The Pound-Australian Dollar rate could remain supported if risk appetite deteriorates, while caution ahead of key BoE speeches may limit Sterling’s upside.
The Pound to Australian Dollar (GBP/AUD) exchange rate was steady on Tuesday
At the time of writing, GBP/AUD was trading at AU$1.8972. Virtually unchanged from the start of Tuesday’s European session.
Latest — Exchange Rates:
Pound to Dollar (GBP/USD): 1.327225 (+0.40%)
Australian Dollar to Dollar (AUD/USD): 0.698265 (+0.22%)
DAILY RECAP:
The Australian Dollar (AUD) fluctuated on Tuesday, following another sharp deterioration in domestic consumer confidence.
The Westpac–Melbourne Institute Consumer Sentiment Index fell 4.7% in October to 80.4, marking its second consecutive monthly decline and leaving sentiment among the weakest readings recorded since the survey began in the early 1970s.
The deterioration in confidence followed last week’s Reserve Bank of Australia (RBA) rate hike, with the survey showing a particularly pronounced drop in sentiment among respondents questioned after the decision.
However, broader currency dynamics helped to partially offset these domestic headwinds, with a modest pullback in the US Dollar (USD) offering some support for risk-sensitive currencies.
The Pound (GBP) traded sideways on Tuesday morning, with a relatively quiet UK economic calendar leaving Sterling looking for fresh direction.
Attention was instead turning towards a scheduled appearance from Bank of England (BoE) policymaker Catherine Mann, with investors keen to assess whether the traditionally hawkish MPC member would reinforce expectations of further monetary tightening.
Mann was one of three policymakers to vote for a 25bps interest rate hike at the bank's September meeting, and her comments could strengthen Sterling sentiment if she signals support for a hike in November.
Near-Term GBP/AUD Forecast: Strong Inflation to Lift the 'Aussie'?
Looking ahead to the middle of the week, in the absence of any notable UK or Australian data, movement in the Pound to Australian Dollar exchange rate is likely to be dictated by wider market trends.
Of the two, the 'Aussie' is likely to prove the more sensitive to any shifts in market risk appetite, with AUD likely to give up ground if sentiment remains broadly downbeat.
Meanwhile, a gloomy mood may also temper GBP demand, while caution ahead of speeches by several BoE policymakers – including Governor Andrew Bailey – on Thursday may also cap Sterling.
Exchange Rates UK Research
Our currency coverage draws on live market data, official economic releases and published bank research.
GBPUSD currency pair recently reversed up from the support zone between the key support level 1.3185 (which stopped wave (A) at the end of March and wave (C) at the end of June) and the lower daily Bollinger Band.
The upward reversal from this support zone completed the sharp downward ABC correction (2) from the end of August.
Given the strength of the support level 1.3185 and the oversold daily Stochastic oscillator, GBPUSD currency pair can be expected to rise further toward the next resistance level 1.3300 – former minor reversal high from the end of last month.
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NZD/USD po poklesu z téměř 0,6000 pod 0,5600 od poloviny srpna vytvořil býčí obratový signál. Trh zároveň snížil očekávání říjnového zvýšení sazeb Fedu z více než 17 bazických bodů na 5 bazických bodů.
Bullish engulfing candle warns of potential NZD/USD reversal
USD-rates relationship shows tentative signs of re-engagement
October Fed tightening pricing has fallen sharply
RBNZ swaps still imply an aggressive tightening cycle
A softer US payrolls report last Friday and less aggressive hawkish language from key Fed officials has seen expectations for an October rate hike from the FOMC pared back sharply.
However, entering early October, the US dollar showed little interest in the partial unwind of the historic surge in front-end yields seen through September, suggesting its previously strong relationship with rates had temporarily broken down.
But there are now tentative signs that relationship may be starting to re-engage, and with markets still pricing an aggressive RBNZ tightening cycle over the coming year, the combination has helped trigger a reversal pattern in NZD/USD that warns the bearish move from mid-August may have run its course.
NZD/USD turning point may be approaching
Source: TradingView
NZD/USD has undergone a pronounced bearish move since the highs set in mid-August, sliding from just shy of 0.6000 to below 0.5600 as downside pressure intensified.
After such a sizeable move that has taken the pair beneath its key medium and long term moving averages, the price action over the past few sessions suggests a turning point may be approaching.
The pair initially bounced from 0.5581, the swing low set in November last year, before Tuesday produced a clear bullish engulfing candle. Coming after such an extended bearish move, the pattern warns that directional risk may be starting to skew higher.
The latest daily candle has the price trading above the downtrend running from the August highs, further bolstering the case for near-term upside.
That view is backed by the oscillators. RSI (14) has established higher lows and is pushing out of oversold territory, while MACD is curling towards the signal line and appears close to a bullish crossover, albeit in negative territory, suggesting peak downside momentum may already have passed.
Overhead, 0.5639 has been respected on several occasions going back to late last year, making it the immediate focal point. A break above would bring 0.5696, a breakdown level from mid-September, into play, followed by 0.5750, which has acted as both support and resistance over recent months.
Below, 0.5581 remains the immediate point of interest. A break beneath would point to the potential for a deeper unwind towards the Liberation Day low of 0.5486 from April 2025 and the COVID low at 0.5470.
Dollar-rates breakdown may have been temporary
Suggesting the potential turning point may not be Kiwi-specific, similar reversal patterns have emerged across a range of G10 currencies against the US dollar so far this week.
As shown in the graphic below, DXY had maintained a strong positive relationship with front-end US yields for several months, particularly over the 20-session window.
That relationship collapsed abruptly around the quarter turn. The five-session correlation between daily changes in DXY and the US 2-year yield fell from +0.83 on September 28 to -0.93 by October 5, while the 20-session measure also dropped sharply towards zero.
Source: LSEG
The abruptness and timing of the breakdown of this long-standing relationship suggests it may have been driven by window dressing and capital flows around the turn of the month, rather than a fundamental change in the dollar's relationship with front-end rates.
It's not concrete at this point, but there are tentative signs the relationship may be starting to re-engage. The five-session correlation has recovered to -0.66, while the 20-session measure has edged back to +0.17.
Neither is strong enough to suggest the relationship has reconnected, but combined with the reversal patterns across the G10 FX complex, it raises the possibility the broader dollar may also be approaching a turning point.
Fed pricing turns less hawkish
After an historic surge in September, a partial reversal has also taken place in US 2-year yields, coinciding with a sharp pullback in hawkish pricing for the Fed's October meeting.
At one point in late September, more than 17 basis points of tightening was priced for that meeting. Less aggressive hawkish language from New York Fed President John Williams and Vice Chair Philip Jefferson, helped by the softer payrolls print last Friday, has seen that fall to just five basis points.
Cumulative tightening over the next year has also come off the boil, falling from more than 94 basis points of hikes priced through the Fed funds futures curve in late September to just above 80 basis points at the time of writing.
Source: TradingView
FOMC minutes could test the reversal
In an otherwise quiet data week, the key risk for the US dollar today is the release of the September FOMC minutes.
Put bluntly, the tone is likely to be hawkish. The meeting delivered a unanimous 25 basis point hike, the Fed’s first in three years, alongside stronger growth forecasts, lower projected unemployment and an upward revision to the core PCE inflation outlook compared with June.
The dot plot also showed most officials expected at least one further hike this year, with some signalling moves in both October and December. That goes some way to explaining why markets continue to fully price another 25 basis point increase by December, even as expectations for an October move have been pared back sharply.
Given how hawkish the meeting was, the bar for the minutes to surprise in that direction looks high. But if there’s even a sprinkling of doubt over that outlook, it could add to the pullback in front-end yields and exacerbate the reversal already underway in the US dollar.
Kiwi still has domestic tailwinds
While the potential turning point for the dollar looks largely US-specific, that’s not to say there aren’t prevailing tailwinds also helping underpin the Kiwi.
The latest NZIER Quarterly Survey of Business Opinion, released on Tuesday, showed a significant improvement in sentiment, with a net 40% of firms expecting the economic outlook to improve, up from 14% previously. Investment and hiring intentions also strengthened, while there were signs spare capacity may be starting to dissipate, especially in the labour market.
Of course, that does not mean the Kiwi economy is suddenly roaring back to life. Hard data remains inconsistent and soft, fitting with a recovery still in its infancy.
But with inflation the RBNZ’s sole mandate, and persistently elevated energy prices combining with a softer New Zealand dollar to fuel imported inflation, swaps markets continue to price an aggressive outlook from the bank. A rate hike in October is deemed marginally more likely than not at around 60%, while a move by the December meeting after the general election is fully priced, with roughly a one-in-three chance of two hikes by then.
By the August meeting next year, more than four full 25 basis point hikes are priced, which would leave the overnight cash rate at 3.75% or higher, levels the RBNZ currently considers restrictive.
The trading week continues to unfold, and the Canadian dollar has begun to show signs of renewed strength in the short term. This can be seen in recent USD/CAD price action, with the pair posting a decline of roughly 0.2% over the last two sessions, allowing the Canadian currency to recover part of the ground lost in previous weeks.
However, this move is still not enough to confirm a consistent shift in market direction. For now, it appears to be driven more by a temporary loss of momentum in the U.S. dollar than by a structural recovery in the Canadian dollar. As a result, a phase of indecision is beginning to develop and could remain relevant for USD/CAD price action over the coming sessions.
Is the USD Beginning to Lose Momentum?
Several sessions have passed since the release of the latest U.S. NFP figures at the end of last week. One of the main consequences of the report was a temporary reduction in expectations for higher interest rates ahead of the Federal Reserve's October meeting.
The slowdown observed in labor market conditions reduced part of the room available for a more aggressive Fed in the short term, a development that is already reflected in monetary-policy probabilities. According to CME Group, markets are currently pricing in more than an 80% probability that interest rates will remain unchanged at the October 28 meeting, keeping the benchmark rate at 4.00%. Expectations of a more patient Federal Reserve have become increasingly evident since the employment data was released.
Source: CMEGROUP
The most visible consequence of this shift in expectations has been a partial loss of momentum in the U.S. dollar. Part of this dynamic is linked to a recent moderation in U.S. Treasury yields, with the 10-year rate moving away from the recent highs observed above 5.3%.
At the same time, this moderation has also started to appear in the behavior of the DXY, the index that measures U.S. dollar strength against its main rivals. After approaching the 102-point area, the index has moved back toward the 101-point zone, reflecting a loss of momentum that coincides with expectations of a less aggressive Federal Reserve in the near term.
Source: TradingEconomics
This dynamic remains particularly important because a moderation in bond yields could also begin to reduce part of the relative attractiveness of U.S. assets. A smaller yield advantage may temporarily slow capital inflows into the United States and limit some of the demand supporting the dollar.
This is precisely the environment that has allowed the Canadian dollar to recover some ground over recent sessions and could continue to support a broader phase of indecision around USD/CAD. However, it is also important to remember that the interest-rate differential continues to favor the United States by a considerable margin. Because of this, the Canadian dollar still carries several weeks of weakness within its medium-term outlook, and any signal suggesting that the Federal Reserve could once again adopt a more aggressive stance may restore strength to the U.S. dollar and could revive the buying pressure that has dominated much of USD/CAD's recent price action.
What About the Trade War?
Another factor that remains relevant for the Canadian dollar is the trade relationship between Canada and the United States.
Significant tariff measures continue to remain in place between both countries. The United States maintains tariffs of up to 50% on certain Canadian goods and, since late September, additional restrictions have also been imposed on selected imports. Canada, meanwhile, continues to apply retaliatory tariffs ranging between 15% and 50% on certain U.S. products.
This situation continues to reflect an environment of trade tension that could affect the region's economic outlook over the coming months.
What stands out is that during the G20 trade ministers' meetings held in October, U.S. representatives indicated that several important issues with Canada remain unresolved. This suggests that, at least in the short term, the economic dispute remains far from a definitive resolution and that negotiations continue to progress slowly.
Although this issue has received less attention than central banks and bond markets in recent weeks, it remains an important consideration for Canada due to its heavy dependence on trade with the United States. More than 70% of Canadian exports are destined for the U.S. market and, if trade tensions continue, they could begin to weigh on Canada's growth outlook over the coming months.
For this reason, unless meaningful diplomatic progress begins to emerge, the trade conflict may continue to represent an obstacle to a stronger recovery in the Canadian dollar. Under this scenario, the situation could continue to favor buying pressure around USD/CAD in the weeks ahead.
USD/CAD Technical Forecast
Source: StoneX, Tradingview
The aggressive uptrend is entering a risk zone: USD/CAD price action continues to reflect a dominant bullish bias developed over recent weeks. This dynamic has helped establish a short-term bullish trendline that continues to guide much of the pair's movement. However, the recent bearish corrections are beginning to place that structure under pressure. If buyers fail to regain momentum above key technical barriers, a broader phase of indecision could begin to develop over the coming weeks.
