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Overview: The US agreed to not to block subsidiaries of Chinese companies that were sanctioned and not to enforce the port fee on Chinese ships that had ostensibly triggered the tightening of China's rare earth/magnet export restrictions. China agreed to suspend those for a year and dropped its levy on US made/operated ships port calls. Beijing will also buy US soy, and some reports say energy as well. Apparently, Nvidia's Blackwell chip was not a subject of talks. Even with America's technological prowess, the education and material infrastructure to build rare earth processing capability and magnet will take more than a year. The deal will likely be widely criticized by the hawks that seem to dominate the US foreign policy establishment. Meanwhile, the hawkish cut by the Federal Reserve yesterday has seen the market narrow the odds of a December cut (to ~73% now from a little more than 90% yesterday) has helped lift greenback and it is largely consolidating today. The chief exception is the Japanese yen, which has been sold to a new eight-month low following the Bank of Japan's decision to stand pat and leave its economic forecasts from July largely intact. The dollar reached nearly JPY154.

The jump in US yields following the FOMC decision helped boost benchmark 10-year rates today. Benchmark yields are up 2-4 bp in Europe. The 10-year Treasury yield is slightly softer at 4.06%. Equities are mostly lower today. In the Asia Pacific region, among the large bourses, only Japan and South Korea, which secured a trade deal with the US, which include nuclear-fueled submarines, rose. Europe's Stoxx 600 is lower for the third session, matching its longest slump in a couple of months. US index futures are softer. Gold is firm, but mostly within yesterday's range. It is probing $4000 in the European morning. December WTI is also trading quietly in a narrow range around $60. 

USD: As widely expected, (96% of 81 economists in Bloomberg's survey and 98% discounted in the futures market), the Federal Reserve delivered the second quarter-point rate cut of the year. It also signaled it would stop the unwinding of its balance sheet (QT) at the end of November. The maturing mortgage-backed securities will be replaced with T-bills. There were two dissents. The one in favor of a 50 bp cut was widely expected but Miran. The other was from regional Fed President Schmid who favored steady policy. We suspect his dissent was due to the elevated inflation rather than the lack of data. Federal Reserve Chair Powell sounded less dovish and underscored that a December cut was not a foregone conclusion, as the derivatives market had shown. The Dollar Index recovered during Powell's press conference and reached 99.35, a new two-week high. It is trading quietly today between about 98.90 and 99.20. Nearby resistance near this month's highs in the 99.45-55 area. Above there, scope near-term scope may extend to around 100.00-25. Q3 GDP was due today, but the government shutdown continues to disrupt, and starting on November 1, the Supplemental Nutrition Assistance Program (SNAP) will stop being sent to some 40 mln Americans, though in the last government shutdown in President Trump's first time, the aid was still provided. Around 40% of the recipients are children, 18% elderly, and another 11% are disabled. Of the remainder, estimates suggest 70% are what is dubbed the "working poor" in that they do not earn a "livable wage". The Atlanta Fed GDP tracker saw growth in Q3 accelerating to 3.9%. The median forecast in Bloomberg's survey was for 2.7% and 3.0% (two different surveys were reported). 

EURO: The euro had been confined to an uninspiring range of about $1.1615-$1.1670 this week until the Fed's press conference when it was sold to about $1.1575. It has held above $1.1595 today, but the next technical target is around $1.1540. The outcome of the ECB meeting will be known shortly, but there is little doubt that it will leave policy unchanged. Still, the exchange rate may be sensitive to comments by ECB President Lagarde. Earlier today, it was reported that the eurozone economy grew by 0.2% in Q3 and after 0.1% in Q2. The September unemployment rate was steady at 6.3%. The German and Italian economies stagnated, while the French economy unexpectedly grew by 0.5% (0.3% in Q2). Ahead of tomorrow's preliminary aggregate October CPI, German states reported, and it looks consistent with a 0.2%-0.3% month-over-month increase for a country as a whole, which would see the year-over-year rate slip to 2.2%-2.3% from 2.4%. Spain's CPI was firmer than expected, rising 0.5% for a 3.2% year-over-year pace (EU harmonized) 

CNY: The dollar appears to have found support in the past couple of sessions a little in front of CNH7.09. The low for the year was recorded near CNH7.0850 on September 17, the last time the Fed cut rates. The dollar briefly traded above CNH7.10 shortly during the Fed's press conference. Its recovery was extended to a three-day high today, slightly above CNH7.11. Nearby resistance may be in the CNH7.1250-CNH7.1300 area. After setting the dollar fix at new lows for the year in each of the past three sessions, the PBOC set the reference rate a little higher today (CNY7.0864 vs CNY7.0843 yesterday). Presidents Trump and Xi met earlier today. Another uneasy trade truce has been negotiated. The two actions that China claims spurred the broadening rare earth export licensing requirements, namely the sanctioned companies to subsidiaries of other sanctioned companies and going ahead with the port levy, have been rescinded. Both sides have suspended the port levies for a year. China's rare earths action will also be suspended for a year. China agreed to resume its soy purchases and may also buy more US energy. Tomorrow, China reports October PMI and it is expected to be little changed. 

