Fed Keeps Rates Steady Signal Sends Dollar to 2-Week High—What It Means for Your Portfolio

The dollar staged a rally this week, with the dollar index climbing +0.65% to hit 2-week highs. Here’s what triggered the move and why it matters.

The Fed’s “Hold Steady” Message Is Louder Than Expected

October’s FOMC meeting minutes dropped a bombshell: “many” officials now lean toward holding rates flat through year-end 2025. That’s a sharp pivot from earlier expectations of continued cuts. Markets quickly repriced, slashing December rate-cut odds from 70% down to just 28%—essentially erasing the cut narrative.

The kicker? The BLS canceled October’s employment report release, eliminating crucial data right before December’s FOMC decision. This removes a wildcard that could have pushed for cuts.

Dollar Strength + Yen Weakness = Perfect Storm

While the Fed pumped the brakes, Japan’s policymakers signaled the opposite direction. An advisor to PM Takaichi hinted the BOJ won’t hike again until at least March, and Tokyo may unleash a massive 20 trillion yen (~$129B) stimulus package to prop up domestic demand. That’s sending the yen tumbling—it hit 9.75-month lows against the dollar.

USD/JPY spiked +0.95% on the dovish comments, and yen weakness is now the dollar’s second wind.

Trade Data Adds to Dollar Bull Case

August’s trade deficit narrowed to -$59.6B from -$78.2B in July, beating forecasts. Cleaner trade numbers typically support the dollar.

EUR/USD Cracks as Rate-Cut Odds Diverge

Euro weakness is real: EUR/USD fell -0.46% to 1.5-week lows. The central bank divergence is stark—the ECB is essentially done cutting, while markets still price in multiple Fed cuts through 2026. Only a 4% chance of ECB action in December keeps euro losses from spiraling worse. Trump’s reported Ukraine negotiations with Russia also created headline noise.

Gold & Silver Hit a Speed Bump

Precious metals rose modestly (+0.40% for gold, +0.66% for silver) but remain pressured. Why? Lower December rate-cut expectations weigh on non-yielding assets. That said, safe-haven demand persists amid tariff uncertainty and geopolitical risks.

China’s PBOC added to its gold reserves for the 12th straight month (now at 74.09M oz), and global central banks bought 220 MT in Q3—up 28% from Q2. This structural bid supports longer-term price floors.

US Mortgage Market Signals Caution

MBA applications dropped -5.2% week-over-week; purchase indices fell -2.3% while refi demand slumped -7.3%. The 30-year fixed rate crept up 3 bps to 6.37%, reflecting the stickier-for-longer rate regime.

Bottom Line

The Fed’s hawkish hold stance just became the market’s dominant narrative. Dollar strength is now the consensus trade, while growth-sensitive currencies and commodities are on the back foot. Watch December 9-10 for the actual FOMC decision—if “many” becomes “most,” buckle up for more dollar upside.