MACD: The MACD histogram continues to show a gradual slowdown and is moving closer to the 0 neutral line. This reading reflects fading momentum within short-term moving averages and supports the possibility of a more consistent phase of neutrality developing around USD/CAD.
RSI: The RSI also continues to flatten in recent sessions, signaling that the dominance of bullish momentum has begun to moderate. Nevertheless, the indicator remains close to the 70 overbought threshold, a situation that continues to highlight the excess buying pressure accumulated in previous weeks and leaves room for additional short-term corrective declines.
Key Levels:
1.42355 – Key Resistance: The last major barrier observed in recent months and a high not seen since June of this year. Price action that manages to consolidate above this level would not only reinforce the current bullish bias but could also begin to establish a more consistent higher-high structure on the daily chart, opening the door to a broader uptrend.
1.41564 – Near-Term Barrier: An important retracement level observed several weeks ago that now stands as the closest support area to monitor. This reference could become the primary level to watch if recent bearish corrections continue to extend.
1.40526 – Critical Support: An important equilibrium zone established during previous weeks that remains the most significant downside barrier within the current structure. Moves toward this level could begin to reflect a more evident loss of direction, place the current uptrend at risk, and open the door to a broader phase of indecision that could eventually evolve into a more established trading range.
Written by Julian Pineda, CFA, CMT – Market Analyst
For the New Zealand Dollar (NZD), easing price pressures complicate the case for an October hike despite Westpac's bullish US Dollar forecast. New Zealand businesses are growing more confident, but Tuesday's Quarterly Survey of Business Opinion (QSBO) exposed the distance between improving sentiment and the recovery underpinning Westpac's New Zealand Dollar forecast.
The QSBO's seasonally adjusted business confidence balance climbed to a net 40% positive from 14%, while the balance reporting stronger trading activity slipped to -1% from +1%.
Selling-price measures also eased, complicating the argument for an immediate interest-rate increase.
In its assessment of the survey, Westpac said there was no compelling reason for the Reserve Bank of New Zealand (RBNZ) to abandon its October pause strategy.
Economist Michael Gordon cautioned that "there is still a wide gap between hopes and reality."
The bank sees NZD/USD reaching 0.59 in December 2026, 0.63 in June 2027 and 0.65 in December 2027, alongside a substantial rise in domestic interest rates.
At the time of writing, the New Zealand Dollar traded near US$0.5606, up 0.14% on the day after losing 0.30% on Monday.
September's 4.86% decline leaves a considerable recovery ahead if those forecasts are to be met.
Image: NZD to USD exchange rate performance over last 2 days Why Westpac expects the RBNZ cash rate to reach 4% Westpac's broader economic assessment describes an uneven recovery, with rural regions benefiting from strong export earnings:
"Agriculture remains the main engine of growth, with the strength in commodity export earnings helping to boost incomes, confidence and spending in regions with strong rural backbones."
Inflation presents a more persistent problem, particularly in electricity, insurance and council rates.
"Those increases have persisted for an extended period, and we expect further sizeable increases in many of these costs."
That supports the bank's expectation of renewed tightening after an October pause:
"We are forecasting a 25bp rate rise at the RBNZ's December meeting and expect the OCR to peak at 4% next year."
Higher New Zealand interest rates would improve the return on holding the currency, although Westpac acknowledges that tighter policy will also restrain growth and employment.
Image: NZD/USD 3-month chart The weakness extends beyond the US Dollar pair, with Sterling recently reaching a ten-year high against the Kiwi.
Westpac nevertheless identifies the dominant influence on NZD/USD:
"The slide in the Kiwi is mainly due to the strength of the US dollar, with NZD/USD down nearly 5% since the start of September to sit just below 0.56 at the time of writing."
The next domestic test is September-quarter inflation on 22 October, ahead of the RBNZ's 28 October decision.
Westpac considers that release potentially more informative for policy than today's improvement in business optimism.
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.
Crédit Agricole očekává pokles USD/CAD na 1,32 do prosince 2027, což by znamenalo trvalé posilování kanadského dolaru navzdory překážce v podobě vyšších výnosů v USA.
A stronger Canadian Dollar features in Crédit Agricole's forecasts, with USD/CAD falling to 1.34 by June 2027 and 1.32 that December. Crédit Agricole forecasts a sustained Canadian Dollar recovery through 2027, even as its broader outlook allows for US borrowing costs to rise further first.
The bank puts USD/CAD at 1.38 in December 2026, 1.34 in June 2027 and 1.32 in December 2027.
A falling rate means a stronger Canadian Dollar, with fewer Canadian Dollars required to buy one US Dollar.
US yields remain an obstacle before 2027 relief Crédit Agricole's wider US outlook cautions against assuming an immediate collapse in Dollar support:
"We expect Treasury yields to continue rising into early 2027. The rates market has priced in a more restrictive policy path, reflecting persistent inflation pressures and growing expectations that policymakers may need to tighten in the months ahead. Inflation has proven more resilient than expected, while recent increases in energy prices risk creating additional upside pressure on headline inflation in the coming months."
The bank also warns:
"Front-end yields are likely to remain particularly sensitive to incoming inflation data and Fed communication over the coming quarters."
Crédit Agricole's currency path therefore allows for Canadian Dollar gains even while US yields remain a headwind.
Later in 2027, its broader currency analysis identifies a potential change:
"The US fiscal outlook could worsen further, and servicing US debt could start dominating the fiscal (and monetary) policies once US inflation subsides in 2027. We expect the Fed to cut rates in Q427, in a blow to the USD rate appeal."
At the time of writing, USD/CAD traded near 1.4249, down 0.11% on Tuesday after rising 2.77% in September.
Reaching 1.32 would require the pair to fall approximately 7.4% from that level, making this a substantial recovery forecast.
Canadian growth and employment face an early test Crédit Agricole expects Canadian economic growth to strengthen from 1.5% in 2026 to 1.8% in 2027, with annual inflation averaging 2.1% and 2.0%, respectively.
Tuesday's trade figures provided some encouragement: Canada's merchandise surplus widened to C$4.2 billion in August from a revised C$787 million in July.
Statistics Canada noted that tariff announcements can prompt importers to bring shipments forward before the duties take effect.
The next major domestic test is the September employment report on 9 October, following a setback in hiring.
Statistics Canada described August's weakness plainly:
"Employment declined by 42,000 (-0.2%) in August and the employment rate fell 0.1 percentage points to 60.8%. The unemployment rate was unchanged at 6.4%."
The labour-market risk also features in our Pound-to-Canadian Dollar outlook.
Another employment decline would make the recovery harder to establish, particularly if it weakened expectations for Canadian interest rates relative to US rates.
Friday's jobs figures will test whether Canada's economy can begin supplying its own support before that forecast reduction in US rates arrives.
RBI support limits the Indian Rupee's (INR) vulnerability, but MUFG sees USD/INR reaching 97.50 by September 2027 as demand for US Dollars persists.
Wednesday's Reserve Bank of India decision exposes a disagreement over how soon interest rates need to rise, with MUFG expecting a hold while Goldman Sachs and Morgan Stanley anticipate an increase.
For the Indian Rupee, however, MUFG's longer-term concern is that stronger currency defences cannot eliminate persistent demand for US Dollars.
The bank forecasts USD/INR at 96.00 in December 2026 and 97.50 in September 2027.
At the time of writing, the pair traded near 96.4031, up 0.06% on Tuesday after rising 0.19% on Monday.
MUFG's path allows an initial Rupee recovery, including USD/INR at 95.50 in March 2027, before renewed weakness later next year.
An October hold would still leave hikes ahead
MUFG expects the RBI to leave its repo rate at 5.25% on 7 October, but sees scope for a shift away from a neutral policy stance.
"We see a good chance RBI will also move its stance away from neutral to signal a tightening bias."
Goldman Sachs and Morgan Stanley instead expect a 25-basis-point increase on Wednesday, as does Crédit Agricole, which highlights oil, food prices and Rupee weakness.
MUFG favours a later start:
"We as such continue to forecast RBI to hike rates by 50bps in total, with 25bps each in the December 2026 and February 2027 meetings, and our conviction level is now higher especially post the hawkish tilt from RBI's Minutes in August."
That would take the repo rate to 5.75%, with the bank identifying a larger 75-basis-point cycle as a risk rather than its central forecast.
More reserves can contain volatility without reversing depreciation
MUFG estimates that facilities introduced to support the Rupee have attracted more than US$140 billion, strengthening the RBI's capacity to intervene.
The distinction is between accumulating Dollar reserves and selling those Dollars into the market:
"Note that there is no immediate US dollar selling transaction in the market from RBI's FX measures, but it does result in a larger stock of FX reserves on RBI's balance sheet."
Foreign investors repatriating investment proceeds remain a source of Dollar demand, while MUFG also flags India's strong pipeline of initial public offerings.
"Nonetheless, given still strong underlying Dollar demand including from gross FDI repatriation and a strong IPO issuance pipeline, we are still forecasting USD/INR to move higher."
The associated Rupee liquidity creates a further policy challenge as credit growth accelerates:
"RBI's most immediate challenge is to deploy its suite of tools to mop up this excess liquidity as a side effect of the inflows from these FX measures."
MUFG therefore expects stronger defences against a disorderly sell-off, alongside a weaker Rupee later in 2027 even after its forecast rate increases.
Exchange Rates UK Research
Our currency coverage draws on live market data, official economic releases and published bank research.
A stronger British Pound against the US Dollar features in BofA's forecasts, with GBP/USD reaching 1.37 by end-2026 despite UK policy uncertainty. Foreign currency strategists at Bank of America see the Pound Sterling recovering against the US Dollar by year-end, but want greater clarity on UK policy before taking a more positive near-term view.
Its recent exchange rate forecasts/predictions show GBP/USD at 1.37 at end-2026, 1.45 at end-2027 and 1.47 at end-2028.
The Pound to Dollar exchange rate traded near $1.3209 on Tuesday morning, down 0.08%, after slipping 0.15% on Monday.
That leaves BofA's year-end forecast approximately 3.7% above the current rate, following September's 2.10% decline.
"Elsewhere, we maintain a constructive medium-term view on GBP but prefer to await greater clarity on UK policies."
Image: Pound to Dollar exchange rate one-month chart Pound Sterling: BofA sees improvements beyond interest rates The bank argues that Sterling has become less vulnerable to fiscal concerns than other major currencies, despite the approaching Budget.
It identifies overseas investment as one source of support:
"Sticky FDI inflows have provided a meaningful fillip to the UK's balance of payments"
FDI means foreign direct investment, which can provide longer-lasting funding than short-term portfolio flows.
BofA also says gilts have held up better than other bond markets, helped by the Bank of England's overhaul of its bond-sales programme.
Closer relations with Europe form another part of its argument:
"Finally, strengthening EU-UK ties now appears a more focused objective for the UK government. While serious negotiations are unlikely near-term, the prospect of all options being on the table is a medium-term positive for GBP. We stay constructive."
US Dollar (USD) strength remains an immediate obstacle BofA's near-term Dollar analysis still sees scope for further gains, making its Sterling forecast a recovery call rather than an endorsement of current momentum.
Monday's upward revision to the UK services PMI failed to prevent GBP/USD ending the day lower.
Image: GBP/USD 48hr chart Our reading is that stronger domestic data alone may be insufficient: BofA's case also depends on confidence in UK policy and sustained investment inflows.
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.
Měnový pár USD/BRL v pondělí po prvním kole brazilských voleb klesl o 4,34 % na 4,9992. Goldman Sachs při přísnější fiskální politice očekává pásmo 4,50–4,80.
Brazilian Real gains against the US Dollar put USD/BRL near 5.00, with Goldman's 4.50-4.80 scenario dependent on tighter fiscal policy. The Brazilian Real surged after the first round of Brazil's presidential election, bringing Goldman Sachs' favourable fiscal scenario closer as investors looked ahead to the 25 October runoff.
The US Dollar to Brazilian Real exchange rate fell to 4.9992 on Monday from Sunday's quoted 5.2261, a decline of 4.34%.
A lower USD/BRL rate means a stronger Real, as fewer Reais are needed to buy one Dollar.
With 99.99% of ballot boxes counted, Flávio Bolsonaro led with 47.03% of valid votes against President Luiz Inácio Lula da Silva's 45.16%.
Neither secured the majority needed to avoid a second round.
Goldman says Bolsonaro outperformed polling expectations, while pro-Bolsonaro and right-of-centre candidates also exceeded expectations in Senate and gubernatorial races.
Image: USD to BRL exchange rate crashes on latest Brazilian election news What would take USD/BRL towards 4.80? Goldman sees room for further Real appreciation, but its range depends on the policy implications of the eventual result.
"More broadly, we see 4.50-4.80 as a plausible range for USD/BRL under an election outcome that is perceived as market-friendly and conducive to a tighter fiscal stance."
