Global FX Market Recap: AI Boom Fuels Divergence as Manufacturing Weakens and Fed’s Split Adds Uncertainty

The global foreign exchange market started the week with heightened volatility, driven by diverging trends in technology investments, ongoing weakness in manufacturing data, and growing uncertainty surrounding U.S. monetary policy.

AI Investment Divergence Widens Market Gaps
AI-related gains continued to drive equity concentration, leaving traditional indices behind. The Dow Jones Industrial Average (DJIA) fell by 200 points to trade below 47,250, as investors rotated toward AI-linked sectors. Amazon rose about 5% after unveiling a $38 billion investment in OpenAI, while data center supplier Iren secured a $9.7 billion deal with Microsoft. Nvidia climbed 3.7%, benefiting from hardware demand tied to these major projects. Analysts described the phenomenon as the “Magnificent 7” effect—AI giants leading broader market performance.

Manufacturing Sector Remains in Contraction
The U.S. manufacturing sector continued to struggle, with the Institute for Supply Management (ISM) Manufacturing PMI slipping to 48.7 in October, marking the eighth consecutive month of contraction. Sub-indices for production (48.2), new orders (49.4), and employment (46.0) all remained below 50, signaling ongoing weakness. Meanwhile, the S&P Global Manufacturing PMI painted a more positive picture at 52.5, suggesting mild expansion in select sectors.

Fed Division Clouds Rate-Cut Outlook
The Federal Reserve’s policy direction has become increasingly uncertain, as differing views among policymakers led to a rare three-way vote at the recent meeting. Fed Governor Lisa Cook and San Francisco Fed President Mary Daly backed the latest rate cut, citing risks to the labor market, while others favored patience. Traders remain divided on the December outlook: CME FedWatch data shows a 65% probability of another cut on December 10, though many expect a pause until January. The mixed signals have strengthened the U.S. Dollar Index (DXY), which gained for the fourth straight session.

Upcoming Key Economic Events

· Nov 4 (Tuesday): Reserve Bank of Australia (RBA) interest rate decision and policy statement; ECB President Lagarde’s speeches; New Zealand employment data.

· Nov 5 (Wednesday): China’s Services PMI, U.S. ADP employment report, and ISM Services PMI—all expected to influence USD and CNY movement.