- Unequal treatment. The global bond selloff accelerated, but some borrowers felt more pain than others. French bonds (OATs) were hit particularly hard as budget concerns rattled investors. France has one of the worst fiscal trajectories in the developed world.
- Vive la spread. The gap between France and Germany’s borrowing costs, a key measure of investor concern, surged to its widest level since 2012.
- Spread it around. Contagion fears resurfaced as sovereign spreads widened beyond France, fueling concerns that fiscal stress could spread across the eurozone.
- Euro vision. Investors are increasingly viewing the euro through a political risk lens – sending it more than 1% lower against the US dollar and Swiss franc this week. EUR/USD touched its lowest level since May 2025.
- Biggest jump in a generation. The 10- and 30-year US Treasury yields reached levels last seen in 2002. The former recorded its biggest quarterly rise in decades, but this is proving supportive for the US dollar, which hit a new year high.
- Ouch. Eurozone inflation accelerated more than expected in September, climbing to its highest level in three years, keeping pressure on the ECB.
- Disappointing jobs. The US economy added just 29k jobs in September, undershooting all estimates. The unemployment rate was also higher.
- Burnham bounce. Sterling found support after Prime Minister Andy Burnham floated closer UK-EU ties, reviving hopes of deeper economic integration.
Global Macro
US hiring stalls as euro inflation flares
US growth revised higher. US Q2 GDP was revised sharply higher to 2.2% annualized from 1.5%, supported by stronger investment, consumer spending and government expenditure. Private domestic demand grew 4.6%, pointing to firmer underlying momentum than the headline had previously suggested.
Inflation cools. August headline PCE inflation held at 3.4% y/y, below the 3.7% consensus, while core inflation remained at 3.3%. Consumer spending jumped 0.9% m/m, but income rose only 0.2%, lowering the savings rate to 4.1% and raising questions over whether that spending pace can persist.
Jobs disappoint. September payrolls rose just 29k vs 84k expected, while unemployment climbed to 4.2% vs 4.1% forecast. July and August were revised down by a combined 60k, and wage growth slowed to 0.1% m/m and 3.0% y/y, reinforcing the loss of labour-market momentum.
Price signals diverge. ISM manufacturing held at 54.5 vs 55.0 expected, but Prices Paid surged to 77.9 from 71.1, keeping US pipeline inflation concerns alive. Euro-area inflation also surprised higher at 3.8% y/y vs 3.6% expected, driven by an 18.8% rise in energy prices, while core inflation increased to 2.5%, in line with forecasts.
Global picture. The RBA raised rates 25bp to 4.60%, citing persistent inflation and higher energy costs. Canadian GDP was flat in July, UK Q2 growth was revised up to 0.5% q/q, and China’s composite PMI returned to expansion at 50.7.
Week ahead
Testing appetite for government debt
Key themes. The coming week unfolds against a challenging backdrop with the global bond selloff showing little sign of abating.
Middel East. Any escalation could fuel another bout of bond market volatility, while ceasefire progress may support risk sentiment and help stabilise yields.
Auctions. With the US, UK and Japan all due to auction long-dated debt over the coming days, bond markets remain vulnerable amid the ongoing global selloff.
Final PMIs. Attention will turn to final PMI readings. While these are second estimates, any downward revision to the French print in particular could add further pressure to domestic assets, with French markets already under significant strain.
Fed minutes. Markets will assess whether recent US data strength continues to justify higher-for-longer Fed pricing. A resilient ISM or hawkish-leaning minutes could further support the dollar. Markets are currently pricing a circa 20% chance of a Fed hike this month, down from 70%, but US yields continue to surge higher, propping up the dollar.
ECB minutes. The European Central Bank will also publish the minutes of its September meeting, due Thursday. The commentary since the decision has been quite hawkish. But expectations for action in October currently stand at 13%.
Canada’s jobs report. Lastly, Canadian employment numbers will come into focus on Friday amid the stalled trade negotiations with the US.