This is a conditional valuation scenario, not an unconditional base forecast or a target for runoff day.
From Monday's rate, reaching 4.80 would require USD/BRL to fall approximately another 4%, while 4.50 would imply a decline of roughly 10%.
The upper end of that range has a specific rationale:
"In particular, trading at 4.80 would be consistent with the 'residual' fiscal premium from the 2024 BRL depreciation episode fully compressing as well as longer-run valuations."
In practical terms, investors would remove the remaining discount applied to the Real because of concerns about Brazil's public finances, a distinction explored in our earlier coverage of Goldman's election scenarios.
Policy commitments become the next test Goldman draws encouragement from 2018, when the Real continued appreciating after the first round and reached its strongest level just before the runoff.
But the bank expects attention to turn increasingly towards the feasibility of reform.
"Governability concerns may be less acute this time around, but given the highly challenging fiscal backdrop we still expect policy announcements to gain greater importance as we get closer to and through the second round."
It will watch how supporters of eliminated candidates redistribute their votes, alongside policy commitments and personnel announcements from both contenders.
Stronger gains would require more than an initial favourable market reaction:
"The Real could appreciate beyond these levels if fiscal consolidation efforts justify a 'positive' fiscal premium and if the external backdrop is also supportive for BRL."
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.
GBP/USD může posílit, pokud holubičí komentáře Fedu sníží očekávání dalšího zvyšování sazeb; britský index PMI ve službách za září byl revidován z předběžných 51,7 na 52,1.
The Pound-Dollar could strengthen if dovish Fed remarks further reduce rate hike expectations, while improving risk appetite may also support Sterling. The Pound US Dollar (GBP/USD) exchange rate fluctuated on Monday amid a shifting market mood.
At the time of writing, GBP/USD was trading at $1.3226, down marginally on the day but up from an earlier low of $1.3192.
Latest — Exchange Rates:
Pound to Dollar (GBP/USD): 1.320765 (-0.24%)
Euro to Dollar (EUR/USD): 1.120491 (-0.42%)
Dollar to Yen (USD/JPY): 158.05779 (+0.13%)
DAILY RECAP:
The US Dollar (USD) initially strengthened as markets opened at the start of the week, as a risk-off mood boosted demand for the safe-haven currency.
Sentiment soured amid the ongoing crisis in the Middle East, with shipping traffic in the Strait of Hormuz virtually grinding to a halt on Monday following attacks in the vicinity over the weekend.
However, the mood improved as the session unfolded. Markets took encouragement from the recent sharp repricing in Federal Reserve interest rate bets, following Friday’s weak payrolls data.
This pullback in Fed bets also weighed directly on the US Dollar, seeing it quickly trim its initial gains.
Meanwhile, the increasingly risk-sensitive Pound (GBP) slipped against the US Dollar during the early hours of Monday morning amid the risk-off market mood.
Sterling was able to regain lost ground later on, however, thanks in part to the UK’s final services PMI. September’s survey was revised slightly higher, printing at 52.1 versus the preliminary 51.7. Although this was still a slowdown from August’s 52.5, the better-than-expected figures aided GBP.
Near-Term GBP/USD Forecast: Fed Speeches to Dent the Dollar? Looking forward, two Federal Reserve officials are due to speak on Tuesday – Michelle Bowman and John Williams. Both policymakers are considered to be on the dovish end of the spectrum, so their comments could dent USD, if they suggest that they won’t support an interest rate hike this month.
Meanwhile, the data calendar for GBP is quiet, which may limit movement in the Pound.
Market risk appetite may also influence the GBP/USD exchange rate. A risk-off mood would likely support the safe-haven Dollar, while an improvement in market sentiment could underpin the increasingly risk-sensitive Pound. Any shifts in risk appetite could also drive fresh volatility.
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.
Pound-New Zealand Dollar could stay elevated if risk appetite remains weak, although stronger NZ business confidence may offer the Kiwi some support.
The Pound New Zealand Dollar (GBP/NZD) exchange rate hit a fresh ten-year high on Monday as Sterling continued to attract support.
At the time of writing, GBP/NZD traded at NZ$2.3647, up almost 0.3% on the day.
Latest — Exchange Rates:
Pound to New Zealand Dollar (GBP/NZD): 2.362863 (+0.20%)
Euro to New Zealand Dollar (EUR/NZD): 2.004679 (+0.03%)
New Zealand Dollar to Dollar (NZD/USD): 0.559005 (-0.43%)
DAILY RECAP:
The Pound (GBP) continued to attract support at the start of this week, following last week’s impressive gains.
The recent upward revision to UK GDP growth in the second quarter, increased bets on a Bank of England (BoE) interest rate hike in November, and hopes of closer UK-EU ties following the Labour conference last week all continued to provide the Pound with support.
In addition, the UK’s finalised services PMI on Monday was revised slightly higher. The PMI printed at 52.1 in September, still down from August’s 52.5 but above the preliminary estimate of 51.7. While the upward revision was modest, it helped keep Sterling’s momentum alive.
Meanwhile, the risk-sensitive New Zealand Dollar (NZD) struggled as this week’s session began, with a gloomy market mood weighing on NZD demand.
Investors remained concerned about high global energy prices and the ongoing crisis in the Middle East.
Activity in the Strait of Hormuz came to a near standstill on Monday, following attacks near the vital waterway over the weekend.
Near-Term GBP/NZD Forecast: NZ Business Confidence to Support the ‘Kiwi’?
Looking ahead, the NZ Institute of Economic Research will publish its latest business confidence survey on Monday night. A forecast improvement in the third quarter could lend the ‘Kiwi’ support during Tuesday’s Asian session and into European trade.
Economic data then thins out, likely leaving GBP/NZD to be driven by market risk dynamics. Any shifts in sentiment could drive volatility. Federal Reserve interest rate expectations and US-Iran war news could determine the market mood.
Exchange Rates UK Research
Our currency coverage draws on live market data, official economic releases and published bank research.
Understanding cycle structures helps traders navigate complex forex moves with clarity. AUDJPY analysis showed Elliott Wave principles identified a corrective end and anticipated a sharp 400‑pip sell‑off.
The Forecast: Identifying the Wave 2 Peak
In our September 21, 2026 analysis, AUDJPY was completing a 3‑wave rally from the 108.90 region. The rally into 112.61 marked wave 2 (or ((c)) of 2), aligning with the 1.618 Fibonacci extension at 112.88. A red Turning Down tag appeared near 112.61, setting 112.6119 as the invalidation level. With wave 2 complete, bias shifted to a reversal lower into sub‑waves (i) and (ii), preparing for wave 3 decline.
See chart below
The Outcome: Impulsive Drop 400 Pips In Motion
Following the 112.61 peak, AUDJPY broke down sharply, completing a clean 5‑wave impulse with wave ((iii)) of 3 near 108.50. The decline spanned over 400 pips, with price consolidating around 110.11, still more than 360 pips below the highs. Structurally, AUDJPY is completing a (w)–(x)–(y) double corrective bounce in wave ((iv)) near 110.11. As long as price stays below the invalidation level, another leg down in wave ((v)) is expected to finish wave 3. This should be followed by a corrective bounce in wave 4, then a final swing lower in wave 5 of (C) of ((2)). Afterward, the pair is projected to turn higher, resuming the broader bullish sequence.
See chart below
Key Takeaways for Traders
For traders, rejection below the 1.618 Fibonacci extension at 112.88 confirmed the corrective structure had ended. Clear invalidation levels, like 112.61, provided disciplined risk management by defining exposure against the higher‑degree trend. Patience during corrective phases—such as the ongoing wave ((iv)) bounce—remains essential, offering clarity before the main trend resumes.
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Měnový pár EUR/USD klesl na 1,1160, nejníže od května 2025, kvůli francouzskému fiskálnímu a politickému riziku. Klíčová hranice 1,1185 zatím nebyla potvrzeně proražena.
French Risk Has Brought the Euro to the Line; 1.1185 Decides Whether the Downtrend Accelerates What’s happening: EUR/USD fell to around 1.1160, its lowest since May 2025, before recovering to 1.12. French fiscal and political risk is the dominant Euro-specific pressure, while Spain’s snap election on November 29 has added a headline without comparable market stress. The pair pierced the 1.1185 Fibonacci projection but has not yet confirmed a break, even though Fed hike expectations have eased and French bond yields have stabilized somewhat.
Why it matters: Neither interest-rate differentials nor a generalized Eurozone panic explain the move; it is French-specific risk with broader Euro implications. A decisive loss of 1.1185 would strengthen the case that the decline from 1.2081 is developing into an impulsive medium-term downtrend, with the current leg from 1.1710 potentially entering its strongest phase. The next move around 1.1185 will determine whether the bearish trend is solidified and begins to accelerate.
EUR/USD has reached a point where today’s political headlines matter less for the size of the immediate move than for what could come next. The pair fell to around 1.1160, its lowest since May 2025, before recovering to 1.12. French fiscal and political risk remains the dominant Euro-specific pressure, while Spain’s snap election adds another headline without yet producing comparable market stress. France is identified as the main drag as EUR/USD hit a 17-month low, while Spanish equities largely shrugged off Prime Minister Pedro Sánchez’s call for a November 29 election.
The more important development is technical. EUR/USD has pierced 1.1185, the 100% projection of 1.1848 to 1.1323 from 1.1710, but has not yet confirmed a break. A decisive loss of that level would strengthen the case that the decline from 1.2081 is developing into an impulsive medium-term downtrend, with the current leg from 1.1710 potentially entering its strongest phase. In that sense, French political risk has brought the Euro to the line; the next move around 1.1185 will determine whether the broader bearish trend is solidified and begins to accelerate.
France Is the Core Risk, Spain Is Secondary Europe has two political stories today, but markets are not treating them equally.
France Fiscal Snapshot OAT-Bund spread: pushed above 100bp during September OAT-Bund spread: briefly above 150bp on Friday, before retreating France’s debt: around 119% of GDP France’s deficit: roughly 5.4%, which the government is trying to reduce through its 2027 budget In France, the repricing has been building for weeks. The OAT-Bund spread pushed above 100bp during September and surged to levels last seen during the Eurozone sovereign debt crisis period. The spread was briefly above 150bp on Friday, before retreating, as investors focused on France’s fiscal position and the difficulty of repairing it through a fragmented parliament ahead of the 2027 presidential election.
The fiscal backdrop explains why the political uncertainty carries market weight. Prime Minister Sébastien Lecornu’s government has proposed a combination of tax increases and spending restraint, but the legislation still faces a difficult parliamentary process.
The key point is that this is no longer simply a generic global bond-market selloff. France has developed its own risk premium. The widening relative to Germany—and the fact that French sovereign stress has at times exceeded Italy’s—shows investors differentiating between Eurozone credits rather than selling the bloc indiscriminately.
Spain is different.
Prime Minister Pedro Sánchez called an early election for November 29 after parliament rejected key housing measures, adding another layer of political uncertainty to Europe. But the market reaction has so far been restrained. Spanish equities remained positive on the day, while investors saw limited reason to worry about Spain’s finances given comparatively solid growth.
France vs Spain: How Markets Are Treating Each France Spain Political trigger Fragmented parliament and a difficult 2027 budget process Snap election on November 29 after parliament rejected key housing measures Fiscal backdrop Debt around 119% of GDP; deficit roughly 5.4% Limited reason to worry about finances given comparatively solid growth Market reaction OAT-Bund spread briefly above 150bp on Friday; CAC 40 underperforming Spanish equities positive on the day The distinction is simple:
France is being priced. Spain is being watched.
Bonds Stabilize, but Euro Keeps Falling That distinction also helps explain today’s cross-asset pattern.
French bonds opened under renewed pressure, but yields subsequently eased from their early levels and remained below last week’s peak. The OAT-Bund spread also pulled back from Friday’s extreme rather than extending immediately higher. That is important because today is not another acceleration of the bond shock.
Cross-Asset Moves EUR/USD: fresh 17-month low CAC 40: fell, underperforming the major European equity indices STOXX 600: advanced Spanish equities: gained DAX, FTSE and Ibex: firmer Instead, the incremental pressure is showing more clearly elsewhere. EUR/USD made a fresh 17-month low, while the CAC 40 underperformed the major European equity indices. Paris shares fell while the broader STOXX 600 advanced and Spanish equities gained.
The FX heat map adds another useful clue. The Euro is broadly weak against the Dollar, Sterling, Canadian Dollar and Australian Dollar, but there is no comparable cross-market surge into every traditional haven. That argues against treating today as a generalized systemic risk event.
French sovereign stress remains serious, but the immediate move looks more like a Euro-specific risk premium being expressed through the currency and French equities while the bond market pauses after last week’s repricing.
The Rate Story Alone Does Not Explain EUR/USD The usual interest-rate explanation is also incomplete.
