Market Outlook
29 October 2026
USD/JPY Holds Firm After the FOMC; Focus Turns to US GDP, PCE and the ECB Meeting
Market Overview
After the FOMC, markets are looking ahead to tonight’s key US data and ECB meeting, as well as tomorrow’s Bank of Japan meeting.
The Fed held rates steady as expected. Chair Warsh gave no clear signal of a December rate hike, prompting some dollar selling after the announcement. USD/JPY’s decline was limited, however, and the pair has held firm in the upper 157s.
The euro has faced some selling ahead of the ECB meeting. EUR/USD fell as low as 1.1125, while EUR/JPY slipped to around 175.70.
US GDP and PCE inflation data are due together at 12:30 London time. The ECB rate decision and President Lagarde’s press conference follow, setting the stage for volatile trading as the market reacts to each release.
FOMC Recap
The Fed left its policy rate unchanged. Two officials argued for a rate hike, fewer than the three some market participants had expected.
Chair Warsh said the effects of policy were gradually becoming evident and that the Fed would continue to assess incoming information and respond as conditions warranted.
The Fed has not dropped its concern about inflation. However, its failure to signal a December hike as clearly as the market had hoped led to some unwinding of dollar positions.
Even so, money markets continue to price in roughly an 80% chance of a December rate hike. With expectations for further tightening still in place, tonight’s inflation and growth data will be important.
USD/JPY
USD/JPY rose to 158.35 in the previous session, but selling pressure emerged in the 158s. Today, the pair struggled to extend its gains after reaching 158.07 in the Tokyo morning and has traded mainly in the 157.80s in London.
Near-term support is around 157.60, where the pair found a floor in Tokyo, followed by 157.50. If these levels hold, the US data could prompt another test of 158.00.
To the upside, watch 158.07 and then the previous session’s high at 158.35. Beyond that, the Ichimoku cloud top at 158.44 and the 200-day moving average at 158.54 are key levels.
Conversely, a clear break below 157.50 would bring the Ichimoku conversion line at 157.34 and then 157.00 into focus.
With the BOJ’s policy announcement due tomorrow, traders may be cautious about adding to positions in the direction of any move after the US data.
US PCE Price Index
The September PCE price index, due at 12:30 London time, is expected to show inflation picking up again.
- Headline PCE: +0.5% month on month; previous: +0.3%
- Headline PCE: +3.6% year on year; previous: +3.4%
- Core PCE: +0.3% month on month; previous: +0.2%
- Core PCE: +3.1% year on year; previous: +3.0%
A stronger-than-expected reading could reinforce expectations for a December rate hike, lifting US yields and supporting the dollar.
A softer reading could renew the dollar selling seen after the Chair’s press conference.
However, the forecasts already point to faster inflation. Focus not only on whether the figures are higher than last time, but also on how they compare with expectations and how Treasury yields respond after the release.
US GDP and Consumer Spending
The preliminary estimate of third-quarter US real GDP is due at the same time. Growth is expected to accelerate to an annualised 3.0% quarter on quarter, from 2.2% in the previous quarter.
Personal consumption, a component of GDP, is expected to slow to 3.4% from 3.8%.
If growth exceeds expectations and consumer spending remains firm, the resilience of the US economy could support the dollar. However, even a strong GDP headline should be assessed carefully if inventories or trade make a large contribution; those factors may not reflect underlying domestic demand.
September personal income is expected to rise 0.3% month on month, while personal spending is forecast to increase 0.6%. Consider income, spending and inflation together to assess whether households retain their ability to spend.
Initial jobless claims are expected to edge up to 197,000 from 194,000.
How to Read the US Data Together
Several important indicators are being released at the same time, so the initial market reaction may not last.
If both GDP and PCE are strong, resilient growth and inflation concerns would reinforce each other, potentially supporting the dollar.
If both growth and inflation are weak, expectations for further rate hikes could recede, putting downward pressure on yields and the dollar.
The more difficult combination would be weak GDP alongside strong PCE. Markets may have to weigh both slowing growth and persistent inflation, leading to mixed reactions in equities, Treasury yields and the dollar.
