Weekly Market Recap: OCT 26-31, 2025

The past week was dominated by a series of major central bank decisions that set the tone for global markets. From the Federal Reserve’s unexpected hawkish shift to the Bank of Canada’s cautious rate cut and Japan’s continued monetary support, traders navigated a volatile environment marked by diverging policy paths and persistent inflation pressures.

Table of Contents

1. U.S. Federal Reserve: Hawkish Shift Amid Data Delays
2. Bank of Canada: Rate Cut with Caution
3. Reserve Bank of Australia: Rising Inflation Changes Outlook
4. Bank of Japan: Dovish Stance Pressures the Yen
5. European Central Bank: Neutral Tone as Growth Moderates
6. Key Economic Data: Confidence, GDP, and Inflation Updates
7. Market Sentiment and Outlook
8. What to Watch Next Week

1. U.S. Federal Reserve: Hawkish Shift Amid Data Delays

As widely expected, the Federal Open Market Committee (FOMC) cut rates by 25 basis points. However, Chair Jerome Powell surprised markets with a more hawkish tone, emphasizing that inflation remains elevated and the labor market is not weakening rapidly.

Powell noted that the ongoing U.S. government shutdown has delayed the release of key economic data, creating uncertainty in the Fed’s assessment of current conditions. He also signaled that if this situation persists and data gaps continue, a December rate cut may be off the table.

During Powell’s remarks, market reactions were immediate, the U.S. dollar strengthened while gold prices retreated, reflecting a risk-off shift in sentiment during that time.

2. Bank of Canada: Rate Cut with Caution

The Bank of Canada reduced its policy rate by 25 basis points, as anticipated, but maintained a cautious stance. Policymakers highlighted growing concerns over the tariff situation, which could reignite inflationary pressures.
Despite the cut, the central bank’s tone leaned neutral to slightly hawkish, suggesting rates are likely to remain steady for some time as officials monitor the inflation outlook.

3. Reserve Bank of Australia: Rising Inflation Changes Outlook

Australia’s inflation rate accelerated sharply to 3.2%, up from 2.1% previously, a significant jump that may prompt the Reserve Bank of Australia (RBA) to pause any near-term easing.
The strong uptick in consumer prices increases the likelihood that the RBA will adopt a neutral stance, preferring to observe whether inflation stabilizes before taking further action.

4. Bank of Japan: Dovish Stance Pressures the Yen

The Bank of Japan held interest rates steady, maintaining its dovish policy stance. Governor Kazuo Ueda reiterated the need for continued monetary support, which pushed the Japanese yen lower.
The move raises the possibility of government intervention to stabilize the currency in the short term.

In addition, Tokyo’s CPI rose to 2.8%, signaling persistent inflation above the BoJ’s 2% target. Combined with a steady unemployment rate of 2.6%, strong industrial production (+3.4%), and a rebound in retail sales (+0.5%), markets are beginning to price in a potential rate hike in the coming meetings.

5. European Central Bank: Neutral Tone as Growth Moderates

The ECB kept its main refinancing rate steady at 2.15%, with President Christine Lagarde refraining from offering new forward guidance. She emphasized that the Eurozone economy remains on a slow but stable growth trajectory.

Annual GDP growth eased to 1.3% from 1.5%, while quarterly growth stood at 0.2%, signaling mild economic expansion. The unemployment rate remained unchanged at 6.3%, reflecting a resilient labor market despite broader weakness in manufacturing and services.
With inflation hovering near the 2% target, the ECB maintained a neutral, data-dependent stance.

6. Market Sentiment and Outlook

Overall market sentiment last week leaned risk-on, boosted by optimism surrounding the trade agreement between Donald Trump and Xi Jinping in South Korea. The deal fostered a wave of positive sentiment across global markets.

Despite an initial outflow from gold following the FOMC’s hawkish tone, the metal entered a secondary consolidation phase as investors balanced optimism about future rate cuts against short-term dollar strength. Equities also stabilized, mirroring the broader improvement in risk appetite.

7. What to Watch Next Week

The upcoming week will be packed with key events:

• PMI releases across major economies, offering fresh insights into global manufacturing and services activity.
• RBA interest rate decision, where policymakers are expected to hold rates steady at 3.6%, amid sticky inflation.
• ECB President Lagarde’s speech and Bank of Canada’s Macklem’s remarks, both closely watched for policy signals.
• Bank of England rate decision, expected to keep rates unchanged, though Governor Andrew Bailey’s tone will be crucial in assessing future direction.
• Canadian unemployment data, forecast to rise to 7.2% from 7.1%, could influence expectations for another BoC rate cut.
• U.S. data releases remain uncertain due to the ongoing government shutdown, limiting visibility into economic conditions.

Traders should monitor live headlines and central bank speeches throughout the week for potential trading opportunities and shifts in monetary policy expectations.