USD: Yen gains versus the Dollar
The week began on a sluggish note for the FX market, with USD/JPY leading the dollar lower overnight. The move was largely attributed to a series of remarks from Japanese Finance Ministry officials, who reiterated their close monitoring of yen dynamics. Their verbal intervention helped the yen rebound, coinciding with renewed pledges from U.S. and Japanese leaders to deepen bilateral security ties. Japan’s Minister for Growth Strategy, Minoru Kiuchi, emphasized that authorities remain vigilant about the economic impact of yen weakness, a concern that continues to mount amid persistent inflationary pressures.
Looking ahead, the Bank of Japan is set to announce its interest rate decision later this week. While no change is expected, the case for tightening is gradually strengthening, driven by elevated inflation and the yen’s sustained softness.
Meanwhile, broader FX volatility remains muted. Last Friday’s U.S. CPI release failed to spark the kind of market reaction many had anticipated, reinforcing the subdued tone that has defined currency trading in recent weeks. Notably, the DXY has remained within one standard deviation of its three-month average nearly 80% of the time, underscoring the prevailing calm.
Despite markets pricing in two rate cuts for the U.S. this year, the dollar has shown remarkable resilience. A more pronounced decline appears contingent on a sharp deterioration in labor market conditions, something that, at present, is not materializing. As a result, the upcoming Federal Reserve meeting is shaping up to be relatively uneventful. Instead, attention may shift toward the Fed’s longer-term challenge: navigating policy decisions in an environment where timely and reliable economic data is increasingly hard to come by.
CAD: Bank of Canada’s policy crossroads
The Bank of Canada has a compelling rationale for easing further, even if the decision isn’t a lock. Even though core measures are at the top of the target range. economic slack is building: GDP growth is tepid, and despite a recent bump in employment, the broader labor market trend is softening.
This slowdown aligns with the Bank’s previous rationale for rate cuts, and current conditions suggest that slack is continuing to accumulate. Trade uncertainty remains elevated, and the risk that inflation undershoots the Bank’s forecast has increased. Governor Macklem’s dovish leaning after the September cut and emphasis on labor market health further support the case for action. And given that a single cut rarely delivers the full impact, and a cut is usually followed by another cut, a proactive move now could help reinforce the Bank’s commitment to stabilizing growth.
Still, there’s a credible, argument for holding rates steady. The real policy rate is already at zero, placing it squarely within the neutral zone, and financial conditions remain broadly accommodative. With monetary policy acting on a lag, the Bank may prefer to pause and assess the cumulative impact of earlier cuts.
September’s CPI print complicates the picture. Headline inflation accelerated to 2.4% from 1.9%, driven by smaller declines in gasoline prices and faster gains in groceries and rent. Price pressures were broad-based, and inflation expectations, according to business surveys, are hovering near the upper bound of the Bank’s 1–3% target range. This outcome challenges the dovish bias implied by macro conditions and injects real doubt into the case for immediate stimulus. Structural cost pressures, from labor settlements to supply chain restructuring, are also feeding into the inflation outlook. But what about the outlook beyond today’s decision? The fiscal landscape remains uncertain, and the full effects of previous rate cuts have yet to materialize, both of which continue to complicate the picture. As a result, the Bank of Canada is likely to reiterate that decisions at its remaining meeting this year will hinge on incoming data.
From a market perspective, a surprise hold could also have near-term currency implications. With rate cut expectations already priced in and the Canadian dollar stabilizing around 1.40 against the U.S. dollar, a decision to hold now, paired with a signal for a potential cut in December, could nudge the Loonie closer to 1.39, reflecting a modest repricing of monetary policy expectations.
EUR: Euro lacking conviction, for now
EUR/USD is up roughly 0.7% month-to-date, but the move reflects a lack of fresh catalysts rather than renewed conviction. The forces that drove euro strength earlier this year — softer US data and dovish Fed signals — have stalled, and with the US government shutdown ongoing, directional momentum remains limited. Trade optimism has helped prevent a break below $1.16, yet upside traction is clearly lacking.
Domestically, Germany’s Ifo business climate index rose to 88.4 in October, driven by a notable jump in expectations — now at their highest since mid-2022. However, the current assessment fell for a third straight month, highlighting persistent economic fragility. Optimism from Germany’s spring fiscal pivot has faded, with external headwinds — including US tariffs and euro strength — weighing on sentiment. Thursday’s Q3 GDP print will be pivotal. After a Q2 contraction, another negative reading would confirm a technical recession and likely test the euro’s resilience.
That said, while a dovish surprise from the Fed on Wednesday remains a low-probability scenario, it’s not off the table. Should policymakers strike a more accommodative tone than expected, EUR/USD could break back above key technical levels clustered around the upper $1.16s — potentially setting the stage for another test of $1.18.
Gold slumps 7.5% in a week
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: October 27-31
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
