USD AI Market Pulse, Wednesday, 28 October 2026
JAFX AI’s read of the news on USD (US dollar), as it stood at the end of the day: read at 21:00 UTC.
Bias: two-way
USD softened on a 'sell-the-fact' Fed hold despite 2 hawkish dissents. With a December hike near-fully priced, Thursday's core PCE/GDP must run hot to revive the bid.
The Fed held at 3.75–4.00% as expected, with two officials favoring a hike. The statement flagged strong activity and elevated inflation. Warsh reaffirmed the 2% target but said tightening is working, and the USD slipped: AUD/USD rose 0.52% to 0.7054, a one-month high. Earlier, oil spiking to ~$101 WTI on Iran-escalation fears and AI-equity relief had kept the dollar firm into the event.
The past week
The week ran on a hawkish-Fed, strong-US-growth narrative. Headline durable goods beat (1.8% vs 0.6%), as did HPI and wholesale inventories, though ex-transport durables were a touch soft and the goods trade deficit widened to -$134.9B. Bear-flattening in Treasuries and higher energy prices supported the USD, pushing EUR/USD down to 1.1120, while ING eyed DXY above 103.00 if the Fed sounded hawkish.
The bigger picture
Late-cycle tightening regime: inflation is sticky (headline PCE seen at 3.6% y/y) with resilient growth, and banks (Rabobank, ABN AMRO) see a final 25bp hike in December, then an extended hold near 4.25%. Middle East oil risk, US midterms and AI-equity sentiment add two-way volatility around a structurally supported dollar.
Positioning
The dollar was bid into the FOMC on hawkish expectations: OIS prices nearly one full hike by December plus another by Q3, and EUR/USD hit its lowest since May 2025. Warsh's no-new-hawkishness presser triggered an unwind, so the bar for fresh USD upside is now a clearly hot core PCE (>0.3% m/m). An in-line or soft print risks extending the post-Fed long liquidation.
Scenarios it set out
- Core PCE m/m ≥0.4% (f/c 0.3%) and/or core y/y >3.1%, with GDP ≥3.2% Post-Fed USD dip reverses as December hike pricing hardens. AUD/USD likely falls back toward 0.7020 and possibly 0.6995, and EUR/USD retests its 1.1120 lows. DXY's push toward 103.00 (ING) comes back into view.
- Core PCE 0.3% m/m / 3.1% y/y and GDP near 3.2% (in line) December hike stays priced but nothing new is added. The USD likely drifts with the post-presser softness, with AUD/USD contained in a 0.7020–0.7060 area below 0.7070 resistance.
- Core PCE ≤0.2% m/m and/or GDP well below 3.2%, claims well above 199K December hike odds get trimmed and the dollar long unwind deepens. AUD/USD breaks 0.7060/0.7070, with broad USD weakness and a bull-steepening risk in Treasuries.
What it said to watch
- OIS December pricing: currently ~one full hike. Any slip after Warsh signals the hawkish premium is leaking.
- AUD/USD 0.7060 cap and 0.7070 major resistance vs 0.7020/0.6995 support, as a proxy for post-Fed USD direction.
- EUR/USD around 1.1120, the lowest since May 2025. Holding below it would show the USD bid surviving the Fed.
- DXY 103.00 (ING target) as the hawkish-follow-through marker.
- WTI near $100–101: Iran/Houthi escalation feeds the inflation and hawkish-Fed narrative supporting the USD.
- NZD/USD 0.5560/0.5550 range floor after the RBNZ hold, a gauge of broad USD vs high-beta FX.
Risk ahead, as it saw it
Thu 12:30 UTC (in ~15.5h): Q3 GDP (f/c 3.2%), core PCE m/m 0.3% / y/y 3.1%, headline PCE m/m 0.5% / y/y 3.6%, personal spending 0.6%, income 0.3%, initial claims 199K. Core PCE is the key test of December hike pricing.