Fed expectations have become less aggressive at the very front end after softer US labor data, with October hike probability sharply reduced. Normally, that should remove at least some Dollar support. Yet EUR/USD is still making new lows.
That suggests the Euro side of the equation matters increasingly. French fiscal uncertainty, fragmented sovereign pricing inside the monetary union, weak confidence around the durability of the regional recovery and elevated energy costs are creating a risk premium that ordinary rate-differential analysis does not fully capture.
This is particularly important because today’s Euro weakness is occurring even as French yields themselves stabilize somewhat. The market is no longer simply demanding a larger premium to hold OATs; the political and fiscal uncertainty is also being reflected in the currency.
That does not mean the bond problem has disappeared. It means today’s incremental repricing is being expressed more visibly elsewhere.
Why This Is Not Yet a Eurozone Panic There are several reasons not to overstate the move.
Four Reasons Not to Overstate It French yields are below last week’s extreme rather than accelerating through it. Spanish bonds and equities are not showing the same degree of stress. If France’s problems were rapidly becoming a broader Eurozone sovereign event, Spain and Italy would be expected to begin moving much more aggressively alongside it. Broader European equities are not collapsing. The CAC is the outlier, while DAX, FTSE and Ibex have been firmer. The currency heat map does not show the sort of uniform rush into defensive currencies associated with acute systemic stress. The right description is therefore French-specific risk with broader Euro implications, not contagion.
That distinction could change if the OAT-Bund spread drives decisively back through last week’s extremes while Bunds rally and peripheral spreads begin widening together. But that is not the configuration today.
French Bond Spread, Budget and Spain: What Could Change the Picture The first test remains the French bond spread. Another sustained move above the 140–150bp area, particularly if accompanied by renewed demand for Bunds and widening in Spain and Italy, would indicate that the stress is broadening rather than merely consolidating.
The second is the French budget process. Markets need evidence that the 2027 fiscal package can survive a fragmented parliament and produce a credible path toward stabilizing the debt burden. France’s proposed measures are substantial, but parliamentary amendments are expected and implementation remains central to the credibility question.
Spain’s November 29 election is a secondary political catalyst, but the more immediate question is whether Spanish assets continue to distinguish themselves from France.
For EUR/USD, however, the most important signal may arrive before any of those political events. It is already sitting on the level that can decide whether the existing decline becomes something materially larger.
EUR/USD Technical Outlook: 1.1185 Is the Decision Point EUR/USD is testing 1.1185, the 100% projection of the decline from 1.1848 to 1.1323, projected from 1.1710.
Today’s 1.1160 low pierced that level intraday, but EUR/USD recovered back above it. That makes the current setup a warning rather than a confirmed breakdown.
A decisive daily close below 1.1185 would materially change the technical picture. The decline from 1.2081 could then increasingly be interpreted as an impulsive sequence:
1.2081 to 1.1408, rebound to 1.1848, fall to 1.1323, rebound to 1.1710, followed by the current decline. That is, a 1-2-i-ii.
Under that count, the fall from 1.1710 would represent the potentially powerful wave iii of the developing bearish sequence.
Key EUR/USD Levels Level Significance 1.1710 A break above invalidates the impulsive count 1.1323 First critical resistance on any recovery; a sustained recovery above it would weaken the immediate impulsive count 1.1185 100% projection of 1.1848 to 1.1323 from 1.1710; the decision point 1.0904 Larger 61.8% retracement 1.0861 161.8% projection, the next major downside projection, close to the 61.8% retracement 1.0759 Next projection below the 1.0861–1.0904 zone The next major projection would be 1.0861, the 161.8% projection. That sits close to the larger 61.8% retracement around 1.0904, creating a significant downside target zone. Below there, the next projection lies around 1.0759.
The larger implication is more important still. A confirmed impulsive fall from 1.2081 would strengthen the case that EUR/USD has begun reversing the entire three-wave corrective rise from the 0.9534 low of 2022. That would represent a meaningful medium-term trend change rather than merely another pullback inside the previous recovery.
For now, however, that conclusion is premature. Daily RSI is already deeply oversold, and EUR/USD has recovered from below 1.1185 intraday. A daily close beneath the level is the first confirmation; a weekly close below 1.1185 would carry considerably more weight.
On any recovery, 1.1323 has become the first critical resistance. As long as that former support holds as resistance, downside risk remains dominant. A sustained recovery above 1.1323 would weaken the immediate impulsive count, while a break above 1.1710 would invalidate it.
French political risk has helped drive EUR/USD to this point. Whether 1.1185 now gives way will determine whether the Euro’s medium-term decline merely continues—or begins to accelerate.
Related Coverage Europe: Data and Sentiment Eurozone Sentix Slips as Expectations Fall, France Replaces Germany as the Main Concern: investor sentiment data pointing to the same geographic shift in worry that is driving the Euro-specific risk premium. Eurozone PMI Hits 41-Month High as Growth Broadens and Price Pressures Reheat: September growth at a 41-month high, but with stronger selling prices and backlogs that make the release notably more hawkish. Eurozone PPI Re-Accelerates as Energy Shock Spills Into Broader Producer Costs: August producer inflation re-accelerated, with stronger ex-energy prices suggesting pipeline pressure is broadening beyond energy. UK Composite PMI Falls to 52.0 as Growth Slows and Costs Rise: services still expanding but with slower new orders, falling employment and higher fuel and payroll costs. Gold, Yen and Asia-Pacific Gold: Fed Hike Delay Isn’t Relief, FOMC Minutes Put the Rate Plateau to the Test: the Gold angle on collapsed October hike odds, with Wednesday’s FOMC minutes testing the extended tightening path priced into 2027. Nikkei Eyes Record High, But Four Forces Stand Between USD/JPY and 164: why this equity breakout may not repeat the last run in USD/JPY, with 160 now inside a tougher resistance zone. BoJ Uchida: AI’s Demand Shock Has Arrived Before Its Productivity Payoff: the BoJ Deputy Governor on AI’s first macro impact arriving through demand, prices and easier financial conditions. Japan PMI Growth Slows, But Hiring and Price Pressures Stay Firm: a weaker services headline, but with faster hiring, rising backlogs and exceptionally strong selling-price inflation underneath. Australia PMI Services Falls to 51.9 as Growth Slows and Price Pressures Rise: softer activity and falling employment paired with faster input and output-price growth. FAQ Why is EUR/USD making new lows when Fed hike expectations have eased? Fed expectations have become less aggressive at the front end after softer US labor data, which should normally remove some Dollar support. Yet EUR/USD fell to around 1.1160, its lowest since May 2025. French fiscal uncertainty, fragmented sovereign pricing inside the monetary union, weak confidence in the regional recovery and elevated energy costs are creating a risk premium that rate-differential analysis does not fully capture, and that premium is now also being reflected in the currency.
Is France’s bond stress turning into a Eurozone panic? Not yet. French yields and the OAT-Bund spread have pulled back from last week’s extremes, Spanish bonds and equities are not showing the same stress, broader European equities are not collapsing and the currency heat map shows no uniform rush into defensive currencies. The better description is French-specific risk with broader Euro implications, not contagion. That could change if the OAT-Bund spread drives decisively back through last week’s extremes while Bunds rally and peripheral spreads begin widening together.
What would a break below 1.1185 mean for EUR/USD? 1.1185 is the 100% projection of 1.1848 to 1.1323 from 1.1710, and EUR/USD pierced it intraday without confirming a break. A decisive daily close below it would support reading the decline from 1.2081 as an impulsive sequence, with the fall from 1.1710 as a potentially powerful wave iii. The next projection is 1.0861, close to the 61.8% retracement around 1.0904, with 1.0759 below that. A weekly close below 1.1185 would carry considerably more weight, while a break above 1.1710 would invalidate the count.
Key Takeaways EUR/USD fell to around 1.1160, its lowest since May 2025, before recovering to 1.12, with French fiscal and political risk as the dominant Euro-specific pressure. France is being priced and Spain is being watched: the OAT-Bund spread was briefly above 150bp on Friday and French debt is around 119% of GDP, while Spain’s November 29 election drew a restrained market reaction. Today is not another acceleration of the bond shock: yields and the spread pulled back, and the pressure is showing more clearly in EUR/USD and the CAC 40. Rates do not explain the move: Fed expectations have become less aggressive, yet EUR/USD is still making new lows. This is French-specific risk with broader Euro implications, not contagion, though that could change if the spread breaks back through last week’s extremes while peripheral spreads widen with it. EUR/USD pierced 1.1185 but has not confirmed a break; a decisive daily close below would strengthen the impulsive count, and a weekly close below would carry considerably more weight. Below 1.1185 the next projection is 1.0861, near the 61.8% retracement around 1.0904, then 1.0759; 1.1323 is first resistance and a break above 1.1710 would invalidate the count. What to Watch Next For EUR/USD, the decision point is 1.1185: a daily close below is the first confirmation and a weekly close below would carry considerably more weight, while 1.1323 is the first resistance on any recovery. On the political side, watch whether the French bond spread makes another sustained move above the 140–150bp area, how the 2027 budget fares in a fragmented parliament, and whether Spanish assets keep distinguishing themselves from France ahead of the November 29 election.
GBP/CAD minulý týden vystoupal na pětitýdenní maximum a byl o více než 0,7 % výše. Podporu mu daly sázky na zvýšení úrokových sazeb BoE a silnější růst britské ekonomiky.
The Pound-Canadian Dollar could stay supported if UK services remain resilient, while weaker Canadian jobs data may weigh on the Loonie. The Pound Canadian Dollar (GBP/CAD) exchange rate saw big swings last week, with Sterling hitting a five-week high against the ‘Loonie’ amid UK interest rate hike bets and stronger GDP growth.
At the time of writing, GBP/CAD was trading at CA$1.8878, up over 0.7% on the week.
Latest — Exchange Rates:
Pound to Canadian Dollar (GBP/CAD): 1.887449 (+0.04%)
Euro to Canadian Dollar (EUR/CAD): 1.605032 (+0.09%)
Dollar to Canadian Dollar (USD/CAD): 1.42531 (+0.02%)
DAILY RECAP:
The Pound (GBP) made a positive start to the week, as remarks from Bank of England (BoE) Deputy Governor Dave Ramsden fuelled expectations that the central bank could raise interest rates in November.
A lack of fresh UK data saw Sterling lose momentum on Tuesday, but the currency regained ground midweek after revised figures revealed stronger-than-expected UK economic growth. GDP expanded by 0.5% in the second quarter, reinforcing market bets on a November rate increase.
However, the Pound’s upward momentum faltered on Thursday after the UK’s final manufacturing PMI was revised slightly lower. Despite the downgrade, the index continued to signal an improvement in manufacturing activity.
Sterling ended the week on a firmer footing, drawing support from Burnham’s remarks on strengthening the UK’s ties with Europe and the possibility of rejoining the EU.
The Canadian Dollar (CAD) edged lower at the start of the week as concerns about the ongoing US-Canada trade war offset support from a surge in global oil prices.
The commodity-linked currency then recovered on Tuesday, shrugging off softer oil prices as a rebound in Canadian GDP in August helped lift sentiment.
However, CAD struggled to build on these gains midweek as oil prices remained below $100 per barrel.
The Canadian Dollar rebounded sharply on Thursday after touching multi-week lows, with a fresh jump in oil prices boosting demand for the crude-linked currency.
Nevertheless, CAD ended the week on the defensive as Brent crude fell back below $100 per barrel.
Near-Term GBP/CAD Forecast: Rising Canadian Unemployment to Dent the ‘Loonie’? Looking ahead, the UK’s final services PMI on Monday is the only British data release on the calendar this week. If the figures confirm a slowdown in the crucial sector, the Pound could come under pressure.
Canada’s services PMI is also out on Monday, although its impact may be limited. Markets expect activity to have improved slightly but remained in contraction territory last month.
Friday’s Canadian jobs data is the key release for the week. A forecast rise in unemployment in September could weigh on CAD.
Meanwhile, oil price dynamics will likely continue to drive the currency. Further turbulence could trigger big swings in the Canadian Dollar.
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.
TL;DR: The Nikkei 225 is closing in on a fresh record near 72,831.73, but unlike June’s rally—when USD/JPY ran alongside it to 163.97—a faster BoJ tightening cadence, a more patient Fed, credible intervention risk and the absence of a fresh oil shock mean USD/JPY is unlikely to follow through the 160 zone this time.
Why This Matters Japan’s equity rally is again approaching the point where the Nikkei’s strength and Yen weakness were closely linked earlier this year. But the comparison only goes so far. The equity breakout looks genuine, and the question that matters for traders isn’t whether the Nikkei can retest its record—it’s whether USD/JPY has to follow the same script it did in July. Four specific differences argue it doesn’t, at least not yet, and each one has a clear condition that would reverse it.