Watch not only the initial FX move, but also whether US yields continue in the same direction afterward.
ECB Meeting and the Euro
The ECB announces its policy decision at 13:15 London time, followed by President Lagarde’s press conference at 13:45.
Markets expect rates to remain unchanged, including the 2.50% deposit facility rate. The main question is how much scope the ECB leaves for further rate increases.
The euro is also being weighed down by concerns about France’s fiscal position. In addition to inflation, watch how the ECB assesses bond-market stability and interest-rate spreads within the euro area.
EUR/USD fell as low as 1.1125, approaching its year-to-date low of 1.1113. A clear break below that level could bring 1.1100 into focus and potentially accelerate the decline.
On a rebound, the first level to watch is 1.1150. With US data and the ECB meeting both on the agenda, separate the impact of dollar-side and euro-side developments.
UK Budget and the Pound
The UK Autumn Budget, announced yesterday, was received without major disruption. The commitment to fiscal discipline and the calm reaction in the gilt market have provided some support for sterling.
GBP/USD fell to around 1.3275 before recovering into the 1.33s, helped in part by dollar selling after the FOMC.
However, the dollar’s resilience has again put 1.3300 under pressure. Whether sterling can continue to rise on reduced Budget concerns alone will also depend on tonight’s US data.
The key level for GBP/JPY is 210.00. Even if UK-specific concerns ease, a fall in USD/JPY could limit gains in the cross.
New Zealand Dollar and Rate Expectations
RBNZ Governor Breman said a rate hike in December was quite likely. He also said all members agreed that rates would need to rise.
The unexpected hold the previous day can therefore be seen not as an abandonment of the tightening stance, but as a decision to wait before acting.
Even so, disappointment selling and position unwinding may persist among investors who had expected a hike yesterday. Watch whether the New Zealand dollar can find a floor and sustain a recovery after the Governor’s comments pointed to a future increase.
Oil and Equity Markets
Reports about the risk of renewed US attacks on Iran are circulating alongside news of diplomatic contacts. Oil remains sensitive to developments in the Middle East.
Lower oil prices weighed on the dollar in Tokyo today, but renewed supply concerns could bring dollar buying back.
Amazon, Intel and other companies are also due to report earnings in the US. If the market’s assessment of AI-related investment moves share prices, the reaction could spill over into the yen.
For USD/JPY, watch whether the dollar’s response to US data and the yen’s response to equity markets move in the same direction.
Key Points for the Global Session
- US GDP, PCE, personal income and spending at 12:30 London time
- Whether the move in Treasury yields continues after the US data
- ECB policy decision at 13:15 and President Lagarde’s press conference at 13:45
- Whether USD/JPY holds 157.50–157.60
- Whether a rebound can clear 158.07 and 158.35
- Whether EUR/USD holds its year-to-date low at 1.1113
- Whether GBP/USD can hold 1.3300
- Whether yen selling continues ahead of tomorrow’s BOJ meeting
Scenarios
The base case is for USD/JPY to react to the US data and the ECB meeting, while struggling to establish a clear direction ahead of tomorrow’s BOJ meeting.
If US GDP and PCE are strong, USD/JPY could recover into the 158s and test resistance between 158.35 and 158.54.
Conversely, if growth or inflation falls short of expectations, the pair may test support at 157.50. A break below that level would put a correction toward 157.00 in focus.
If US data are strong and the ECB takes a cautious tone, EUR/USD could retest its year-to-date low. The opposite combination could trigger a reversal of recent euro selling.
Summary
The dollar weakened after the FOMC, but expectations for a December rate hike remain firm, limiting USD/JPY’s downside. Selling has emerged in the 158s, and the pair is holding in a range ahead of tomorrow’s BOJ meeting.
The main focus tonight is whether US GDP and PCE reinforce the remaining expectations for further rate hikes. At the ECB meeting, the euro is likely to respond to the Bank’s inflation stance and its assessment of France’s fiscal position.
With several major events clustered together, avoid judging direction from the initial move alone. Watch whether yields, equities and currencies sustain their reactions after the announcements.
