US Dollar Edges Higher Ahead of Fed, ECB and BOJ Decisions
The US dollar edged higher on Monday, October 26, 2026, as investors weighed lower oil prices against persistent geopolitical risks and prepared for major central bank decisions. The Federal Reserve, European Central Bank and Bank of Japan were scheduled to announce policy decisions later in the week.
The US Dollar Index, which measures the greenback against six major currencies, rose 0.19% to 102.01, reversing earlier losses. The euro subsequently fell 0.16% to $1.1185, while sterling had traded 0.1% higher at $1.3385 earlier in the session.
Oil and French Credit Developments Influence Currency Markets
The euro initially gained 0.16% to $1.122 after Moody’s left France’s credit rating unchanged. However, the agency retained its negative outlook, limiting relief over the country’s fiscal position. S&P Global Ratings was scheduled to review France’s rating on November 27.
Brent crude futures fell approximately 2% to $114.51 a barrel during Monday’s trading after Qatari mediators travelled to Tehran on Sunday to pursue diplomatic efforts coordinated with Washington. The decline followed an approximately 6% rise over the previous week.
Supply concerns persisted after Yemen’s Houthis said they had attacked Saudi airport and oil infrastructure on Saturday. The combination of diplomatic activity and continued security risks complicated the outlook for energy prices, inflation and the US dollar.
Fed Decision Remains Central to the US Dollar Outlook
The Federal Reserve’s two-day meeting was scheduled to begin on Tuesday and conclude on Wednesday, October 28, U.S. time. Markets broadly expected the federal funds target range to remain at 3.75%–4.00%, following September’s first increase in more than three years.
At the start of the week, futures pricing indicated less than a 10% probability of another increase in October, compared with approximately 80% for December. These market-implied probabilities remained subject to change.
Investors were focused on the policy statement and Chair Kevin Warsh’s press conference for guidance on inflation and further tightening. A more hawkish message than anticipated could support the US dollar, while a more cautious assessment could temper rate expectations.
GDP and Inflation Reports Could Reshape Rate Expectations
October consumer confidence data was due on Tuesday, followed on Thursday by the advance estimate of third-quarter gross domestic product, September’s Personal Consumption Expenditures price index and weekly jobless claims.
Forecasts cited ahead of the releases pointed to annualised quarterly GDP growth of approximately 3.2% and headline PCE inflation of 3.6% year on year, up from 3.4%. Initial jobless claims had fallen to 194,000 in the preceding report.
Stronger growth or persistent inflation could reinforce expectations for tighter policy and support the US dollar. Weaker readings could have the opposite effect, depending on the Fed’s guidance and prevailing market expectations.
ECB Faces Persistent Inflation Risks
The ECB was scheduled to announce its decision on Thursday, with markets broadly expecting the deposit rate to remain at 2.50%. September inflation of 3.7% and elevated energy costs continued to complicate the policy outlook.
ING expected the next increase in December, although that remained a forecast dependent on incoming data. A firmer tightening signal could support the euro against the US dollar, while greater concern about economic activity could weigh on the single currency.
BOJ Guidance May Drive Further Yen Volatility
The yen strengthened 0.45% to 157.53 per dollar during Monday’s trading. USD/JPY had fluctuated sharply the previous week, reaching 158.68 on October 20 before retreating to 156.06 on Friday.
The BOJ was expected to leave its policy rate unchanged at 1.25% on Friday following two increases earlier in the year. Investors were watching for indications that additional tightening remained possible.
Japanese core inflation had moved above the bank’s 2% target in September. The planned withdrawal of fuel subsidies could add price pressure, potentially influencing expectations for a December increase and the yen’s performance against the US dollar.
Yuan Strengthens as Investors Watch Chinese Policy Signals
The onshore yuan touched 6.6682 per dollar, its strongest level since June 2022. The People’s Bank of China had been setting weaker-than-expected daily reference rates, moderating the pace of appreciation.
Investors were also monitoring Chinese policy discussions scheduled from Monday through Thursday for indications about the economic outlook and their implications for regional currencies.
Market Outlook: Policy Guidance and Geopolitics Remain Key
The US dollar’s direction was likely to depend on central bank communication, economic releases and developments in the Middle East. The Fed’s statement and press conference were particularly important, alongside the ECB and BOJ decisions.
Changes in oil prices could influence both inflation expectations and demand for perceived safe-haven assets. Unexpected policy signals or geopolitical developments could therefore increase volatility across major currency pairs.