The Nikkei 225 surged 2.40% to 69,946.64 today, clearing the 69,608.24 August swing high and moving to within roughly 4% of the 72,831.73 record. When the Nikkei last set a record in June, USD/JPY was already above 161 and subsequently extended its advance to 163.97 in late July. This time, USD/JPY is still around 157.7, almost six yen below that peak.
Nikkei Breakout Has Real Momentum The Nikkei’s break above 69,608.24 strengthens the view that price action from 72,831.73 is merely a correction of the rise from 50,566.99, rather than the start of a larger downtrend.
As long as 68,132.16 support holds, the immediate bias stays higher. The next upside target is 71,885.52, the 100% projection of the 60,448.90–69,608.24 advance from 62,726.18. Above there sits the 72,831.73 record high. The chart therefore gives the Nikkei a credible path back to its record. What is much less clear is whether USD/JPY still needs to accompany it.
July’s Run to 163.97 Needed More Than a Rising Nikkei The last Nikkei record was followed by another leg higher in USD/JPY, but the Yen move was not simply a mechanical consequence of Japanese equity strength. By late July, several forces had aligned in the same direction.
The Fed had turned more hawkish, markets were pricing additional US tightening, Treasury yields were elevated and the Yen had spent enough time above 160 for investors to question where Tokyo’s intervention threshold actually stood.
Then oil supplied another impulse. Brent had been near 70 earlier in the summer before surging above 100 as Middle East risks intensified, following the collapse of the US-Iran ceasefire. That created a fresh inflation shock just as markets were debating how much further the Fed might have to tighten. USD/JPY eventually reached 163.97. That combination is important because the current setup looks different in each of those areas.
1. BoJ Tightening Is Arriving Faster The first difference is the BoJ cadence. The Bank of Japan raised rates in December, again in June and then in September. The interval shortened from roughly six months to around three months.
That does not mean every BoJ hike immediately strengthens the Yen. The June move was followed by USD/JPY rising further toward 164, while the Yen also weakened immediately after September’s increase. But the medium-term significance is different: the market can no longer comfortably assume that the BoJ will wait half a year between every move. A roughly quarterly cadence, if sustained, would allow Japanese rates to rise alongside US rates rather than simply watching the Fed move away. That distinction matters more than the immediate FX reaction to any single meeting.
The BoJ has not explicitly committed to that pace, and expectations for another October hike remain low. December is a more plausible window under the current market view. So the argument should not be that the BoJ is embarking on an aggressive tightening cycle. Rather, the Japan side of the rate differential is now moving faster than it was earlier this year.
2. The Fed Is Still Tightening, But at a More Patient Pace The second difference is the Fed. Markets have not abandoned the tightening cycle. The expected Fed funds midpoint is around 4.12% in December, 4.39% in March and 4.61% in June, before flattening around 4.65–4.70% later in 2027. That is still a hawkish rate path.
But it is a patient tightening path, not an assumption of rapid back-to-back hikes. October hike probability has fallen sharply, while the curve increasingly spreads additional tightening over subsequent meetings. That matters for USD/JPY because the policy gap is not obviously entering another period of rapid expansion.
The most revealing market comparison is elsewhere. US yields have recently traded above the levels seen around July’s USD/JPY peak, yet USD/JPY remains almost six yen beneath 163.97. That suggests the simple mapping between US yields and USD/JPY has weakened. Higher US rates still support Dollar against Yen. But the same yield environment is producing less Yen depreciation than it did in July, indicating that BoJ policy and intervention risk are now carrying greater weight on the Japan side of the equation.
3. Above 160, Intervention Risk Is No Longer Abstract The biggest change since July is not simply that Japan has intervened before. It is that 160 now carries the memory of a joint US-Japan operation, reinforced by persistently tougher official rhetoric since then.
Earlier in the summer, the market had become increasingly comfortable trading above 160. USD/JPY spent weeks above that threshold, and repeated warnings from Tokyo failed to trigger immediate action. That encouraged the view that officials were prepared to tolerate a materially weaker Yen, allowing speculative positioning to build as the pair pushed toward 163.97.
The end-July intervention changed that calculation decisively. The operation was not just another unilateral attempt by Japan to slow Yen weakness; US participation gave the move much greater signalling power. Even though the exchange-rate effect faded relatively quickly, the message was harder to dismiss: both sides were prepared to act when Yen depreciation became disorderly enough.
Since then, Japanese officials have also maintained a consistently tougher rhetorical stance, keeping intervention risk alive rather than allowing the warning to fade with time. That matters because traders are now approaching 160 with a very different risk-reward calculation. The level is no longer merely a psychological threshold or a place where verbal intervention might intensify. It is the zone around which coordinated action has already occurred.
That does not make 160 a hard cap. Intervention cannot permanently overpower monetary-policy fundamentals, and USD/JPY recovered much of its initial decline after the July operation. But it does mean that long positions above 160 now carry a known and credible tail risk that was far less respected during the previous run toward 164.
4. July Had an Oil Shock; Today Has High Oil Oil may be the most important difference. Brent is still expensive above $100, but the dynamic is very different from July. The crucial distinction is: high oil is a condition. Rising oil is a catalyst.
The July USD/JPY rally was reinforced by a rapid oil surge that changed the inflation outlook and encouraged markets to price a more aggressive or extended Fed cycle. Brent near 101 today does not deliver the same incremental shock. Markets already know energy prices are high.
For oil to recreate July’s transmission mechanism, it likely needs to re-accelerate through 109.97 and decisively above the 110 area, rather than simply remain around 100. That would revive the transmission chain: an oil shock would lift inflation expectations, encourage more aggressive Fed pricing and renew pressure on Yen. Until then, energy is providing a high inflation floor without the fresh momentum that helped drive USD/JPY toward 164.
What Could Put 164 Back Into Play? The argument against another immediate move to 164 is conditional, not absolute. The cleanest invalidation would be another oil shock. A decisive Brent break above 109.97–110, particularly if driven by renewed Middle East escalation, could force markets to reconsider the persistence of inflation and push the expected Fed rate plateau higher again.
A second trigger would be a renewed acceleration in Fed tightening expectations. The upcoming FOMC minutes are relevant here: evidence that officials are comfortable with an extended sequence of hikes into 2027 would reinforce the Dollar side of the equation.
The third would simply be price itself. A decisive USD/JPY break through the 159.73–160.38 resistance cluster would indicate that the decline from 163.97 has likely completed. That would put the 162.51 100% projection back into view and dramatically reduce the distance to 163.97. But until those conditions emerge, the July analogy looks incomplete.
ActionForex’s Technical View on the Nikkei 225 Nikkei’s immediate technical structure is bullish while 68,132.16 holds. The break above 69,608.24 resumes the rebound from 60,448.90 and points toward 71,885.52. A break there would put the 72,831.73 record high directly in focus.
The significance of 68,100–68,132 is especially strong because structural support coincides with the 61.8% retracement near 68,101. Holding that zone would keep the latest breakout intact even after a short-term pullback. A close back below 68,100 would weaken the breakout and shift attention toward the 55 D EMA at 65,862.82. For now, however, the chart favors another test of the record.
ActionForex’s Technical View on USD/JPY USD/JPY presents a much less straightforward bullish structure. The rebound from 152.87 stalled at 159.02, and subsequent trading has been consolidative rather than impulsive. Price is currently around 157.7 and pressing the 55 D EMA around 158.09. A fresh rise cannot be ruled out while 156.36 holds, but there is little open space above.
The resistance sequence is:
158.09 — 55 D EMA 159.02 — September swing high 159.73 — 61.8% retracement of 163.97–152.87 160.16 — 61.8% projection of 152.87–159.02 from 156.36 160.38 — structural resistance 160 area — intervention-risk zone
That cluster is the technical expression of the article’s macro thesis. A decisive break through 160.38 would be important: it would suggest the decline from 163.97 has completed and expose 162.51, the 100% projection level, followed by a potential retest of 163.97. But rejection from the zone would leave USD/JPY trapped well below the level reached during the previous Nikkei record run. Below 156.36, attention would return to 155.22, with a deeper break reopening the 152.87 low.
The Nikkei therefore has the clearer bullish chart. Japan’s equity market can retest 72,831 without USD/JPY returning to 164. For the Yen to recreate July, it likely needs more than another equity record—it needs a renewed oil shock, stronger Fed acceleration, or enough momentum to force its way through the intervention-heavy 160 zone.
Key Takeaways The Nikkei 225 surged 2.40% to a fresh high, closing within roughly 4% of its 72,831.73 record—but USD/JPY sits nearly six yen below where it traded during June’s record run. A faster BoJ hiking cadence (roughly quarterly versus the prior six-month gap) means Japan’s side of the rate differential is now moving faster than earlier this year. The Fed’s tightening path remains hawkish but more patient, and US yields above July’s peak are producing less Yen depreciation than before—suggesting BoJ policy and intervention risk now carry more weight. The end-July US-Japan coordinated intervention, plus sustained tougher rhetoric since, has made 160 a zone with known, credible tail risk rather than just a psychological level. Without a fresh oil shock (Brent decisively above 109.97–110) or a hawkish surprise from Fed policy or price action through 160.38, USD/JPY’s path back to 164 looks far less automatic than it did in July.
ActionForex
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for two decades. We started providing only a daily and a mid-day report, now known as Action Insights. Gradually, we added a lot more in-house contents to the site. Technical Outlook section was expanded to cover more pairs. In addition to that, Top Movers, Heat Map, Pivot Point Charts and Pivot Meters, Action Bias and Volatility Charts, are tools used by traders from all over the world.
The EUR/USD exchange rate continued its strong sell-off today, reaching its lowest level in 17 months as concerns about the European fiscal health accelerated. It tumbled to 1.1162, down by over 4.67% from its highest point in September, with focus now shifting to the upcoming Federal Reserve minutes.
The EUR/USD pair tumbled sharply as investors remained concerned about Europe’s fiscal health. Recent data shows that government bond yields have surged in the region. In France, the ten-year yield jumped to a multi-year high of 4.99% last week. Similarly, in Germany and other countries, yields have continued rising.
The pair is also falling as Pedro Sanchez, the Spanish Prime Minister, considers calling for an early election after losing a crucial housing vote. According to Bloomberg, the cabinet and other high-ranking government officials support calling for an early election. This comes at a time when France has seen substantial protests in the past few weeks. In a note, a Lombard Odier analyst said:
“Bond and currency markets are clearly signaling investor discomfort about the rising instability of the French government and erosion in the country’s fiscal anchor ahead of the elections in 2027.”
These developments come at a time when many European countries are struggling, with the European Central Bank (ECB) predicting that it will grow by 0.9% this year. That growth will be much lower than the current inflation rate, which has remained above 2% amid the US-Iran crisis.
The next important catalyst for the EUR/USD pair will be the upcoming minutes of the last meeting by Federal Reserve. These minutes, which will come out on Wednesday, will provide more hints on what to expect in the coming meeting.
However, these minutes will likely have a mild impact on the pair because the situation has changed substantially since the last meeting. For example, a report released last week showed that the core Personal Consumption Expenditure (PCE) softened in August.
Another report released on Friday showed that the economy created just 29,000 jobs last month, much lower than the expected 90,000. The unemployment rate rose to 4.2% during the month.
Therefore, these numbers mean that the Fed will not have an incentive to hike rates again this year as analysts expected.
EURUSD chart | Source: TradingView
The weekly chart shows that the EUR/USD pair has slumped in the past few weeks. It has already crashed below the important support level of 1.1391, its lowest level in July last year and March and April this year. Moving below that level confirmed the bearish breakout.
The pair has now moved to the 38.2% Fibonacci Retracement level. It also slumped below the 50-week moving average, while the Supertrend indicator has turned red. Therefore, the path of the least resistance for the pair is bearish, with the next key target to watch being the psychological level of 1.100.
AUD/USD zůstává citlivý na další australskou inflaci, která prověří očekávání Westpacu na listopadové zvýšení sazeb RBA. Trh po slabší jádrové inflaci snížil sázky na listopadový růst sazeb.
FX strategists at Westpac still expect a November RBA hike, but Goldman Sachs and Rabobank favour patience, leaving AUD/USD sensitive to the next inflation report. Australia's softer-than-expected underlying inflation has weakened market bets on another November interest-rate rise without shifting Westpac's forecast, exposing a disagreement that matters for the Australian Dollar.
Latest — Exchange Rates:
Australian Dollar to Dollar (AUD/USD): 0.695707 (+0.40%)
Pound to Australian Dollar (GBP/AUD): 1.903035 (-0.09%)
Euro to Australian Dollar (EUR/AUD): 1.617382 (-0.37%)
August's trimmed-mean inflation of 0.2% on the month and 3.6% annually matched Westpac's expectations and remains consistent with its forecast for a 0.9% quarterly rise in the third quarter.
Goldman Sachs expects an extended pause, while Rabobank believes any further tightening is more likely to wait until early 2027.
