**Title: Forex Market Update: Dollar Retreats, Focus Turns to Fed and BOJ Policy Decisions**
*By FXStreet Team, as first published on Mitrade (October 29, 2025)*
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As global financial markets gear up for a series of critical central bank meetings, the US Dollar (USD) pulled back from recent highs, marking a pivotal week for forex traders. Investors are navigating a landscape shaped by robust US economic data, shifting interest rate expectations, and geopolitical uncertainties. The primary focus remains the Federal Reserve’s (Fed) upcoming meeting, but significant attention is also reserved for the Bank of Japan (BOJ), the Bank of England (BOE), and several other central banks expected to shape currency volatility in the days ahead.
This article outlines the major driving forces behind recent forex movements, explores the outlook for USD, EUR, and JPY, and presents key market expectations, all contextualized within the upcoming central bank decisions.
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## US Dollar Weakens as Fed Meeting Nears
After a period of strength propelled by better-than-expected US economic data, the USD index (DXY) has softened. The DXY, tracking the dollar against a basket of six major currencies, dipped as traders trim bets on further interest rate hikes before the year’s end. The movement comes amid:
– Cooling inflation data, with core PCE — the Fed’s preferred gauge — coming in line with expectations.
– Market pricing in a near-certain hold on rates from the Fed at its October 2025 policy meeting.
– Slight paring back of bets on additional hikes in 2025, though interest rate differentials remain in favor of the USD versus lower-yielding peers.
### Key Factors Behind the USD Movement
– **Resilient US Economy:** US GDP data surprised to the upside, buoyed by consumer spending and labor market solidity, but forward-looking indicators point to moderating momentum.
– **Treasury Yields Retreat:** After surging in recent weeks, the 10-year US yield retreated from 16-year highs, coinciding with the dollar’s pullback.
– **Market Positioning:** Investors appear to be recalibrating long USD positions in anticipation of dovish cues from this week’s FOMC statement.
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## Federal Reserve Decision: Hold Expected, Guidance Watched
The Federal Open Market Committee (FOMC) concludes its two-day meeting on October 29, with consensus anticipating no change to the federal funds rate — currently in the 5.25 to 5.50 percent range. The accompanying policy statement and Chair Jerome Powell’s press conference will be scrutinized for signals regarding the Fed’s outlook and the future path for rates.
### What Markets Are Watching
– **Forward Guidance:** Traders are most attuned to the Fed’s tone on economic activity, inflation risks, and financial conditions.
– **Policy Bias:** The potential for more caution given recent tightening in financial conditions and moderation in inflation.
– **Quantitative Tightening (QT):** Any hints on the Fed’s balance sheet reduction pace could stir additional volatility.
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## Euro and Sterling: Limited Upside, Diverging from the USD
The euro (EUR) and pound sterling (GBP) have both seen minor recoveries against the USD, though their medium-term outlooks remain tethered to relatively sluggish domestic economic prospects and dovish central bank signaling.
### European Central Bank (ECB): On Hold, Watching Data
The ECB held rates steady at its last meeting, underscoring a wait-and-see approach as growth stalls in the eurozone and inflation shows signs of receding.
– **Growth Concerns:** Recent eurozone PMIs indicate contraction in business activity, fueling recession worries.
– **Inflation Dynamics:** Headline CPI is trending back toward target, lessening pressure for immediate further tightening.
– **ECB Outlook:** Markets are looking for signals as to when rate cuts could begin, with current pricing suggesting the first move as early as
Read more on GBP/USD trading.