USD: Dollar supported on two fronts
The US dollar has just recorded its longest winning streak since 2025, rising for four consecutive weeks. The DXY is up roughly 3% over that period.
The drivers of dollar strength have remained largely unchanged for several months: geopolitical tensions and a hawkish Federal Reserve.
Following September’s rate hike, a chorus of Fed officials has continued to signal that further tightening remains on the table, cementing expectations around a December hike.
On the geopolitical front, there has been little news flow to suggest any meaningful de-escalation in the Middle East. This comes despite high-stakes meetings on the sidelines of last month’s UN General Assembly.
The Houthi attack on Riyadh airport at the weekend was the most severe strike on Saudi Arabia since the conflict began in late February, raising concerns that the conflict is widening beyond a US-Iran standoff.
The attack fuelled speculation that the US could take a more direct stance against the Iran-backed militant group. It remains unclear, however, how such developments fit with President Trump’s pledge to avoid further military escalation in the region ahead of the 2 November midterm elections.
Over on the Russia-Ukraine front, President Trump announced yesterday that Russia and Ukraine have agreed to an “energy ceasefire”, under which both sides would stop targeting energy infrastructure and the US would lift sanctions on Russia’s diesel exports. Energy prices opened lower on the news, although Russia has yet to formally confirm its participation in the ceasefire.
We remain bullish on the dollar in the near term. The diplomatic impasse in the Middle East and the risk of wider escalation are likely to keep upward pressure on energy prices, reinforcing inflation risks and supporting a hawkish Fed bias.
This week’s key event is the September US CPI report, due on Wednesday. Consensus expects inflation to rise to 3.6% from 3.4% previously. An in-line print would likely reinforce market conviction around a December rate hike, firming the dollar index above 102.
There is also a heavy slate of Fed speakers this week, most notably Chair Kevin. However, we will be paying particularly close attention to Tom Barkin and Michelle Bowman, who are currently viewed as among the least hawkish members of the voting cohort.
EUR: Little favouring EUR/USD
EUR/USD is finding support near 1.12, although it remains vulnerable to further downside. The pair is down more than 1% this month, adding to September’s losses, and is trading at its lowest level since May 2025.
Sentiment towards the pair has deteriorated sharply, with speculative investors building short positions at levels comparable to those seen in 2020. The conflict in the Middle East, a hawkish Fed and, more recently, France’s fiscal concerns have all weighed on the common currency.
This week marks the start of heated parliamentary negotiations over France’s budget (13 October). However, hopes of a straightforward agreement remain low given the lack of a stable governing majority.
We see downside risks from potential news flow surrounding the budget negotiations, leaving the door open for a break below 1.12.
GBP: Eyes on 1.20 as data looms
Sterling starts the week on a firm footing, with GBP/EUR continuing to trade around the 1.18 handle after last week’s breakout. From a technical perspective, the move is significant. A weekly close above 1.18 suggests the cross may be building a base for a push towards 1.20. That said, momentum indicators are beginning to look stretched, with the daily RSI firmly in overbought territory, suggesting a period of consolidation would not be surprising before any further advance.
The story remains largely one of relative strength rather than outright UK optimism. Fiscal and political concerns in parts of the eurozone, particularly France, continue to weigh on the single currency, while UK assets have benefited from a perception that the Burnham government’s fiscal plans, though ambitious, remain subject to meaningful constraints.
Against the dollar, GBP/USD is showing notable resilience, holding comfortably above 1.32 despite the dollar recently touching fresh 18-month highs. That resilience reflects a combination of supportive carry dynamics and a UK economy that continues to outperform expectations.
Attention now turns to this week’s UK data calendar, most notably the latest GDP release. Recent UK data has generally surprised to the upside, helping reinforce the narrative that the economy is weathering elevated energy prices and geopolitical uncertainty better than many feared. A further upside surprise would help justify sterling’s resilience, while a softer reading could revive concerns that markets remain too hawkish on the Bank of England.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: October 12-16
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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.
