- AI angst. AI anxiety continues to rattle markets, challenging the conflict-induced inflationary playbook. Tech stocks fell, Treasuries rallied, and the dollar’s bullish momentum continued to fade.
- France frays. France’s fiscal turmoil continues to deepen. Despite little fresh news on budget negotiations, the France-Germany yield spread widened to a 15-month high. Rising oil prices are adding further pressure to an already fragile fiscal backdrop.
- Trust trade. When credibility is questioned, safe havens like the CHF and JPY come into their own. EUR/CHF trades at a three-month low, down 3% month to date.
- Oil risk. Geopolitical tensions remain elevated. New attacks in Saudi Arabia were reported, while US authorities ordered some diplomats to leave the country. The move underscored the risk of further escalation. Energy prices continue to climb, with Brent crude at $114 a barrel, its highest level since May 2026.
- Budget shrug. UK inflation came in hotter than expected, reinforcing expectations that the BoE will hike rates next week. UK assets remain largely indifferent to the Budget, despite it being only days away.
- Yuan lift. The PBOC continues to fix USD/CNY lower, signalling greater tolerance for a stronger yuan. At 6.7180, the fixing is at its strongest level since February 2023.
Global Macro
Growth stabilizes as inflation remains uneven
China growth improves. China’s economy expanded 4.5% y/y in Q3, above the 4.4% forecast and up from 4.3% in Q2. September industrial production accelerated to 5.5%, while retail sales rose 1.1% vs 0.5% expected. The improvement was led by exports and industry, however, while fixed-asset and property investment remained weak.
Canada inflation splits. Headline CPI edged up to 3.1% y/y from 3.0%, driven by a 27.8% rise in gasoline prices, but inflation excluding gasoline slowed to 2.2% from 2.4%. The Bank of Canada’s Business Outlook Survey showed better sales expectations but soft hiring plans, with tariffs and higher energy costs lifting firms’ price expectations while weighing on exports and investment.
UK inflation broadens. UK CPI accelerated to 3.5% y/y from 3.1%, above the 3.4% consensus, while core inflation rose to 2.8% from 2.6% and services inflation reached 3.7%. The labour market was less threatening, with unemployment easing to 4.7%, but vacancies fell below 700,000 and payroll employment remained lower than a year earlier.
Mexico prices firm. Headline inflation rose to 3.62% y/y in the first half of October, above expectations, while core inflation reached 3.78%. Electricity prices jumped 18.5% as summer subsidies ended, but stronger services inflation suggests the pickup was not limited to administered energy prices, complicating expectations for Banxico easing.
US layoffs stay low. Initial jobless claims fell to 194k from 200k, below expectations and close to their lowest level since the late 1960s. The data reinforce a low-hire, low-fire labour market: payroll growth remains weak, but employers are still reluctant to reduce headcount ahead of next week’s Fed decision.
Week ahead
Central Banks policy decisions take centre stage
December still in play. The Federal Reserve announces its October policy decision next week. In recent weeks, markets have grown more confident that the Fed will pause, as rising AI-related concerns have triggered some moderate dovish repricing. Investors remain far more convinced, however, that the Fed will deliver another hike in December.
ECB cornered. The ECB also announces its policy decision next week. The Bank has already delivered two 25bp rate hikes. Going further may prove particularly difficult. First, rates would move deeper into restrictive territory, increasing the risk of weighing on growth. Second, higher rates would put additional pressure on bond yields, further complicating France’s fiscal troubles.
Budget without fireworks. The newly installed Burnham administration delivers its first Autumn Budget next week. The government faces shrinking fiscal headroom as it remains committed to its fiscal rules. Higher energy prices are the main culprit, reducing the scope for bold policy measures. As a result, the event looks set to be relatively uneventful.
Infllation in the back seat? Next week, the first batch of inflation releases from eurozone member states will begin to trickle in ahead of the aggregate print the following week. With markets paralysed by fiscal concerns, stronger-than-expected inflation may struggle to generate meaningful hawkish repricing. Investors may instead wait for next week’s ECB meeting for clearer guidance on how the Bank’s reaction function is evolving.