JPY: At the start of the week, the greenback retested the eight-month high set earlier this month near JPY153.25. The seven-day rally was capped with the help of mild verbal intervention. With the rise in US rates after the FOMC rate cut, the dollar traded back above JPY153. It has jumped to almost JPY154 today after the Bank of Japan left its target rate unchanged at 0.50%, with two dissents as before in favor an immediate hike. In Bloomberg's survey 59 of the 63 economists (~94%) surveyed expected this outcome and the swaps market had about an 87% chance of steady policy discounted. While leaving most of its economic projections unchanged from the July iteration, the growth forecast was raised to 0.7% from 0.6%. Governor Ueda continues to indicate that if the economy proceeds as officials expects, there is scope for higher rates. The BOJ also provided updates to its economic forecasts. Still, the state of the Japanese economy will be clearer tomorrow, after it reports September unemployment, industrial production, and retail sales. Recall that August was an especially poor month for the Japanese economy and it appears to have found better traction in September. Tokyo will report October CPI. The headline rate may have softened slightly but the measures may have ticked up. 

GBP: Sterling has traded poorly. Since September 17, when the Fed cut rates last, it has fallen by almost 4.3%. It has lost a little more than half of it in the past nine sessions. Yesterday, it was sold to about $1.3140, which provided support in both May and August. It corresponds to the (38.2%) retracement of this year's rally that peaked July slightly below $1.3800. It is consolidating in a narrow range today between in bout a 15-tick range on either side of $1.3200. Follow-through selling could target the $1.2950-$1.3000 area. Despite light economic calendar this week, the swaps market marginally increased the odds of a Bank of England rate cut next week to about 27% now from a little less than 24% at the end of last week. Selling pressure on sterling may have been exacerbated by month-end as portfolio managers prepare for next month's government budget. 

CAD:  The Canadian dollar extended its recover even after the Bank of Canada cut rates. The US dollar was sold slightly below CAD1.3890 to reach its lowest level since September 25. Recall that before the weekend, it tested the CAD1.4040 area. The loss of CAD1.3900 means that the greenback has given up about half of its gains since the Federal Reserve cut last month. The greenback rebound sharply after the FOMC decision and returned to session highs near CAD1.3955, leaving a bullish hammer candlestick in its wake. There has been no follow-through US dollar buying today. Instead, the greenback is consolidating in a tight range between CAD1.3925-CAD1.3950. The Bank of Canada delivered a quarter-point cut yesterday and the overnight lending rate now stands at 2.25%. The market suspects this takes the central bank out of the picture for a while. The swaps market has about a 60% chance of another cut in Q2 26. Tomorrow, Canada reports August GDP. It is expected to be flat after 0.2% growth was recorded in July. 

AUD:  The Australian dollar snapped a four-day advance yesterday, primarily due to the reaction during Fed Chair Powell's press conference. With yesterday's advance is met the (61.8%) retracement objective of the losses from the year's high set on September 17 (slightly above $0.6705). The recent gains have been sufficiently strong to lift the five-day moving average above the 20-day moving average for the first time since late September. Yesterday's high near $0.6620 approached the high for the month ~$0.6630 but sold off sharply to $0.6555 around Fed Powell's press conference. The Aussie is in about a third of a cent range below $0.6600 so far today. After yesterday's Q3 CPI, the futures market downgraded the chances that the Reserve Bank of Australia cuts rates next week. The pricing is consistent with slightly less than a 10% chance, down from about 55% at the end of last week. The overnight cash target rate is 3.60% and the swaps market is discounting a terminal rate near 3.35%. 

MXN: The dollar was confined to the range set at the end of last week: ~MXN18.3430-MXN18.4650 until the FOMC meeting, when it briefly rallied to MXN18.5025. It settled around MXN18.4850, which is the highest close in a couple of weeks. It is consolidating in a MCN18.45-MXN18.50 range today. Mexico reports Q3 GDP today. The median forecast in Bloomberg's survey anticipated a 0.4% quarterly contraction. Arguably more revealing is the year-over-year projection of a contraction of 0.3%. If accurate, it would be first negative year-over-year print since Q1 21. It may encourage more speculation of a cut in the 7.50% overnight target rate next week Meanwhile, the dollar bled lower against the Brazilian real for the third session yesterday. It fell slightly through BRL5.3350 yesterday, its lowest since October 9 before recovering on the back of the Fed to new session highs around BRL5.3670 before settling slightly BRL5.36. 

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