FX views
Dollar regains the upper hand
USD Dollar breaks higher. DXY briefly broke above 102.00 to a fresh 2026 high before September payrolls interrupted the advance. Hiring rose just 29,000, unemployment increased to 4.2%, prior months were revised lower and wage growth slowed, cutting the probability of an October Fed hike from 48% to 15%. Yet the dollar remains above 101.50 and roughly 1% higher on the week, supported by elevated long-term US yields and euro weakness linked to French fiscal and political concerns. The two-year yield has fallen more than 13bp this week while the 10-year is broadly unchanged, confirming that dollar demand has expanded beyond front-end rate support. Technically, a break above 102.20 would bring 102.50 into view, while a sustained move below 102.00 would expose 101.53. Next week, ISM Services, the FOMC minutes and consumer inflation expectations will test whether weaker hiring can outweigh persistent activity and price pressures.
EUR French fiscal stress deepens downside. France’s 2027 budget includes €43bn of new adjustment measures, taking the overall fiscal effort to around €54bn. The government aims to narrow the deficit to 5.0% of GDP in 2027 from an expected 5.4% in 2026. The draft budget was presented to the Council of Ministers on 1 October. We now see French fiscal strain as a bigger risk for EUR/USD, after investors pushed French borrowing costs higher relative to Germany’s and moved into German bonds for safety. The French-German borrowing gap widened to 149 basis points, dragging EUR/USD to its weakest since May 2025 as expectations of ECB hikes fade. EUR/USD holds near 1.1252, about 7% below its 27 January high of 1.2081. Resistance sits at the 21-day EMA of 1.1428 and 50-day EMA of 1.1490, with key support at 1.1200.
GBP Split personality. Sterling’s performance this week was defined more by relative value than outright strength. While GBP/USD fell towards 1.32 and briefly traded at a three-month low, reflecting the twin pressures of rising global yields and a stronger dollar, the pound fared considerably better elsewhere. GBP/EUR is on track for one of its strongest weeks in over a year, benefiting from renewed scrutiny of French public finances and widening fiscal concerns across parts of the eurozone. Sterling has also outperformed many other G10 peers like the Aussie (+1.3%). Domestically, markets digested Prime Minister Burnham’s conference speech and an ambitious spending agenda with surprisingly little reaction. Investors took comfort from the long implementation horizon and continued references to fiscal discipline, leaving the focus firmly on October’s Autumn Budget rather than this week’s political headlines. Technically, GBP/USD is below its 100-week moving average of 1.3240. A weekly close below that level would increase the risk of a deeper move towards 1.3140 and potentially the psychological 1.30 handle. Overall, sterling’s relative resilience remains intact, but the underlying momentum has clearly weakened.
CHF Swift reversal. The Swiss franc staged a sharp comeback this week, reversing part of the heavy losses accumulated since the SNB’s dovish September meeting. While the broader narrative still points to CHF weakness as widening rate differentials and carry trades favour selling the franc, markets were reminded that Switzerland retains its safe-haven credentials when concerns about fiscal sustainability and financial stability resurface. The move was most evident in EUR/CHF, which suffered its largest weekly decline in more than a year after repeatedly failing to sustain a break above its 200-week moving average near 0.948. The abrupt reversal has echoes of the 2011 Eurozone debt crisis, when investors sought refuge in Switzerland from concerns surrounding sovereign risk elsewhere in Europe. USD/CHF also retreated from recent highs, though it remains well above key long-term moving averages and significantly higher than its summer lows.
CAD Loonie above 1.42. USD/CAD is trading near 1.422 after reaching 1.4261, clearing the previous 2026 high as US rate support and renewed trade pressure overwhelm the Loonie. Canada’s July GDP was unchanged, as expected, while the 1.4% y/y increase and Statistics Canada’s preliminary 0.2% August gain showed that growth has not stalled completely. That has kept the October Bank of Canada meeting live, with markets pricing roughly even odds of a hike, but the US-Canada two-year yield gap has widened to a cycle high near 153bp as Treasury yields rise faster. The September 29 US import restrictions add another drag through exports and business confidence, leaving the BoC caught between firmer inflation risks and the economic cost of the trade dispute. Technically, overbought conditions leave the pair vulnerable to consolidation; initial support sits near 1.42, followed by 1.415. Next week’s Canadian calendar includes the services and Ivey PMIs before Friday’s September labor report, where markets expect only 5,000 jobs and a rise in unemployment to 6.5%. A second weak employment print would reduce October hike expectations, while a rebound would keep the BoC debate alive and test whether USD/CAD remains weak and underperforms G10 peers.
