USD: Strong earnings and global calm ease banking jitters
The latest earnings reports from major U.S. banks underscore a robust performance across the financial sector, with notable year-over-year gains. Both commercial and investment banking divisions posted strong results, signaling broad-based resilience. For example, Morgan Stanley reported an 80% increase in revenue from equity underwriting, while Goldman Sachs achieved record revenues in its markets and investment banking segments.
More telling than topline growth, however, was the conservative posture on credit risk. Given how sensitive the topic has been over the last week, it’s worth noticing that several institutions reduced their provisions for potential losses, reflecting confidence in consumer and business credit quality. Citi saw a decline in delinquencies compared to the prior year, and JPMorgan Chase (JPM) lowered its credit card charge-off rate. Similarly, Bank of America (BoA), PNC, and Wells Fargo reported improvements in net charge-offs and delinquency metrics, collectively suggesting that U.S. consumers remain on solid financial footing.
This encouraging data prompted a wave of positive commentary from bank executives. BoA’s CFO cited “continued strong performance in the credit portfolios,” while JPM’s CFO emphasized that both consumers and businesses “remain resilient.” while PNC’s CEO mentioned that “the economy is fine.”
Last week the optimism was tempered by caution from JPM CEO Jamie Dimon, who pointed to recent failures among smaller institutions, such as Tricolor and First Bank, as potential indicators of broader instability. Additional fraud-related losses reported by regional lenders like Zions Bank and Western Alliance have reignited concerns reminiscent of the SVB bankruptcy in spring 2023. While such developments warrant attention, they are not necessarily indicative of systemic risk. The credit performance of the largest banks offers a more reliable gauge of economic health, and current data suggests that both the U.S. economy and its consumers remain fundamentally resilient, an encouraging signal for market sentiment.
Confidence also appears to be extending beyond domestic indicators, with signs of easing tensions in U.S.-China relations. President Trump recently described proposed tariff levels as “not sustainable” and is expected to meet with President Xi. Meanwhile, Secretary Bessent is scheduled to engage with Vice Premier Lifeng in discussions aimed at de-escalation. The dynamic between the two nations resembles a modern economic version of Mutually Assured Destruction (MAD), given China’s dominance in rare earth permanent magnets (REPMs) and the interdependence of both economies. This mutual leverage makes a negotiated resolution the most probable outcome, which in turn supports global risk appetite.
Despite recent volatility, equities have remained stable, and expectations for Federal Reserve rate cuts remain intact. Chair Powell’s recent remarks suggest the Fed may be nearing the end of its Quantitative Tightening (QT) cycle sooner than anticipated. Taken together, the strong performance of leading financial institutions, improving geopolitical outlook, and a more accommodative monetary policy stance, these factors contribute to a market environment that is fundamentally well-supported for the week. In FX markets, calm waters, as markets await key macro data, with PMIs, and most importantly, US CPI this Friday on focus.
EUR: Mean reversion, minus momentum
Yesterday’s EUR/USD price action was quiet, 0.1% lower. Meanwhile, dollar sentiment was recharged, buoyed by renewed optimism around Q3 earnings. With 85% of S&P 500 companies beating estimates, corporate resilience has become the market’s new proxy for economic growth – dollar positive – amid data silence due to the shutdown.
The euro, meanwhile, remains hesitant. Sentiment recovery is only partial, and Friday’s S&P downgrade from AA– to A+ has reignited concerns about the eurozone’s fiscal fragility. The downgrade re-establishes awareness of the precarious backdrop, capping euro upside. As a result, EUR/USD’s mean reversion – its return to a macro-warranted anchor – continues to stall. The pair remains below its fair value, but the path back is proving slow – let alone a reclaiming of the year-to-date high of 1.1919, which looks increasingly unlikely given the current balance of risks.
Paralyzed EUR:USD rate differentials offer little support, with neither side unlikely to offer fresh directional impulse in the near term. While we remain cautious, peak negative US sentiment may be behind us, further tilting the bias against the euro.
Zooming out from short-term price action, the setup reinforces the durability of the 1.18 resistance – unbroken since summer – and supports the view that EUR/USD continues to reject its long-term downtrend. Yet at higher frequencies, the pair even struggles to hold above the more achievable 1.17 level.
Christine Lagarde is scheduled to speak later today – but with markets already saturated by recent remarks affirming the ECB’s comfort with current levels, we don’t expect this to move the needle.
GBP: Pressure points – front to long end
The upcoming Autumn Budget continues to cloud GBP sentiment. Fiscal fears intensified this morning after it emerged that the UK government borrowed £7.2 billion more than the OBR had forecast in the first six months of the fiscal year (£99.8bn vs. £92.6bn). September alone saw £20.2 billion in borrowing – the highest monthly figure since the pandemic – driven by a sharp rise in debt-interest costs.
With higher borrowing costs, U-turns on welfare cuts, and a likely productivity downgrade from the OBR, Bloomberg Economics estimates Chancellor Reeves would need to find roughly £35 billion just to restore the £9.9 billion headroom she previously left herself against her goal of balancing day-to-day spending with revenues.
None of this bodes well for sterling. As budget day approaches, media leaks and emerging details like these are likely to continue weighing on GBP – whether through fiscal uncertainty, pressuring the curve at the long end, or speculation around tax hikes.
With limited clarity expected until the budget itself, sterling may face non-negligible downside in the lead-up, as speculation alone could further strain sentiment. A breach below 1.14 in GBP/EUR – unseen since early 2023 – is starting to look increasingly plausible.
This week, the inflation report on Wednesday is the main event. With wage growth having undershot consensus in early 2025 – and still running below its five-year average – services inflation may now be showing signs of moderation, particularly in sectors with slower pass-through dynamics. This could reinforce the case for disinflation in core components.
Any undershoot would compound soft GBP sentiment, adding fundamentally heavy bearish pressure – dragging the front end of the curve lower, and GBP along with it, as easing bets gain traction.
Gold continues to rally
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: October 20-24
All times are in BST
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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.
