As we already know, the U.S. Federal Reserve has decided to keep interest rates unchanged again, although interest rates remain at their highest levels since 2001, causing widespread impacts on the economy – particularly, on the business climate. Yesterday, on November 1, the Federal Open Market Committee decided to keep the target Federal Funds rate, which nominally determines only the cost of overnight lending between banks but largely affects all borrowing rates, at the previous level of 5.25-5.5%.

For the first time since early 2022, when the Fed began a sharp retreat from near-zero rates, it has decided not to raise rates at several consecutive meetings. The Fed indicated it would continue to assess “the extent of additional policy tightening,” declining to affirm the current tightening cycle is over, as bullish investors originally looked to significant rate cuts in 2024 and beyond.

On the U.S. domestic front, U.S. Treasury yields remain a key variable. Although the U.S. Treasury Department expects the debt offering activity to slow in Q4 (no particular details have been given though, which sounds questionable given the current U.S. Administration’s requests for additional political interest protection funding) traders are eagerly awaiting details of future refinancing plans. If the plans indicate that a significant portion of this year's $1.6 trillion in note sales will flow into longer-dated securities in 2024 (do you still remember Ben Bernanke’s “Operation Twist”?), that could further push up the already high 10-year yield (currently 4.89%).

Internationally, the monetary landscape is also anything but stable. For example, the Japanese yen is at near 3Yr lows against USD, in part due to an anticipated bolder adjustment in Japan's monetary policy. If the yen continues to fall, Japan may reduce its holdings of U.S. Treasury bonds, which is very important, because it would further impact the U.S. Treasury yields. Meanwhile, both the euro and pound sterling are facing headwinds of their own, adding to uncertainty about the DXY going forward.