AUD/USD closed Friday, 2 October, near US$0.6957, up 0.40% on the day, after losing 3.15% in September.
The recovery accompanied a broader Dollar decline following the weaker-than-expected US jobs report, which reduced the immediate pressure for another Federal Reserve hike.
Markets cut November odds, but Westpac holds its call Westpac's 1 October Morning Report recorded a clear change in Australian rate expectations after the CPI release.
"Following a slight downside surprise on inflation figures yesterday, near-term pricing for the RBA has recalibrated, with a follow-up rate hike in November now seen as a circa 25% chance versus a circa 40% chance previously."
Those are the report's dated market probabilities, rather than Westpac's own forecast.
Its economists saw little reason to alter their inflation projections.
"In Australia, the August CPI was spot on Westpac's forecast, with headline inflation up 0.4%mth/4.0%yr and trimmed mean inflation up 0.2%mth/3.6%yr, though the latter was slightly below market expectations."
The softer surprise should not be confused with falling annual headline inflation, which rose to 4.0% from July's 3.5%, while the annual trimmed mean was unchanged.
In its analysis of the latest CPI figures, Westpac analysts retained its November hike call, warning that businesses passing on higher energy costs posed upside risks to underlying inflation later this year.
Its 0.9% third-quarter trimmed-mean forecast would represent an acceleration from 0.8% in the second quarter.
How much restraint is already in place? The RBA's September increase took the cash rate to 4.60%, following a cumulative percentage point of tightening during 2026.
The disagreement centres on whether those increases need more time to restrain demand or whether persistent inflation requires another move in November.
Goldman's assessment after the September decision favoured waiting.
"Our base case is that the RBA holds policy for an extended period until a gradual easing cycle commences from 2H2027."
That means cuts starting in the second half of next year, although Goldman still regarded further tightening as a material risk, including in November if inflation surprised higher.
Rabobank's October outlook gives greater weight to the danger of excessive restraint.
"While we do not rule out the possibility of further rate hikes, we think the RBA is going to be feeling its way and will be careful that any further tightening does not tip the economy into recession or cause a disorderly spike in the unemployment rate."
The bank highlighted weaker new-home construction inflation and a 0.4% monthly fall in market services prices excluding volatile items.
"Overall, we believe that the August inflation data supports our view that the RBA will not be in a rush to raise the cash rate in November and that any further lift in the cash rate is likely to be delayed until early next year."
For AUD/USD, fewer expected Australian hikes remove one potential source of yield support, although Friday's rally shows how weaker US data can offset that pressure.
The next Australian CPI release on 28 October will include September-quarter figures, allowing investors to test Westpac's 0.9% forecast before the November decision.
Crédit Agricole očekává, že RBI ve středu zvýší sazby o 25 bazických bodů na 5,50 %, aby spíše stabilizovala rupii než výrazně posílila INR. USD/INR letos vzrostl o 6,87 %.
After the Dollar-Rupee rate gained nearly 7% this year, can higher Indian interest rates contain the INR's losses against the USD? Crédit Agricole expects India to raise interest rates on Wednesday, but sees the move helping to stabilise the Rupee rather than deliver a substantial recovery before year-end.
Its 30 September report forecasts a 25-basis-point RBI increase to 5.50% on 7 October, while retaining USD/INR at 96 for the second half of 2026.
The US Dollar to Indian Rupee exchange rate was quoted near 96.16 late on Friday, 2 October, down 0.07% on the day but up 0.86% during September.
That leaves the bank's currency forecast close to the prevailing rate after a 6.87% rise in USD/INR since the start of the year.
Image: USD/INR exchange rate over 2026 chart Inflation is driving the rate call Crédit Agricole's David Forrester identifies three pressures: expensive oil, the inflationary impact of Rupee depreciation and disappointing monsoon rainfall.
At the report's publication, oil exceeded $100 a barrel, compared with the RBI's assumed $80-85 range, while weaker rainfall threatened further food-price increases.
Official August figures already showed annual consumer inflation rising to 4.82% from July's 4.45%, with food inflation at 5.95%.
Forrester distinguishes the purpose of a rate increase from the RBI's intervention in currency markets.
"Importantly, we do not think RBI is raising rates to support the INR, but rather to offset the weak currency's upward pressure on inflation."
A weaker Rupee increases the local-currency cost of imports, compounding the effect of higher oil prices.
The bank also argues that domestic activity gives policymakers room to act.
"Firm service exports and government infrastructure projects are supporting the economy, suggesting the economy can bear higher rates."
A modest adjustment, with a neutral stance The October call gives a specific date to the fourth-quarter increase Crédit Agricole anticipated in September.
"We do not think this will be the start of a tightening cycle and expect the central bank to maintain a neutral bias. We expect the MPC to fine tune its monetary policy rate moving the policy rate towards the upper end of its neutral range, giving it the flexibility to move policy into restrictive territory if needed."
That does not mean the bank expects only one increase: its forecasts put the repo rate at 5.50% in December and 5.75% by March 2027.
The bank sees more restrictive policy as a risk if energy prices stay elevated and El Nino persists into the 2027 monsoon season.
For the Rupee, higher rates, capital inflows and the RBI's capacity to intervene should counter the pressure from oil and weak monsoons, according to the bank.
"We retain our H226 forecast for USD/INR at 96.00."
The size of Wednesday's decision will therefore be only part of the currency story.
"The impact on the INR of a hike will depend on the vote count as well as the bias announced in the statement and RBI's new forecasts."
A move above the June highs around 1.4250 could accelerate the USD/CAD rally, with the pair's resilience after weaker US jobs data suggesting the bulls remain in control. With the Fed focused on inflation and elevated oil prices keeping pressure on bond markets, I still think the near-term USD/CAD forecast is tilted to the upside.
Key takeaways
June highs remain the hurdle for renewed momentum.
Inflation matters more than employment for the Fed's current focus.
The bullish lean remains conditional, not a confirmed breakout.
Watch the full video
Weak jobs data has not changed the dollar argument
The US dollar initially fell a little after the weaker-than-expected jobs report. However, this followed other disappointing numbers during the week, and I have my doubts about whether the greenback will fall much further. The key question is whether weaker activity changes the monetary policy backdrop.
The report has modestly lowered expectations that the Fed will hike again next month. But its focus remains firmly on the inflation mandate rather than employment. That leaves a softer jobs number offering some relief without necessarily removing the reasons for the dollar's recent strength.
Elevated oil prices keep yields in focus
Oil prices have surged in recent months and remain elevated. Inflation should therefore remain sticky for a while yet, keeping pressure on bond markets and yields higher. This is the mechanism that makes a sustained dollar decline harder to argue for, despite the weaker economic numbers.
Attention will now gradually shift towards the US CPI release on 14 October 2026. Meanwhile, risk appetite has been all over the place, providing additional support for the dollar. The inflation outlook and uncertain appetite for risk remain important parts of the backdrop against which USD/CAD is holding up.
Technical USD/CAD forecast and key levels to watch
From a technical analysis point of view, the strength of the rally stands out, with minimal pullbacks along the way. USD/CAD dipped only slightly after the jobs report before bouncing back and turning higher on the session. Yesterday's inverted hammer against the June highs may therefore have trapped the bears. A move through that resistance would bring yesterday's high, also this week's high, at 1.4263 into focus, where stops could help accelerate the move. If the bullish trend continues, the round handles at 1.4300 and 1.4400 could come into view. The 127.2% Fibonacci extension at 1.4388 offers another longer-term reference, not a promise that price will reach it. On the downside, key support comes in around 1.4130, which was previously resistance.
Source: TradingView.comFrequently asked questions
Why has USD/CAD been resilient after weak jobs data?
The small dip and subsequent recovery suggest the disappointing report has not displaced the bullish trend. The dollar's wider backdrop still matters more than that initial reaction.
Could the inverted hammer be a bear trap?
It looks that way for now, but the June highs still need to be overcome. I would distinguish that possibility from a breakout that has already happened.
Why does former resistance matter as support?
It gives the downside a clear reference while attention is on the highs. The bullish case should not obscure the importance of the level below.
-- Written by Fawad Razaqzada, Market Analyst | Follow Fawad on Twitter @Trader_F_R
Rozpětí OAT-Bund se rozšířilo nad 140,6 bp, nejvíce od dluhové krize eurozóny v roce 2012, protože francouzské výnosy rostou a německé klesají. EUR/CHF zároveň klesl z 0,94850 na zhruba 0,9340.
TL;DR: The OAT-Bund spread widened past 140.6bp, its widest since the 2012 eurozone debt crisis, as French 10-year yields surged to 4.935% while German Bund yields fell to 3.529%—a divergence pointing to a France-specific sovereign risk premium that EUR/CHF is now starting to transmit into FX.
Why This Matters Europe’s bond selloff has stopped being one trade. Investors are now separating France from Germany—and EUR/CHF is starting to reflect the same divide. When two countries share a currency and a central bank but their bond yields move in opposite directions, that is not a generic rates story; it is markets pricing one government’s fiscal credibility differently from another’s. For traders, that makes the spread itself, not the outright yield level, the cleanest signal of how far this repricing could run, and it gives EUR/CHF a specific technical path to watch for confirmation.
Currency Heat Map.
France Is Being Asked to Pay More for Fiscal Risk The immediate backdrop is France’s 2027 budget. Prime Minister Sebastien Lecornu’s government has presented a package targeting around EUR 54bn of savings, seeking to reduce the deficit from 5.4% of GDP in 2026 toward 5% next year. Measures include spending restraint and targeted tax changes, but the legislation now faces a difficult parliamentary process in a divided legislature and is likely to be amended substantially.
The bond-market mechanism is straightforward. When investors become less confident that a government can stabilise its deficit and debt trajectory, they demand a larger yield premium to hold that government’s debt. In France’s case, that premium is visible against Germany, whose Bund market serves as the Eurozone’s core benchmark.
That distinction matters because France and Germany share the same currency and the same ECB policy rate. A global rates shock can push both yields higher together. It does not easily explain French yields accelerating toward 5% while German yields fall. That is why the spread, rather than the outright OAT yield, is becoming the cleanest gauge of whether markets are escalating their concerns about France.
The French 10-year chart reinforces the severity of the move. Yield is well above the 4H 55 EMA near 4.616%, with RSI above 80 and MACD still positive. German yields, by contrast, have fallen back toward their 55 EMA near 3.535%, while RSI has slipped below 40 and momentum has rolled over. The technical picture is therefore telling the same story as the spread: French risk is accelerating while demand for German duration is returning.
Inflation Makes the Backdrop Harder, but Does Not Explain the Divergence Europe’s inflation backdrop is adding pressure, but it cannot by itself explain the France-Germany split. French national CPI accelerated from 2.4% to 3.0% y/y in September, while the comparable harmonised measure rose from 2.6% to 3.4%. Germany’s harmonised inflation also accelerated to 3.3%, with energy inflation reaching 14.9%. In France, energy inflation was even stronger at 21.2%.
That helps explain why European yields remain structurally elevated. Renewed energy pressure and the Middle East conflict have revived concerns about how quickly inflation can return sustainably toward target. But the common inflation shock actually makes the OAT-Bund divergence more informative: if inflation alone were driving Thursday’s bond move, French and German yields should be responding more similarly. Instead, Bunds rallied while OATs sold off.
Inflation is therefore an amplifier of France’s problem, not a complete explanation for it. The widening spread reflects the interaction of higher inflation risk, higher term premia and French fiscal uncertainty, a combination also highlighted by market strategists as the premium on French debt widened.
European Equities Add Context, but the Spread Carries the Cleaner Signal European equities sold off alongside the bond-market stress, with CAC 40, DAX and FTSE all under pressure. Yet the equity move is a noisier measure of French-specific risk. German and British shares are exposed to the same higher-energy, higher-yield environment even without France’s fiscal problem, which makes a broad European equity decline compatible with several different macro explanations.
Wall Street, meanwhile, managed to close modestly higher after the US 10-year Treasury yield retreated from its 5.34% intraday peak, with company-specific technology developments also providing support. The more useful hierarchy is therefore clear: OAT-Bund spread first. EUR/CHF second. Equities third. The first strips away much of the global-rates noise. The second shows whether FX traders are transmitting the same European risk discrimination into the Swiss franc.
140bp Is Now the Key Sovereign-Risk Test The spread itself is the most direct test of whether this develops into something more persistent. At around 140.6bp, investors are already demanding substantially more compensation to own French debt than German Bunds. Reuters had recorded the spread at 132.86bp on October 1, already its widest since the 2012 eurozone debt crisis. The subsequent move beyond 140bp therefore represents another meaningful extension.
From here, continued widening would strengthen the case that markets are making a structural adjustment to France’s risk premium, rather than simply reacting to a single difficult session. A stabilization around current levels would suggest investors are waiting for more clarity from the budget process. A meaningful reversal toward the 90–95bp area seen before the latest acceleration would weaken the argument that a durable repricing is underway.
