Dollar Finds Its Footing
After several months of gradual decline, the United States dollar (USD) regained its footing in global markets during October. The greenback’s performance reflected a shifting blend of monetary policy expectations, tempered investor sentiment and mixed U.S. economic data. What began as a period of consolidation evolved into a careful balancing act, shaped by a softening Federal Reserve stance and persistent global uncertainty.
The dominant theme throughout the month centred on the Federal Reserve’s policy trajectory. At the outset, markets anticipated an assertive sequence of rate cuts following the Fed’s mid year pivot. However, as incoming data revealed renewed resilience in key sectors, particularly consumer spending and core inflation where expectations began to moderate. Investors increasingly questioned whether the Federal Reserve would move as swiftly or as deeply as previously assumed. This recalibration of expectations allowed the dollar to recover a portion of its earlier losses.
Elsewhere, the European Central Bank (ECB) appeared close to concluding its easing cycle, while the Bank of Japan (BoJ) maintained its ultra loose stance despite mounting domestic inflationary pressures. The resulting narrowing of policy divergence, which was once a source of weakness for the dollar, lent additional support to the greenback’s stabilisation.
Another factor weighing on sentiment was the U.S. Federal Government shutdown, which began on 1 October 2025 after Congress failed to pass a continuing resolution to fund government operations. The closure, now entering its fourth week, showed no immediate prospect of resolution, while more than 650,000 federal employees furloughed watched pay and key public services disrupted nationwide. A memorandum from the Council of Economic Advisers warned the shutdown could cost the economy roughly USD 15 billion per week, eroding federal employment and dampening consumer spending should it persist into November.
Gold Activity Dominates October
Following a sustained period of robust performance earlier in the year, gold emerged as a focal point in October, achieving new record highs before undergoing a pronounced correction. The metal’s movements reflected the combined influence of safe haven demand, subdued real interest rates and technical positioning, with the mid month retracement emphasising the market’s heightened sensitivity and volatility.
The principal narrative of the month centred on gold surpassing the USD 4,000 per ounce milestone on 8 October. A symbolic threshold underpinned by increased activity amid geopolitical tensions, the ongoing U.S. government shutdown and expectations of continued accommodative measures from the Federal Reserve. These developments drove elevated trading volumes and attracted attention from both institutional and retail investors, underscoring gold’s role as a focal point of global market interest.
Nonetheless, the pace of the rally prompted a temporary pullback. By mid month the precious metal fell by approximately 6 percent in a single session, marking its largest one day decline in more than a decade.
For the remainder of the month underlying fundamentals continued to exert influence. Real inflation adjusted yields remained low, supporting gold’s appeal as a non yielding store of value.
Simultaneously, broader macroeconomic developments, including the ongoing U.S. China trade dialogue, fluctuations in U.S. dollar strength and global equity market movements, all played a moderating role in safe haven demand, nudging the metal toward more stable price dynamics.
October also witnessed continued activity from central banks, with sovereign purchases and holdings contributing to overall market liquidity and depth. Investors closely monitored geopolitical events and macroeconomic releases, particularly those relating to fiscal policy and international trade, reflecting the complex array of factors that continue to shape gold market behaviour.
Stocks Surge to Records
After a strong run earlier in the year, U.S. equity markets maintained their upward trajectory throughout October 2025, reaching fresh highs and extending what has become a six month rally. Investor optimism was underpinned by solid corporate earnings and growing expectations that monetary policy would become increasingly accommodative. The major indices absorbed a range of macroeconomic headwinds including trade uncertainties and signs of stress in credit markets yet advanced with notable resilience.
The technology sector continued to spearhead the gains, as leading firms ramped up investment in artificial intelligence and infrastructure. Quarterly results that exceeded market expectations reinforced confidence in the sector and, more broadly, in the health of the economic cycle. At the same time, inflation data came in softer than anticipated, fuelling speculation that the Federal Reserve could slow the pace of interest rate adjustments sooner than previously expected. Collectively, these factors allowed the S&P 500 to touch multiple record highs and encouraged broad participation across sectors.
Nonetheless, the advance was not without caution. Credit markets displayed occasional strains, while elevated valuations particularly among large cap growth stocks, remained a source of concern. In addition, geopolitical tensions, including the ongoing U.S. federal government shutdown and trade frictions with China, provided a backdrop of potential volatility, highlighting the possibility of abrupt reversals should market sentiment shift.
As a whole, the past month was more than a continuation of the earlier rally. It signaled a degree of market resilience. Equities moved higher despite the absence of a single decisive catalyst, suggesting that investors were willing to focus on earnings momentum and structural growth themes while overlooking near term uncertainties. However, richly priced valuations and underlying risks mean that caution, strategic discipline and diversification remain paramount as the market enters the final quarter of the year.
Yen Under Sustained Pressure
After a turbulent summer, the U.S. dollar/Japanese yen (USD/JPY) pair spent the past month probing new highs, driven by pronounced policy divergence and heightened market speculation. The yen weakened significantly over the course of the month, with the pair approaching the 155 level before verbal intervention by Japanese authorities triggered a modest retracement. The move reflected a widening gap between Japan’s persistently loose monetary policy and the United States’ more measured pace of policy easing.
The central narrative for the pair centred on the Bank of Japan’s (BoJ) continued reluctance to tighten policy despite mounting domestic inflationary pressures. While other major central banks signalled a pause in rate cuts, the BoJ reaffirmed its commitment to ultra accommodative conditions, citing the need to support a fragile post pandemic recovery. This stance kept Japanese government bond yields subdued and fuelled ongoing capital outflows, exerting sustained downward pressure on the yen.
By mid October, the yen’s depreciation had raised concerns among policymakers. Finance Minister Shunichi Suzuki cautioned against “one sided and speculative” currency movements, indicating that Tokyo was prepared to intervene should volatility escalate. These remarks offered a temporary stabilisation for the yen, yet the underlying fundamentals continued to favour the dollar strength.
Market sentiment reflected the heightened sensitivity of traders to both policy and technical signals. Consequently, the USD/JPY dynamic was characterised not only by central bank divergence but also by pronounced market positioning, creating the potential for swift directional shifts should either fundamental or technical conditions change in the coming weeks or months.