- Fragile resilience. Equities remain close to record highs despite an increasingly hostile macro backdrop. Treasury yields sit at multi-decade highs, oil has returned above $100 a barrel and the dollar is surging, reflecting a mix of geopolitical tensions, fiscal concerns and a Federal Reserve that remains tilted hawkish.
- Tech tensions. Tech shares took a tumble after the FT reported OpenAI’s revenue was sharply below figures published previously. The Nasdaq 100 slipped 1.6%.
- More pressure. Brent crude oil climbed above $103 after reports challenged assumptions that the US would avoid further escalation with Iran before the midterm elections. Brent remains over 70% higher year-to-date.
- Hawk talk. FOMC minutes reinforced expectations of another Fed hike over the next few months, with markets assigning roughly a 20% chance this month and fully pricing one by year-end.
- OATs gone wild. French debt markets remain under pressure, with the OAT-Bund spread still suspended near post-eurozone crisis highs and the euro firmly on the defensive.
- Dominant dollar. The US dollar continues to grind higher, etching out fresh 18-month highs against a basket of currencies as elevated Treasury yields, geopolitical tensions and US exceptionalism reinforce its appeal.
- Show me the money. The upcoming earnings season will test the AI trade as companies funding the buildout face multi-decade borrowing costs amid elevated bond yields.
Global Macro
Growth resilience masks deeper policy strains
Fed signals patience. The FOMC minutes showed that most officials still expected another hike before year-end, but offered no clear preference between October and December. The weak September payroll report has since made an October pause more likely, leaving September CPI as the next major test.
US services cool. ISM Services eased to 54.9 from 55.4, broadly matching expectations and remaining firmly expansionary. Employment returned above 50, but Prices Paid climbed to 74.0, its highest since July 2022, keeping the growth-inflation mix uncomfortable for the Fed.
France under stress. France’s 2027 budget aims to reduce the deficit to 5.0% of GDP from 5.4%, but doubts over political delivery have pushed the French-German 10-year spread near 150bp, its widest since the eurozone debt crisis
Trade gap widens. The US trade deficit increased to $105.6bn from $92.8bn, its widest since March 2025, as imports jumped 4.3% and exports rose 1.4%. AI-related capital-goods demand contributed to the import surge, suggesting strong domestic investment despite the drag on Q3 GDP.
Global growth firms. The global composite PMI rose to 54.3, its highest in 40 months, led by the US at 58.4 and a stronger euro-area expansion. The improvement signals resilient activity, but rising input costs show that the global energy shock continues to feed through to prices.
Mexico inflation rises. Headline CPI accelerated to 3.45% y/y from 3.26%, slightly below expectations, as food and energy inflation strengthened. Core inflation eased to 3.75% from 3.88%, giving Banxico room to remain patient despite the headline increase.
Week ahead
US exceptionalism under the microscope
US CPI (Wed). The week’s defining macro event. Markets remain highly sensitive to inflation surprises given the recent repricing higher in Treasury yields and hawkish Fed meeting minutes. A stronger-than-expected print could reinforce bets of another hike before year-end and underpin the dollar, while any downside surprise may encourage profit-taking after the greenback’s strong run.
US retail sales (Thu). The resilience of the US consumer has repeatedly defied expectations this year. Strong spending data would add to the narrative that growth remains robust despite elevated borrowing costs, keeping US yields elevated.
Show me the money. Earnings season gets underway too, with the big US banks traditionally firing the starting gun.
European bond stress. Sovereign spread dynamics remain a major driver of euro sentiment. Investors will be watching whether recent pressure on French and peripheral debt markets stabilises or broadens further. Any renewed widening in French-German or Italian-German spreads could further weigh on the euro.
Geopolitics. Renewed attacks and threats in the Middle East remain a source of upside risk for energy prices and downside risk for broader risk appetite.
Energy shock pass-through. Higher energy costs continue to work their way through European economies. Upcoming inflation releases will help determine whether price pressures remain largely energy-driven or are becoming more entrenched, a distinction that could shape expectations for further ECB tightening.