FX views
FX markets searching for cues
USD DXY pauses. The US dollar index heads into the week’s end flat relative to its start. The dollar appears to be responding less to rising energy prices amid tensions in the Middle East. Brent crude hovers near $114 a barrel. Instead, the currency has developed vulnerability to growing anxiety around the sustainability of the AI trade via the rates channel. As investors fear the growth implications of huge spending and stretched valuations, they have repriced the Fed more dovishly, weighing on the dollar. The pressure has been most evident in USD/JPY and USD/CHF. The franc and the yen have been the preferred safe-haven choices at a time when risks cloud the dollar outlook, notably the midterm elections. After all, since Trump’s second term, when markets trade credibility and institutional stability, the dollar has lost much of that appeal. DXY’s bullish momentum has clearly taken a hit, although it remains intact. After hitting a more than one-year high of 102.945 on 14 October, the index is now hovering just below 102. We would not expect selling pressure to push the index below 101.200/300. A hawkish Fed next week looks like the clearest catalyst to revitalise the dollar’s bullish impetus.
EUR Selective selling. The euro’s risks remain skewed to the downside. The spread between French and German government bond yields widened beyond 170bp this week, its highest level in 15 years. That said, the lack of fresh news around France’s budget approval has left markets without new reasons to price additional downside risk. Indeed, the euro’s decline has eased in recent days, or at least become more selective. EUR/USD continues to hover around 1.12. Instead, the euro has suffered more pronounced losses against commodity currencies such as the AUD and CAD, supported by rising energy prices, and against traditional safe havens such as the JPY and CHF. Several of those crosses have fallen to multi-month lows this week. The surprising outlier is EUR/GBP, which has dropped to a 12-month low despite sterling being neither a commodity currency nor a credibility-driven safe haven.
GBP Sterling unfazed. Sterling continues to glide along, seemingly indifferent to the UK budget just around the corner. GBP/EUR hit a 12-month high this week at 1.1959, while GBP/USD edged higher and now hovers just below 1.34, up nearly 1% this month. Instead, the pound lost ground against commodity currencies as energy prices marched higher. Notably, GBP/NOK fell to a three-week low of 12.4642. This week brought the release of September’s UK inflation and labour market data. Both came in hotter than expected, cementing the view that the BoE will hike in November. Sterling rose on the news, suggesting that higher inflation is not necessarily being viewed through the lens of its fiscally corrosive implications with the budget only days away. Sentiment towards sterling therefore remains surprisingly constructive. Its status as one of the highest-yielding currencies in the G10 is providing an additional source of support. Next week’s budget may ultimately prove rather uneventful. Markets will be watching the OBR’s revised forecasts closely, as an upgraded outlook could matter far more than any broadly expected and relatively unambitious policy announcements. The rates implications are telling: greater fiscal headroom would imply less of a headache for the BoE in delivering further rate hikes, allowing support for sterling to pass more cleanly through the rates channel.
CHF Franc in demand. The Swiss franc is having its moment in the spotlight. USD/CHF is at a one-month low, down 1.6% month to date. Against the euro, the franc is at a three-month high, up nearly 3% since the start of the month. When credibility comes under scrutiny, the franc is the clear winner. Its bullish performance against the dollar is particularly telling. As energy prices edge higher, markets have been reluctant to punish the CHF through the geopolitical-risk channel and remain sceptical of the dollar’s safe-haven credentials amid lingering policy risks tied to the US administration. The looming midterm elections may be playing a role. Meanwhile, in Europe, France’s fiscal turmoil has made EUR/CHF one of the clearest expressions of this market theme. That said, we continue to view USD/CHF as the more tactical trade, given the risk that a hawkish Fed reasserts itself. EUR/CHF downside, by contrast, looks more likely to persist.
CAD Rate gap narrows. USD/CAD is trading near 1.40, down almost 2% from the October 9 high of 1.4299 as Bank of Canada hike expectations and falling US yields narrow the rate gap. Canada’s headline inflation rose to 3.1%, but core median and trim eased to 1.9% and 1.8%, leaving markets focused on the energy shock rather than broad underlying pressure. Even so, the implied probability of an October BoC hike has climbed above 80%, while the US-Canada two-year spread has narrowed to roughly 144bp from its recent 160bp peak. Brent above $110 and the removal of Alberta separation risk have added support, although weaker Canadian growth forecasts and continued trade friction limit the Loonie’s room to rally. Technically, 1.40 is the key support level to monitor. Friday’s Canadian retail sales will provide the final domestic signal before the October 28 BoC decision, when a Fed hold and BoC hike could compress the overnight rate differential by 25bp.