That makes France’s parliamentary budget process the next hard domestic catalyst. The government has laid out the fiscal arithmetic; markets now need to judge how much of it can actually survive the legislative process.
ActionForex’s Technical View: EUR/CHF Is Starting to Transmit the Same Message FX is beginning to reflect the bond-market divergence. EUR/CHF has reversed sharply from 0.94850 to around 0.9340, falling back below its daily 55 EMA near 0.9371. Momentum has deteriorated with RSI below 40 and MACD rolling lower.
Franc strength has not been confined to Euro either—USD/CHF and GBP/CHF have also fallen, showing broader CHF demand. But EUR/CHF remains the more useful instrument for the French-risk thesis because it directly pits the common currency against Europe’s traditional low-risk funding currency.
Technically, however, the move remains at an early stage. The rise from 0.89790 to 0.94850 puts the 38.2% Fibonacci retracement at around 0.92917 and the 61.8% retracement at 0.91723. EUR/CHF has not yet reached the first level. That gives a useful hierarchy:
A hold above 0.92917, followed by a recovery, would keep the decline consistent with a relatively shallow correction within the broader advance from 0.89790. A sustained break below 0.92917 would strengthen the bearish case. A move toward 0.91723 would suggest a substantially deeper repricing and put the broader recovery from 0.89790 into question. But the bond spread must remain part of the confirmation. A EUR/CHF break below 0.92917 alongside another widening in OAT-Bund would provide a much cleaner signal that French fiscal risk is spreading through European assets. The same EUR/CHF break occurring while OAT-Bund stabilizes or narrows would be less convincing—it could instead reflect generic Euro weakness, broader CHF demand or positioning around US data.
NFP Can Blur the Signal Before France Gives the Next Answer Today’s US nonfarm payrolls release, with consensus around 90K, adds a major external complication. A large payroll surprise could dominate global rates, Dollar and risk sentiment, potentially obscuring the France-specific signal for several hours. That makes relative moves more useful than outright FX moves after the release.
The most informative configuration would be continued OAT-Bund widening accompanied by renewed EUR/CHF downside. That would suggest French risk is still driving the move even through the US data noise. If USD/CHF moves sharply after NFP while EUR/CHF remains relatively stable, the Dollar channel would be doing more of the work. If EUR/CHF continues falling while USD/CHF does not, the European risk signal becomes cleaner.
But NFP is ultimately an external interruption. France’s budget process remains the harder test. The market has already pushed the OAT-Bund spread beyond 140bp. EUR/CHF has begun to respond, but it has not yet broken its first major retracement level.
France and Germany still share a currency and a central bank. For now, their bond markets are increasingly pricing them as very different risks.
Key Takeaways The OAT-Bund spread has widened past 140.6bp, its widest since the 2012 eurozone debt crisis, as French yields rise and German yields fall simultaneously. The divergence points to a France-specific fiscal risk premium tied to Prime Minister Lecornu’s 2027 budget, not a generic eurozone rates move—inflation is running hot in both countries but cannot explain the split. EUR/CHF has reversed from 0.94850 to around 0.9340 but has not yet broken its first key retracement at 0.92917; a break there alongside continued spread-widening would be the cleanest confirmation signal. The recommended watch order is OAT-Bund spread first, EUR/CHF second, European equities third, since equities are a noisier read on French-specific risk. Today’s NFP release could temporarily obscure the France signal; watch whether EUR/CHF moves independently of USD/CHF to judge whether European risk, not the Dollar, is driving price action. Related Reading Sterling Broadens Gains as BoE Repricing Builds and GDP Confirms Resilience Dollar Index Completes Double Bottom, Targets 100.59 as Markets Look Beyond Fed’s 4.1% 2027 Median Gold Holds 4,113 Support, but 4,235 and 4,335 Still Block the Bull Case Stay ahead of Europe’s sovereign-risk divergence—subscribe to ActionForex’s daily market commentary for real-time technical and fundamental analysis.
ActionForex
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for two decades. We started providing only a daily and a mid-day report, now known as Action Insights. Gradually, we added a lot more in-house contents to the site. Technical Outlook section was expanded to cover more pairs. In addition to that, Top Movers, Heat Map, Pivot Point Charts and Pivot Meters, Action Bias and Volatility Charts, are tools used by traders from all over the world.
The Canadian dollar continues to face one of its most challenging environments in recent months when it comes to maintaining strength against the U.S. dollar. The weakness of the Canadian currency is clearly reflected in USD/CAD, which has now recorded nine consecutive bullish sessions and gained more than 1.7% during that period. This price action highlights that buying pressure remains firmly in control of the pair in the short term.
For now, the primary driver behind this move continues to be the strength of the U.S. bond market, which remains supportive of dollar demand. As long as this backdrop persists, and even if it proves resilient to tomorrow's U.S. employment data release, buying pressure around USD/CAD could remain an important feature of the market in the sessions ahead.
Can Anything Slow the Bond Market Rally?
As trading continues, a similar trend remains visible across both Canadian and U.S. bond markets. Ten-year government bond yields in both countries have moved higher in recent weeks, although the gap between them remains substantial.
While U.S. 10-year Treasury yields continue to trade near 5.2%, Canadian government bond yields remain close to the 4.0% area. This spread continues to provide a meaningful advantage for U.S. assets, particularly given that Treasury bonds are perceived as lower-risk investments while also offering higher returns. As a result, U.S. dollar-denominated assets continue to enjoy a stronger relative appeal among international investors.
Source: TradingEconomics
This dynamic has been a consistent theme for several weeks and helps explain part of the weakness observed in the Canadian dollar. Even so, it is worth noting that this trend could begin to shift depending on expectations surrounding the Federal Reserve, which is precisely why tomorrow's NFP release has become such an important event.
The employment report will provide a clearer picture of labor market conditions during September and could directly influence expectations for future U.S. monetary policy. Markets currently expect approximately 90,000 jobs to have been added, compared with 162,000 in the previous report. This anticipated slowdown is important because it could begin to reduce the scope for a more aggressive Federal Reserve.
In fact, if payroll growth comes in below expectations, it could further reduce the likelihood of additional rate hikes over the coming months. This cautious outlook is already beginning to appear in market pricing, where current probabilities suggest nearly a 70% chance that interest rates will remain unchanged at the October meeting. Nevertheless, those expectations remain highly sensitive to tomorrow's employment data.
Source: CMEGROUP
With all of this in mind, the NFP release stands out as one of the most important short-term events for USD/CAD. If the report confirms a slowdown in labor market conditions and reinforces the idea of a more patient Federal Reserve, some of the recent strength in U.S. Treasury yields could begin to moderate, potentially limiting further gains in the U.S. dollar. Under that scenario, a more balanced environment could begin to develop around USD/CAD.
That said, the opposite outcome remains equally important. If employment data once again points to a resilient U.S. economy, it could continue to support expectations of restrictive monetary policy for longer. In that case, both Treasury yields and the U.S. dollar could maintain part of their current strength, allowing the buying pressure that has characterized USD/CAD in recent weeks to remain a relevant theme.
USD/CAD Technical Forecast
Source: StoneX, Tradingview
The bullish trend remains dominant: USD/CAD price action continues to reflect a clearly dominant bullish bias. This dynamic has helped establish a short-term uptrend that continues to guide most of the pair's recent movements. However, it is also important to note that the market is approaching key resistance levels and that the recent advance has been relatively rapid, a situation that could begin to signal overstretched bullish momentum and leave room for temporary corrective pullbacks.
MACD: The MACD histogram continues to trade above the 0 neutral line, reflecting that the average strength of short-term moving averages remains supportive of a bullish outlook. As long as this behavior persists, buying pressure may continue to dominate the chart.
RSI: A similar picture can be observed in the RSI, which continues to develop above the 50 neutral level. However, the indicator has also moved beyond the 70 overbought threshold, a signal that is often associated with excessive recent buying momentum and could open the door to short-term corrective declines.
Key Levels:
1.42348 – Key Resistance: The last major barrier observed in recent months and a high not seen since July. A sustained move above this level would not only reinforce the dominance of the current bullish bias but could also confirm a more consistent higher-high structure on the daily chart. Such a scenario could pave the way for a broader and more meaningful uptrend in the weeks ahead.
1.41564 – Near-Term Barrier: A significant retracement level observed several weeks ago that now stands as the closest support reference to monitor. This area could become the primary level to watch in the event of short-term corrective pullbacks.
1.40526 – Critical Support: An important equilibrium zone observed during previous weeks that remains the most relevant downside barrier within the pair's recent price action. A move toward this level could begin to signal a loss of directional momentum, place the current uptrend under pressure, and open the door to a broader phase of indecision over the coming weeks.
Written by Julian Pineda, CFA, CMT – Market Analyst
EUR/USD klesá už třetí seanci v řadě, celkem asi o 0,6 %. Slabší údaje o Core PCE euro nepodpořily, protože dolar dál těží z vyšších výnosů amerických dluhopisů.
The euro continues to face a challenging environment in the short term. The currency has struggled to regain ground against a U.S. dollar that remains firmly supported, a dynamic reflected in EUR/USD, which has now recorded three consecutive losing sessions and a decline of roughly 0.6%. More importantly, selling pressure has persisted even after the latest U.S. inflation data was released, suggesting that the market continues to favor the dollar over the euro. As long as this backdrop remains in place, bearish pressure could continue to play an important role in EUR/USD price action over the coming sessions.
PCE Takes Center Stage
One of the most important events of the trading session was the release of the U.S. Core Personal Consumption Expenditures (Core PCE) report, one of the Federal Reserve's preferred inflation gauges and a key indicator of consumer price trends.
The monthly reading came in at 0.2%, below market expectations of 0.3%. At first glance, this provided some relief by suggesting a modest easing in short-term inflation pressures. However, the annual measure remains close to 3.0%, a level that has shown little change since June. While inflation is no longer accelerating significantly, it also remains well above the Federal Reserve's long-term target.
As a result, markets have slightly reduced expectations of a more aggressive Fed. According to CME Group probabilities, there is now roughly a 60% chance that interest rates will remain unchanged at 4.00% during the October 28 meeting.
Source: TradingEconomics
Even so, the positive impact on the euro has been limited because the U.S. bond market continues to show remarkable strength. Despite the moderation in rate expectations, 10-year Treasury yields continue to move higher and are now approaching the 5.3% area, levels not seen in decades. Meanwhile, European bond yields have also recovered recently, but they remain significantly lower, trading closer to 4.0%.
This yield differential continues to support the relative attractiveness of U.S. assets and helps explain why demand for the dollar remains strong despite the softer inflation release.
Source: TradingEconomics
Against this backdrop, the euro continues to face a difficult environment. Although the inflation data partially reduced expectations of a more aggressive Federal Reserve, the bond yield differential continues to favor the United States. As long as this situation remains unchanged, the euro may continue to struggle to attract consistent demand, leaving the current selling pressure around EUR/USD in place over the coming sessions.
Is the ECB Still Relevant?
It is also important to monitor developments surrounding the European Central Bank (ECB). Current market probabilities continue to reflect a relatively neutral stance from policymakers. Expectations for the October 28 meeting indicate roughly a 70% probability that the ECB's deposit rate will remain unchanged at 2.5%.
These expectations are largely driven by the fact that inflation pressures across Europe have not been strong enough to justify another aggressive tightening cycle. In addition, ECB officials have maintained a relatively cautious tone in recent weeks, reinforcing expectations of policy stability.
Source: ECBWATCH
This remains important because part of the dollar's recent strength continues to be supported by the interest-rate differential between the United States and Europe. Unless markets begin to see signs of a more hawkish ECB willing to narrow that gap, dollar-denominated assets may continue to retain a meaningful relative advantage. Under this scenario, the euro could remain under pressure, leaving EUR/USD vulnerable to further downside in the near term.
EUR/USD Technical Forecast
Source: StoneX, Tradingview
The broad trading range is entering a risk zone: For much of 2026, EUR/USD has traded within a wide consolidation range that has dominated price action and prevented the development of a sustained directional trend. However, recent weakness has placed the lower boundary of that structure under increasing pressure. If selling pressure continues to build, a bearish breakout could emerge and open the door to a more established downward trend.
MACD: The MACD histogram continues to trade below the 0 neutral line, indicating that short-term moving-average strength remains biased to the downside. As long as this behavior persists, selling pressure may continue to dominate.
RSI: A similar picture can be observed in the RSI, which remains below the 50 neutral level. This reading reinforces the relevance of bearish momentum within the market. However, the indicator is now also trading below the 30 oversold threshold, suggesting that recent selling pressure may have become excessive and could create room for short-term bullish corrections.
Key Levels:
1.15352 – Key Resistance: This level coincides with the 50-period simple moving average and represents the most important barrier for recovery attempts. Price action returning toward this area could reinforce the importance of the broad trading range that has dominated much of the year and restore a more neutral tone to the chart.