FX views
Repriced for fiscal woes
USD Strength has legs. The dollar enjoyed another resilient week, with the DXY briefly reaching a fresh 18‑month high before some profit-taking emerged towards the end of the period. Turmoil in bond markets, fragile risk sentiment and a still-hawkish Fed narrative continue to skew the near-term bias in favour of the buck. Importantly, rising US yields reflected a combination of resilient growth, persistent inflation concerns and elevated term premia. By contrast, the recent increase in European yields has been driven by less constructive forces. That divergence weighed on the euro, providing an additional tailwind for the dollar. Higher oil prices also played a role, with renewed Middle East tensions keeping inflation risks elevated and helping preserve expectations that the Fed may not be finished tightening. Attention now turns to the upcoming US CPI release, which will be crucial for Fed pricing. A firm reading would reinforce the case for another hike before year-end, while a softer print could challenge the higher-for-longer narrative.
EUR C’est la vie. The euro was clearly the poorest-performing major currency over the week as markets focused on France’s worsening fiscal position. French bond yields surged, while the French-German 10-year spread widened sharply, raising concerns about broader eurozone financial stability. The euro weakened against all major currencies, with EUR/USD falling to its lowest level since May 2025. Expectations for additional European Central Bank tightening eased as markets questioned whether higher rates would worsen fiscal challenges. Technically, both the 8-day and 21-day moving averages continue to point lower with support seen at 1.1160. That said, RSI, a key measure of momentum, is now in oversold territory, which can sometimes signal a reversal. ECB President Christine Lagarde’s speech on Wednesday and final CPI data on Friday will be watched, but the headlines are likely to be driven by French political intrigue.
GBP Tactically cautious. Sterling’s recent price action leaves us tactically cautious. The pound continues to derive support from carry demand and relatively high UK yields, but those supports are looking increasingly vulnerable as volatility picks up and fiscal concerns garner greater attention. The biggest divergence remains between the major crosses. GBP/EUR has surged back above 1.18, a level the cross has spent less than a quarter of the past decade above, supported by French fiscal concerns, ECB repricing and relative political stability in the UK. For now, sterling remains the least troublesome option within Europe, although valuations increasingly look rich relative to underlying rate differentials. By contrast, GBP/USD remains vulnerable. The pair has broken below key trend support and looks poised to close the week below its 100-week moving average. Such an outcome could trigger a technical slide towards this year’s low near 1.3140. If the upcoming US inflation data is hot, pushing US yields and Fed tightening expectations higher, this would be an obvious fundamental catalyst to drive such a move too.
CHF A pause, not a pivot. The Swiss franc’s sharp rebound seen last week has struggled to gather further momentum. EUR/CHF briefly edged lower at the start of the week, bringing its 200-day moving average into focus and raising the prospect of increased CHF hedging demand. However, despite still-elevated French-German yield spreads and EUR/USD slipping back below 1.12, the cross has since stabilised above 0.933, suggesting haven demand for the franc has not intensified further. Meanwhile, USD/CHF found support at its 21-day moving average, reinforcing the broader uptrend that has been in place since late summer. The pair remains comfortably above key long-term trend indicators, and a retest of 0.84 looks plausible if US yields keep rising. For now, last week’s CHF strength looks more like a reminder of the franc’s haven credentials than the start of a sustained trend reversal. The broader theme of carry and rate divergence continues to argue against a materially stronger franc, even if periodic bouts of risk aversion can still trigger sharp, temporary rallies.
CAD 18-month low. USD/CAD has climbed toward 1.43, leaving the Loonie at an 18-month low after Canada unexpectedly lost 68,300 jobs in September, erasing the year’s employment gains. Unemployment rose to 6.5%, while participation fell to 64.8%, its lowest non-pandemic level in 29 years. Moves above 1.42 have been rare over the past decade and usually tied to acute stress, including the 2016 oil collapse, the 2020 pandemic and the 2024–25 tariff shock. The current episode looks more persistent, with weak Canadian growth and widening US-Canada yield differentials doing more of the work than trade headlines alone. That history argues against chasing the pair higher, but it does not make 1.42 an automatic reversal signal. The jobs shock sharply reduced October Bank of Canada hike expectations, offsetting the earlier lift from its Business Outlook Survey. Technically, the break above 1.426 opens the door toward 1.44, while a sustained return below 1.42 likely requires a meaningful shift in relative rates or growth. Next week, US CPI and Canadian housing data will be in focus ahead of Canada’s September CPI on October 22 and the Bank of Canada’s October 28 decision.
