7 Crucial Decisions: Fed Rate Cut Shocks Forex & Rupee in October 2025
The final week of October 2025, from the 26th to the 31st, delivered significant developments across global finance and forex markets, dominated by key central bank decisions and their ripple effects. The period was marked by the US Federal Reserve’s second consecutive interest rate cut and the European Central Bank’s (ECB) hold, creating a major policy divergence that set the tone for currency movements. This divergence, coupled with persistent geopolitical tensions and a constrained US data calendar due to the ongoing federal shutdown, kept volatility elevated for traders worldwide.
Major Central Bank Decisions and Policy Divergence
The most pivotal news of the week came from the world’s two largest central banks:
- US Federal Reserve (FOMC) Rate Cut: On October 29, 2025, the FOMC delivered a 25 basis point (bps) cut to the federal funds rate, bringing the target range down to 3.75%–4.00%. This was the second cut this year and the lowest level in three years. Chairman Jerome Powell acknowledged the cut was aimed at safeguarding against employment market uncertainties, noting that the labor market was cooling. However, the accompanying statement was cautious, with Powell stating that a further reduction in December was “not a foregone conclusion” due to elevated uncertainty and limited data from the ongoing US government shutdown. This cautious stance triggered some profit-taking in US stock markets immediately following the announcement.*
- European Central Bank (ECB) Rate Hold: The ECB Governing Council, on October 30, 2025, decided to keep its three key interest rates unchanged (deposit facility at 2.00%). The ECB maintained its stance, noting that inflation remains close to its 2% medium-term target and that the Eurozone economy continues to grow, supported by a robust labour market. This decision established a clear divergence from the Fed, providing structural support to the Euro.
This monetary policy split directly influenced the EUR/USD pair, which saw range-bound trading but remained supported above its key technical levels, reflecting the Eurozone’s slightly firmer momentum against the US dollar’s easing path.
Forex Market and Indian Rupee Dynamics
The forex market experienced considerable action, driven primarily by the US dollar’s reaction to the Fed cut and a late-week rally.
- US Dollar Resilience: Despite the Fed’s rate cut, the US Dollar Index (DXY) remained resilient and finished the week near a three-month high. The cautious outlook on future cuts and strong earnings from key US tech companies (like Amazon) helped limit the dollar’s downside. This resilience put pressure on other currencies.
- Indian Rupee Volatility (USD/INR): The Indian Rupee ($\text{₹}$) experienced a volatile week. It initially appreciated to close around $\text{₹}88.21$ against the dollar, buoyed by robust domestic equity markets, foreign institutional investor (FII) inflows (over $\text{₹}10,000$ crore equity purchases earlier in the week), and optimism about a potential India-US trade deal. However, the momentum reversed sharply on Thursday, with the Rupee sliding to a two-week low near $\text{₹}88.74$ before closing the week at $\text{₹}88.7650$ on Friday. This depreciation was attributed to end-of-month dollar demand, likely squaring up of NDF positions by the RBI, and the unexpected ‘hawkish’ tone in the US Fed’s statement. The Rupee narrowly avoided its record low, thanks to intermittent dollar sales from state-run banks, highlighting the central bank’s active role in managing volatility.
Global and Domestic Equity Performance
Stock markets demonstrated resilience and closed the month of October with strong gains.
- US Stock Market Highs: US indices, including the S&P 500, Dow Jones, and Nasdaq, finished the week with solid gains, with the Nasdaq in particular getting a late-week boost from better-than-expected earnings from tech giants like Amazon. The overall market sentiment was positive, driven by solid corporate results and continued optimism surrounding Artificial Intelligence (AI) investments.
- Indian Market Strength: Indian equity markets showed impressive momentum, with both the BSE Sensex and Nifty 50 posting gains of approximately 4.5% for the month of October, marking their best monthly performance since March. Key sectors like PSU banks outperformed on expectations of increased FDI limits. However, on Friday, the markets saw profit-booking, and benchmarks ended lower, dragged down by private sector banks following a new directive from the Securities and Exchange Board of India (SEBI) to restructure non-benchmark indices like the Bank Nifty by March 2026. This announcement led to concerns over potential FII outflows from heavyweight private lenders.
Commodities and Cryptocurrencies
- Gold (XAU/USD): Gold continued to consolidate after setting a record high near $\text{\$4,380}$ earlier in the month. It was trading in a broad range, supported by ongoing geopolitical tensions and uncertainty over US fiscal policy, but saw a slight decline for the week, hovering around $\text{\$4,008}$ per ounce by Friday.
- Brent Crude: Brent crude prices edged lower, poised for a third straight monthly decline, weighed down by a stronger US dollar and weaker-than-expected manufacturing data from China, despite holding above the mid- $\text{\$60}$ range.
- Bitcoin (BTC/USD): Bitcoin was consolidating after a volatile start to the month, attempting to rebuild its uptrend above the $\text{\$104,000}$ level amid cautious investor sentiment.
Source link :theguardian.com
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