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The US dollar strengthened across global markets last week after the Federal Reserve’s “hawkish cut” caught investors off guard. Despite lowering interest rates, the Fed’s tone signaled caution toward further easing, sparking a traditional market reaction — higher yields, wider credit spreads, weaker equities, and a rallying greenback.

According to Enrique Díaz-Álvarez, Chief Economist at Ebury, the market’s response reflected a reassessment of the Fed’s stance:

“There is still no end in sight to the US government shutdown, so no significant economic news is expected from the US. The only exception will be the private sector counterpart to the payroll report, the ADP jobs number on Wednesday, which will receive an unusual amount of attention in the absence of official news.”

The British pound emerged as the biggest loser of the week, as the Bank of England (BoE) signaled a more dovish outlook compared to the Fed, hinting at possible easing. Meanwhile, most major emerging market currencies outperformed their G10 counterparts, declining less sharply against the dollar.

GBP – Pressure Mounts on Sterling

Weak productivity and the potential for downgraded UK growth forecasts could force additional fiscal tightening in the upcoming November 26 budget. Some BoE officials have voiced dovish sentiments, and markets are now pricing in a 30% probability of a rate cut at Thursday’s meeting. However, Díaz-Álvarez expects the central bank to hold rates steady, despite possible dissenting votes.
Sterling’s continued underperformance, he noted, could present a buying opportunity given resilient UK data and relatively high interest rates.

EUR – Euro Edges Lower but Outlook Improves

A modest upside surprise in Eurozone Q3 GDP and improving business sentiment confirmed that the bloc’s economy remains on a steady path. The European Central Bank (ECB)’s latest meeting was uneventful, confirming that its rate-cut cycle is over.
The euro has drifted toward the lower end of its 1.14–1.19 range against the dollar since June, pressured by Fed hawkishness. However, with the German fiscal stimulus plan expected to boost growth, Díaz-Álvarez suggested that the euro may become attractive at current levels.

USD – Fed Holds the Hawkish Line

While the Federal Reserve delivered the expected rate cut, Chair Jerome Powell’s comments underscored a more hawkish outlook, dampening expectations of another cut in December.
Regional Fed presidents, soon to assume voting roles in 2026, echoed Powell’s cautious tone, underscoring the widening disconnect between market expectations and the Fed’s policy stance.
With the ongoing US government shutdown delaying official data releases, market attention is likely to shift back to the tensions between the Trump administration and the Federal Reserve, which could influence sentiment in the coming weeks.

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