns about growth or employment could limit its gains.
With the BoC decision coming on the same day as the FOMC, the difference between the two central banks’ outlooks will matter for USD/CAD. Also consider the possibility that the market’s reaction to the BoC could reverse after the FOMC.
Oil and Middle East Developments
Reports say the US has warned Gulf states of the possibility of an attack on Iran after the US midterm elections. Concerns about the Middle East remain elevated, lending support to oil and the dollar.
However, with the FOMC ahead, currencies may not respond to higher oil prices in a single, clear direction.
The US weekly oil inventory report is due at 14:30 London time. Alongside inventory changes, watch whether supply concerns push US yields higher or are instead seen as a burden on the economy that weighs on equities.
Key Points for the Global Session
- The UK Autumn Budget at 12:30 London time and the reaction in gilts
- The Bank of Canada decision at 13:45 London time
- US weekly oil inventories at 14:30 London time
- The FOMC statement at 18:00 and the Chair’s press conference at 18:30 London time
- Whether USD/JPY holds around 157.73
- Whether USD/JPY can recover 158.00 and hold above it
- Whether EUR/USD can hold 1.1100
- Whether GBP/USD can recover 1.3300
- Whether NZD/USD can find support around 0.5585
Scenarios
The base case is for the dollar to remain near recent highs while positions are adjusted ahead of the FOMC, with the market seeking direction after the announcement.
If the Fed holds rates but strongly signals a December hike, dollar buying could resume, pushing USD/JPY toward 158.00 and EUR/USD toward 1.1100.
Conversely, if the Chair’s press conference is less hawkish than the market expects, the dollar gains built up ahead of the meeting could unwind. USD/JPY could then correct toward the mid-157s.
The UK Budget and the Bank of Canada decision also fall on the same day, so sterling and the Canadian dollar may move differently from the broader dollar trend.
Summary
The dollar remains firm, but its rally has paused ahead of the FOMC. USD/JPY is trading in the upper 157s and is waiting for a fresh catalyst to break above 158.00.
The New Zealand dollar, meanwhile, has plunged after the RBNZ unexpectedly held rates steady. The market’s pricing of when policy changes will happen is proving as important as the direction of policy itself.
Tonight, the main question is whether the FOMC statement and press conference validate expectations for a December hike. Alongside the UK Budget and the Bank of Canada decision, watch both the immediate reaction and whether the move continues afterward.
