Dollar steadies as traders await Federal Reserve and other central-bank decisions

The US dollar steadied in currency markets on October 22, 2026, as traders grew cautious before next week’s central-bank meetings, with the Federal Reserve, Bank of Japan and European Central Bank expected to leave interest rates unchanged while maintaining a bias towards tighter policy.¹²

Rate expectations shape trading

Markets expect the Federal Reserve to keep its benchmark rate range at 3.75–4% in October before raising it in December. The pause in the dollar’s retreat comes as investors await signals from a week of decisions spanning the US, Europe, Japan, Canada and New Zealand.¹²

Traders remain positioned for dollar strength, reflecting an assumption that the artificial intelligence boom will sustain strong US economic growth and keep interest rates elevated for longer. That positioning forms the backdrop to a market in which several other currencies have recently reached multiweek highs.¹²

Sterling climbed to US$1.3409 earlier in the week, its highest level in a month, before trading at US$1.33955. British inflation exceeded expectations, supporting the currency. Australia’s currency rose as well, hitting its highest point in three weeks and changing hands at US$0.7025, just over the 70-US-cent mark.¹²

Inflation and prospective increases

Andrew Hauser, deputy governor of Australia’s central bank, said the inflation outlook had become “materially worse” and linked some of that deterioration to elevated oil prices. His remarks increased expectations that Australian interest rates could rise as soon as next month.¹²

Expectations of a New Zealand rate increase next week helped lift its currency to US$0.5709, a one-month high. Markets anticipate a Canadian rate increase the following week, helping the country’s currency trade close to a one-month peak at C$1.4032 against the US dollar.¹²

In Japan, the central bank is expected to leave rates unchanged next week, with its next increase, to 1.5%, anticipated early next year. The yen traded around 158 per dollar, with the prospect of intervention and expectations of higher interest rates in focus.¹²

European pressures

The euro remained above US$1.12 after roughly a month of losses. Fiscal concerns in France and Europe’s vulnerability over energy have made the currency a favoured vehicle for trades anticipating dollar strength. French 10-year bond yields reached their highest level since 2022 amid unrest and concerns over budget-deficit control.¹²

The ECB is expected to retain its 2.5% benchmark rate next week. Brent Donnelly, president of Spectra Markets, described a balance between negative developments and existing trading positions: “The euro cannot sell off and it cannot rally,” he said.¹²