Forex Today: US Dollar stays firm as mid-tier data releases and FOMC meeting approach

Tuesday, 27 October: the key market developments to watch

September's US Durable Goods Orders and New Home Sales figures are due on Tuesday, together with regional manufacturing surveys and the Conference Board's October Consumer Confidence Index. Following Monday's uneven trading, markets remain cautious. Despite the benchmark 10-year US Treasury bond yield holding below 5%, the US Dollar (USD) remains firm against its peers. Late Tuesday also marks the start of the Federal Open Market Committee's (FOMC) two-day policy meeting.

Although the USD Index finished higher on Monday, it found little upward momentum as gains on Wall Street and falling crude oil prices signalled an improvement in sentiment. By early Tuesday, the USD Index is holding on to modest gains above 102.00, while US stock index futures edge lower.

Following Monday's decline of about 2%, a barrel of West Texas Intermediate (WTI) is trading slightly higher on the day. According to Reuters, the Saudi-led coalition said early Tuesday that its air defences had intercepted and destroyed four drones launched by the Houthis towards southern Saudi Arabia.

Fed expected to hold in October as BNY looks to December for tightening risks

Sharing the market's prevailing view, BNY Markets strategists say that "in line with the market, we don’t foresee a rate hike at the October FOMC tomorrow and prefer to place our expectations for further tightening on the December meeting." Their assessment is that, "based on Fed commentary and a steady, if sticky, inflation outlook, we don’t think the weight of the Committee will fall on the hawkish side."

On Tuesday, Japanese Finance Minister Satsuki Katayama reiterated that officials would watch market movements with heightened urgency, saying the government stood ready to act decisively in the foreign exchange market. Following Monday's 0.4% advance, USD/JPY is extending its gains, last trading at 157.80, up 0.2% on the day.

GBP/USD ended Monday about 0.3% lower, marking its second successive session of losses. Early Tuesday, the pair remains under pressure below 1.3330. Market participants will closely examine Wednesday's August Budget announcement from the UK, which will include economic forecasts from the Office for Budget Responsibility (OBR).

With Prime Minister Andy Burnham having “recently announced that significant changes would only occur following a potential re-election,” Commerzbank’s Michael Pfister warns that the forthcoming UK budget is “unlikely to result in major progress,”. Even so, he believes that “market participants are likely to be relieved that the presentation of the new budget is proceeding relatively calmly,” lending weight to the view that a more measured approach to fiscal communication could support the Pound.

EUR/USD is heading towards 1.1150 in early European trading on Tuesday, with selling pressure persisting for a fourth consecutive session.

Gold is holding in a narrow range around $4,000 early Tuesday, following modest gains on Monday.

AUD/USD finished Monday lower, although it found stability above 0.7000. Australia's September Consumer Price Index (CPI) release, due in the opening hours of Wednesday's Asian session, could increase volatility in the pair.