AUD Hawkish pivot revives. The Aussie is trading near 0.702, rebounding almost 1.8% from last week’s 0.689 low after the RBA warned that the inflation outlook had deteriorated materially. Markets now assign roughly a 54% probability to a November hike, while Australia’s two-year yield has moved about 24bp above its US equivalent, restoring rate support for the Aussie. The recovery remains vulnerable to weaker employment, depressed consumer confidence and renewed equity-market volatility, although strong Chinese trade data continue to support Australia’s commodity outlook. The AUD/USD is pressing against the 100-day and 200-day moving averages near 0.703–0.705; a sustained break would bring 0.71 into focus, while 0.689–0.686 remains the main support zone. Next week’s September CPI is the decisive domestic test before the RBA’s November 3 meeting, with another hot print likely to lift hike pricing and extend the recovery.
CNH Surplus anchors Yuan. USD/CNH is trading near 6.674, holding within a narrow 6.672–6.698 weekly range as the PBOC continues to guide a gradual and controlled yuan appreciation. China’s record trade surplus remains the main support, generating steady exporter dollar sales despite a deeply negative rate differential with the US. The proposed shift to an overnight policy-rate benchmark adds an easing bias and has pushed Chinese bond yields lower, but has not dislodged the currency from multi-year highs. Weak domestic demand and renewed tariff risk remain the main constraints, while the PBOC’s fixing policy should limit sharp moves in either direction. Reviewing the charts, 6.70 is the key resistance level, while a break below 6.65 would open the path toward 6.60 and could prompt officials to slow the pace of appreciation. Next week, China’s October manufacturing PMI will test whether stronger exports are feeding into the domestic economy, with a firmer reading likely to reinforce the yuan’s gradual advance.
JPY Haven demand returns. USD/JPY is trading near 157, down from this week’s 158.6 high as the equity selloff and renewed demand for Treasuries restore some of the yen’s defensive appeal. The rebound is flow-driven rather than a fundamental reversal, with the US-Japan two-year yield spread still wide near 278bp and markets assigning almost no chance to a Bank of Japan hike next week. Still, Governor Ueda’s concern over underlying inflation and renewed intervention warnings leave the 160 area difficult to approach without provoking a policy response. From a technical perspective, a sustained break below 156.7–157 could expose 155., while the 50-day moving average near 158.4 marks the first resistance before 160. Next week, Tokyo inflation, unemployment and industrial production will set the tone before the October 30 BoJ meeting, where guidance on a possible December hike will carry more weight than the expected hold itself.
MXN Carry breaks down. USD/MXN is trading near 18.7, making the peso the week’s weakest major currency as higher US yields and deteriorating carry dynamics outweigh Mexico’s hotter inflation print. Headline inflation rose to 3.62% y/y, while core prices increased 0.25% in the first half of October, above the 0.17% forecast, reducing the case for a near-term Banxico cut. However, the Mexico-US two-year yield spread has narrowed below the key 300bp threshold to roughly 290bp, leaving the peso more exposed to shifts in US rates and risk sentiment. Trade uncertainty adds pressure, with no firm US confirmation of progress toward a deal and Mexico still vulnerable to possible restrictions on US diesel exports. The chart shows the USD/MXN has struggled to hold above the previous 18.69 high despite reaching 18.86, highest since November 2025; a sustained break above 18.70 would keep 19.00 in focus, while 18.40-18.5 zone provide the nearest support. Next week, the October 28 Fed meeting will drive the carry spread, followed by Mexico’s preliminary Q3 GDP on Thursday and any movement in bilateral trade talks.
BRL Election risk peaks. USD/BRL is trading near 5.04, holding close to the 5.00 threshold as the presidential runoff becomes a statistical tie and investors raise protection against either outcome. Bolsonaro’s lead has narrowed to within polling margins, while one-month risk reversals have climbed to 9%, their highest since 2011, showing how sharply election hedging has increased. The real still benefits from an exceptional yield cushion, with Brazil’s two-year premium over the US near 800bp, but expensive campaign promises from both candidates have weakened the clean fiscal-consolidation narrative. From a technical perspective, the USD/BRL remains confined to 5.00–5.10; a Bolsonaro victory could reopen 4.70–4.80, while a Lula comeback could quickly expose 5.20–5.30. Sunday’s October 25 runoff is the decisive event, followed by October inflation data and the November 4 Copom meeting, the first policy signal after the election.
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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.
