Fed's Rate Cut Odds Plummet: What's Really Moving Markets This Week

The dollar just posted its strongest two-week run, and here’s why it matters for your portfolio.

The Rate Cut Surprise Nobody Expected

Wednesday’s market action hinged on one thing: the BLS canceled the October employment report. Sounds boring? It’s actually huge. That canceled data just tanked Fed rate cut odds from 70% down to 28% by December. Translation: markets are pricing in a rate hike hold instead of cuts.

The October FOMC minutes dropped the real bomb though. “Many” officials said keeping rates flat through the end of 2025 is the move. Combine that with stronger-than-expected trade data (Aug deficit contracted to -$59.6B vs. -$78.2B in July), and suddenly the dollar looks like the safest bet in the room.

Currency Wars Heating Up

EUR/USD fell 0.46% to a 1.5-week low as the stronger greenback weighed. But here’s the twist: the ECB’s rate-cut cycle is done, while the Fed’s still has ammo left (markets pricing 4% odds of an ECB cut on Dec 18 vs. 28% for the Fed). Classic divergence play.

USD/JPY surged 0.95% as the yen crashed to a 10-month low. The culprit? A Japanese government advisor signaled no BOJ rate hikes before March and flagged a massive 20 trillion yen stimulus package coming. That’s double last year’s package. Weak yen = bullish dollar.

Gold and Silver: Rally Fades Against Stronger Dollar

Precious metals popped initially (+0.40% for December gold, +0.66% for silver) on safe-haven demand from Japan’s stimulus fears. But gains evaporated fast once the dollar index rallied to its 2-week peak.

Here’s what’s supporting bullion though: China’s PBOC just hit 74.09 million troy ounces in reserves (12 consecutive months of buying), and global central banks scooped up 220 MT of gold in Q3—up 28% from Q2. That structural bid from central banks is real. Problem? Long liquidation pressure since the October record highs has sent ETF holdings tumbling from 3-year peaks.

What’s Next

Fed policy is now the master control switch. Dec 9-10 FOMC meeting will be crucial. If officials hold firm on “no cuts,” expect the dollar to keep grinding higher and precious metals under pressure. Watch mortgage apps too—they fell 5.2% last week as the 30-year fixed climbed to 6.37%, highest in weeks.

Bottom line: The narrative flipped from “rate cuts coming” to “hold steady” in one news cycle. Positioning matters more than ever.