AUD Aussies feeling down under. The Aussie was mixed over the last week with an early rebound in AUD/USD, helped by the previous week’s poor US jobs report, not sustained. While US equities reached fresh record highs, AUD/USD struggled to build momentum and remained below key resistance at 0.7000. Australian data was downbeat, with consumer confidence falling to 80.4, hit by last month’s RBA hike, and among the weakest readings since the early 1970s, while services activity slowed and employment fell for the first time since May. In Europe, however, the Aussie outperformed, with AUD/EUR reaching two-year highs as French fiscal concerns weighed heavily on the euro. Technically, AUD/USD remains below both the 8-day and 21-day moving averages, keeping the near-term bias lower. Thursday’s labour force report is the key event for AUD direction.
CNH Yuan remains resilient. The offshore yuan was driven mainly by external factors over the week. Higher oil prices, renewed US-Iran tensions and broad US dollar strength helped push USD/CNH off recent lows, although the pair remained close to the three-year lows that have defined trade for the last few months. Trade was in focus as China warned Europe against introducing new trade barriers and continued to oppose measures that could restrict Chinese access to overseas markets. Towards the end of the week, USD/CNH rose to a one-week high as geopolitical risks increased. Technically, the 8- and 21-day moving averages continue to slope lower, maintaining the downward trend seen all year. Wednesday’s CPI report will provide an important update on domestic inflation pressures and demand conditions.
JPY Steady as she goes. The yen was broadly steady over the last week as markets continued to price in further Bank of Japan tightening. Tokyo inflation accelerated sharply in the previous week, with core CPI rising to 2.7%, strengthening expectations for another BoJ rate increase by December. Markets have almost fully priced in a year-end hike. However, elevated US Treasury yields continued to provide support for USD/JPY, limiting yen gains. The pair oscillated around the 158 level for much of the week and remained well below its July peak near 164. Technically, the 8-day and 21-day moving averages remain broadly upward sloping for USD/JPY, a more positive sign for the pair. Not much on the upcoming Japanese data calendar, with Thursday’s machinery orders release the only notable event this week.
MXN Carry support fades. USD/MXN is trading near 18.17 after retreating from a weekly high of 18.43, as softer Mexican inflation offered the peso limited relief from a stronger dollar and narrowing carry advantage. Headline CPI rose to 3.45% y/y from 3.26%, driven by food and energy, while core inflation eased for an eighth month to 3.75%, slightly below expectations. Banxico’s minutes acknowledged upside inflation risks but also showed growing openness to future rate cuts, leaving the Mexico-US two-year yield spread near 310bp and vulnerable to further compression. Trade uncertainty remains another headwind, with the next USMCA negotiating round delayed and a possible US diesel-export ban posing a direct risk to Mexico’s energy supply. Technically, 18 remains the key support level, while 18.4–18.5 marks the next resistance zone. Next week, Mexico’s industrial production will test the domestic growth story, while US CPI will shape Fed expectations and determine whether USD/MXN retests 18.5 or consolidates closer to 18.
BRL Fiscal optimism builds. USD/BRL is trading near 5.01, with the real up roughly 6% from its pre-election close as markets price a stronger chance of a market-friendly political transition. A proposed R$250bn fiscal package, possible appointments of orthodox economic policymakers and the bull flattening in Brazil’s yield curve have strengthened expectations for a more durable improvement in public finances. The rally may be running ahead of policy delivery, however, with Brazil’s debt trajectory still difficult and Moody’s questioning whether the proposed measures would be enough to stabilize it. September inflation at 4.42% y/y leaves room for gradual BCB easing, while a carry spread near 905bp remains a powerful cushion for the real. Technically, USD/BRL is consolidating around 4.95–5.05; a break below 4.95 would bring 4.70–4.80 In focus, while renewed political uncertainty could lift the pair above 5.10. Next week, attention turns to August retail sales and fresh runoff polling, with the October 25 election remaining the decisive catalyst for the currency.
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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.