AUD Dovish RBA caps upside. The RBA raised rates as expected, but sounded more dovish than we anticipated. By saying four hikes may or may not suffice, and flagging the slow-burn impact of past hikes and a weak housing market, the RBA casts doubt on a November move. August annual headline CPI rose to 4.0% from 3.5%, just below the 4.1% expected, while trimmed mean held at 3.6% as forecast. Monthly headline CPI rose 0.4%, while trimmed mean rose 0.2%. Softer Fed comments cut October Fed-move odds to 26% from 71%, though a cooler RBA tone limits AUD/USD’s gains. We see first resistance at the 100-day EMA of 0.7058, then 50-day EMA of 0.7073. Support sits at the key psychological handle of 0.6900.
CNH China rebound keeps dollar pinned. China’s official manufacturing PMI rose to 50.1 in September from 49.8, returning to growth as output climbed 1.3 points to 51.7. New orders eased to 50.5 and export orders slipped to 50.0. The non-manufacturing PMI improved to 50.2 from 49.0, lifting the combined reading to 50.7. Other surveys also point to broader momentum, with manufacturing at 52.1, services at 51.6 and the combined reading at 52.4. Softer Fed comments and lower US yields keep the dollar subdued, limiting USD/CNH’s room to rebound. USD/CNH sits just 0.2% above its 21 September low of 6.6912. USD/CNH needs to clear the 50-day average at 6.7274 to brighten its near-term outlook, with the 100-day average at 6.7593 the next level we watch.
JPY Hot Tokyo CPI pressures USD/JPY. Tokyo’s core inflation hit a 10-month high in September, bolstering the case for more BoJ hikes. Core CPI rose to 2.7% from 1.8%, beating the 2.4% forecast and the BoJ’s 2% target. Excluding fresh food and energy, inflation climbed to 3.0% from 2.0%; services rose to 2.3% from 1.4%. Expiring water subsidies helped, but wider food, transport, hotel and wage-driven increases signal lasting pressure. Markets have almost fully priced in a BoJ hike by December. Softer Fed comments dragged US two-year yields lower, shrinking the US-Japan rate gap and capping USD/JPY. USD/JPY holds near 157.82, about 4% below its 23 July high of 163.99. Resistance sits at the 50-day EMA of 157.99 and 100-day EMA of 158.52, with key support at 157.00.
MXN Carry unwinds. USD/MXN is trading near 18.3, up 3% this week, as rising US yields, higher oil prices and stronger dollar demand accelerate the unwind in peso carry positions. The pair has now gained more than 7% since the start of September, while the Mexico-US two-year yield spread has narrowed toward 300bp, close to the level where the risk-adjusted appeal of the carry trade starts to weaken. Banxico’s removal of its explicit hold guidance leaves the door open to a hike, but Governor Victoria Rodríguez has played down the inflation impact of the peso’s depreciation and stressed that domestic conditions differ from those in the US. Trade risks have also increased, with negotiations showing little immediate progress and a possible US diesel-export ban posing a direct threat to Mexico’s energy supply. Technically, 18 has shifted into support, while a sustained move above 18.2–18.3 would expose the 52-week high near 18.7. Next week, Mexico’s services PMI, industrial production and September CPI will test the domestic outlook, while Wednesday’s FOMC minutes will shape the US rate path and determine whether the carry unwind extends.
BRL Election premium surges. USD/BRL is trading near 5.2, up about 1.7% this week and 3.6% in September, as Fed tightening, continued Copom easing and election uncertainty overwhelm the real’s still-substantial carry advantage. The Brazil-US two-year yield spread has narrowed toward 900bp from roughly 922bp at the start of September, while implied volatility above 23% reflects the approaching election and fragile fiscal outlook. Brazil’s $7.4bn August trade surplus provides external support, but weaker projected tax revenue and uncertainty over future spending keep investors cautious. Technically, the break above the previous 5.21 ceiling shifts attention to 5.3, followed by 5.35–5.40, while 5.20–5.21 becomes the first support zone. Next week, the presidential election takes center stage on Sunday, followed by Wednesday’s FOMC minutes and Thursday’s September IPCA report. A stronger showing for the market-preferred candidate or hotter inflation could support BRL, while renewed fiscal concerns and further compression in the carry spread would reinforce the USD/BRL breakout.
Have a question? [email protected]
*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.