1.14130 – Near-Term Barrier: A key retracement area observed over recent weeks that could become the primary reference to monitor in the event of short-term bullish corrections.
1.12602 – Critical Support: A level not seen since May 2025 that represents the most important downside barrier below the current trading range. Sustained moves toward this area could confirm the end of the broader consolidation structure and open the door to a more established bearish trend.
Written by Julian Pineda, CFA, CMT – Market Analyst
Strong U.S. economic growth and higher Treasury yields have put the Federal Reserve in a more hawkish stance, widening interest rate differentials over European assets The EUR/USD's fall to 14-week lows mainly reflects economic fundamentals, even though daily momentum indicators now show oversold technical conditions. A quick reversal appears unlikely without softer U.S. data or clearer signals that the Fed will pause. Any rebound will likely be modest as long as the broader downtrend continues. The euro had a tough month, with EUR/USD falling for three straight weeks. The pair hit its lowest point since late July, near 1.1360, quite a drop from its August high over 1.1700. This left many wondering if the recent selling pressure went too far.
Market factors do seem to support the downtrend, but the speed of the fall deserves a closer look.
Why the Dollar Is Winning The dollar’s strengthening is a main driver here. Markets largely expect another Federal Reserve interest rate hike at its next policy meeting, with roughly a 70% chance or more. Strong US economic data and Treasury yields, consistently over 5% on longer-term maturities, support this outlook.
US producer prices climbed 5.4% year-on-year in August, adding to expectations for more Fed rate hikes. The European Central Bank’s quarter-point rate increase on September 10 then had little effect on the euro and the dollar’s strength simply overshadowed it.
After September’s rate hike, which pushed the federal funds rate to 3.75%-4.00%, expectations for further Federal Reserve monetary tightening solidified.
Europe faces its own economic headwinds. As a net energy importer, the region has been hit particularly hard by the Middle East conflict. For instance, Europe’s headline inflation rose to 3.3% in August, with energy prices climbing 14.3%.
Is this Justified or Overdone? The euro’s recent drop seems mostly due to widening interest rate differences between the US and the Eurozone, plus the dollar’s renewed strength.
Eurozone economic data hasn’t worsened enough by itself to explain such a big currency shift. Instead, markets are now focused on strong US economic growth, higher Treasury yields, and ongoing geopolitical worries.
But some indicators suggest the recent sell-off might have gone too far. Technically, EUR/USD shows a daily Relative Strength Index (RSI) nearing 25.85 on its current daily chart.
This oversold level suggests the decline might be hitting its short-term bottom. Current market behavior seems to worsen the euro’s existing economic disadvantages instead of creating new ones.
Could We See A Near-Term Reversal? Upcoming economic data, like US inflation reports, Eurozone price index readings, and more comments from central bank officials, will be key to figuring out whether the dollar keeps climbing. A string of weaker US economic data or clearer signals from the Federal Reserve about potentially pausing rate hikes could spark a recovery rally for the euro.
For the current EUR/USD trend to truly reverse, it’ll likely need more than just good Eurozone economic numbers or careful statements from the ECB. Without those clear catalysts, a lasting upward move in the next few trading sessions isn’t very likely.
Why has EUR/USD fallen for three consecutive weeks?
The US dollar has gotten stronger. This is due to expectations of Federal Reserve tightening, higher Treasury yields, and geopolitical energy risks. These factors simply overshadowed developments in the eurozone.
Are eurozone fundamentals the main cause of the drop?
Not really. The decline mostly shows investors shifting funds into US assets, rather than a sudden, sharp downturn in eurozone economic data.
Is the current EUR/USD decline justified?
Yes, the move makes sense. Different interest rates and the dollar’s overall appeal support this decline. The quick sell-off, however, certainly amplified the reaction.
GBP/USD: Can Stronger UK Growth Offset the Dollar’s Advantage?
GBP/USD is rising modestly on Wednesday but remains close to its three-month low, having fallen more than 2% across September.
Today’s move higher comes after stronger-than-expected UK GDP data, as U.S. dollar bulls pause for breath.
Data from the Office for National Statistics showed that UK Q2 GDP was upgraded to 0.5% in the three months to June, better than the 0.4% growth seen in the first estimate. This follows growth of 0.6% in Q1.
The data confirms that the UK was the fastest-growing G7 economy in the first half of the year, as consumers continued to spend even as the Middle East conflict lifted oil prices and added to inflationary pressures.
The numbers come as a boost for the Labour Party as it holds its annual conference in Liverpool.
Despite solid GDP growth in Q1 and Q2, the outlook for the second half of the year is darkening, with pressures expected to build on businesses and households. Growth is expected to slow to 0.2% in Q3 and Q4 amid a fresh spike in living costs.
U.S. Yields and Fed Expectations Keep the Dollar in Focus
Meanwhile, the U.S. dollar is pulling back from the two-month high reached yesterday as Treasury yields retreat.
U.S. Treasury yields have pulled back from multi-year highs as oil prices fall to a three-week low, following dovish remarks from New York Fed President John Williams, who warned that the central bank did not need to rush its next move.
U.S. data was also weaker than expected, with Conference Board consumer confidence falling to its lowest level since May 2014, while job openings declined more than expected to 7.09 million.
October Fed rate hike expectations have pulled back from 70% to 40%. However, traders are still pricing in more than a 90% probability that the Fed will raise borrowing costs by the end of the year, which could limit any pullback in the U.S. dollar.
U.S. Inflation and Payrolls Could Decide the Next Move
Attention will now turn to U.S. core PCE, the Fed’s preferred gauge of inflation, which is expected to rise 0.3% month-on-month, up from 0.2%.
The data will be accompanied by final U.S. Q2 GDP data, along with more speeches from Federal Reserve officials. U.S. non-farm payrolls will be released on Friday.
Strong data and hawkish Fed officials could see October rate hike expectations rebound, lifting the U.S. dollar and pulling GBP/USD lower.
The key question for GBP/USD is whether stronger UK growth can offset the widening U.S.-UK yield and policy differential.
If U.S. inflation remains sticky and payrolls are stronger than expected, markets could price out the recent pullback in October rate hike expectations. Higher Treasury yields would then support the dollar and put renewed pressure on GBP/USD.
Conversely, weaker U.S. data combined with continued oil price declines could ease inflation concerns and reduce expectations of further Fed tightening. Lower Treasury yields would weaken the dollar and give GBP/USD more room to recover.
GBP/USD forecast - technical analysis
GBP/USD has broken below its rising channel as well as its 50- and 200-day EMAs before finding support around 1.3200. The pair has since recovered slightly and is consolidating around 1.3250, while the RSI has moved out of oversold territory.
The 50 EMA is also close to crossing below the 200 EMA, which would form a bearish death cross.
Sellers will look to break below the 1.3200 support zone to extend the decline towards 1.3100, followed by the psychological 1.3000 level.
On the upside, initial resistance is seen at 1.3275, this week’s high. A break above this level would expose 1.3350, the July 27 swing low, followed by horizontal resistance around 1.3500.
A sustained move above the 50- and 200-day EMAs would put buyers on a firmer footing and bring 1.3500 into focus.
Oil: Supply Recovery Challenges the Geopolitical Premium
Oil prices are drifting modestly higher as President Trump denies that he would be willing to ease sanctions on Iran. Still, gains are muted amid optimism surrounding a recovery in crude supply from the Middle East, which helped pull prices to a three-week low in the previous session.
While Brent is trading above $90 a barrel, the December contract is around $96. Meanwhile, WTI is hovering around $89.
Brent is on track to gain 14% in September, its largest monthly increase since July, while WTI is on track for a more modest 4% rise.
The spread between the two benchmarks is at its widest in four months as markets weigh plans in the U.S. to restrict diesel exports, which could create an oversupply in the U.S. market and lead refiners to produce less crude.
Meanwhile, the picture in the Middle East remains uncertain as Qatar continues its shuttle diplomacy between Tehran and Washington, hoping for a breakthrough.
Although Trump has said he is unwilling to give Iran sanctions relief unless there are concrete steps from Tehran on its nuclear programme, limiting the chances of a diplomatic solution, the impact on oil prices may be limited if crude supply continues to flow.
Crude exports from Middle Eastern producers rebounded in September to 16.32 million barrels per day, the highest since the Iran war began in February. Regional exports are now just 11% below pre-war levels.
That is a remarkable recovery for a region still in conflict. With oil flowing, concerns over supply have eased, putting pressure on prices.
Oil forecast technical analysis
Oil trades in an ascending channel dating back to early July. The price recently ran into resistance at $106.75 before rebounding lower and is currently testing the lower band of the rising channel and the 50 EMA around $89. The RSI is below 50.
Should sellers break below the $89 support zone and the 38.2% Fibonacci retracement of the $55 low to $120 high, sellers could gain traction towards the 200 EMA at $82.50 and the 61.8% Fibonacci retracement at $80. Below here, attention will turn towards $75, the August low.
Should the $89 level hold, buyers will need to rise above $95. The 38.2% Fibonacci retracement above here would bring $100, the psychological level, into focus, followed by $105, the 23.6% Fibonacci retracement.
GBP/AUD zůstává podporovaný, protože australská inflace nevzbudila nová očekávání brzkého zvýšení sazeb RBA. Britskou libru navíc podpořil silnější růst HDP ve 2. čtvrtletí.
The Pound-Australian Dollar could remain supported after Australian inflation failed to materially revive near-term RBA hike expectations, while stronger UK GDP offered Pound Sterling some support. The Pound to Australian Dollar (GBP/AUD) exchange rate remained supported on Wednesday after the latest Australian inflation data failed to trigger a sustained recovery in the 'Aussie'.
GBP/AUD had already advanced after Tuesday's Reserve Bank of Australia decision, when the central bank raised interest rates by 25 basis points to 4.60% but struck a less hawkish tone than markets had expected.
DAILY RECAP:
The Australian Dollar (AUD) struggled for traction on Wednesday despite headline inflation accelerating sharply.
Australian consumer prices increased by 0.4% in August, while annual inflation rose from 3.5% to 4.0%.
However, underlying price pressures were less concerning.
Trimmed-mean inflation held at 3.6%, while the monthly underlying increase came in slightly below market expectations.
This prompted investors to reduce expectations for another RBA rate increase in November, with markets pricing only a partial chance of further tightening before the end of the year.
The data followed Tuesday's RBA decision, when policymakers raised rates to 4.60%, their highest level in 15 years.
RBA Governor Michele Bullock said the Board had also considered leaving rates unchanged and suggested that the four hikes delivered this year may already be exerting sufficient restraint on inflation.
This relatively cautious guidance left the Australian Dollar vulnerable to profit-taking and reduced expectations that the RBA will need to tighten policy aggressively again in the near term.
The Pound (GBP), meanwhile, received some support from stronger-than-expected UK growth data.
Final figures showed that the UK economy expanded by 0.5% during the second quarter, revised higher from the previous estimate of 0.4%.
Real household disposable income per head increased by 1.0%, while business investment was also revised sharply higher.
The figures reinforced evidence that the UK economy performed relatively strongly during the first half of 2026.
Prime Minister Andy Burnham's Labour conference speech also attracted attention after he signalled that the government would explore a closer future relationship with the European Union.
Near-Term GBP/AUD Forecast: RBA Hike Bets Remain Key Looking ahead, GBP/AUD could remain supported if investors continue to scale back expectations for another near-term RBA rate increase.
Headline Australian inflation remains uncomfortably high, but the stability in underlying inflation suggests that Tuesday's rate hike may be given time to work through the economy before policymakers act again.
A renewed increase in energy prices or another strong inflation release would still revive the case for further RBA tightening and could provide the Australian Dollar with support.
For the Pound, the stronger final UK GDP figures should provide some protection, although wider market movements and expectations surrounding the October Budget are likely to remain important drivers.
If RBA tightening expectations continue to fade while UK growth sentiment remains resilient, GBP/AUD could retain an upward bias in the near term.
Headline and trimmed mean inflation modestly undershoot expectations
November RBA hike probability slumps from 44% to 20%
AUD/USD tests 0.6964 as downside momentum remains dominant
ASX 200 breaks higher as hawkish rate pricing unwinds
Australia’s August inflation report has undershot expectations, adding to the unwind in hawkish RBA pricing that began after Governor Michele Bullock’s press conference following the bank’s interest rate decision on Tuesday.
ASX 200 and Australian three-year bond futures have broken higher, while AUD/USD has resumed its unwind to test a key support zone.
Inflation miss adds to RBA pricing unwind
On the August inflation figures themselves, there was a modest undershoot in both headline and trimmed mean inflation, the latter important given it is the RBA’s preferred measure of underlying price pressures.
Headline CPI rose 0.4% for the month and 4.0% over the year compared with expectations for 0.5% and 4.1% respectively.
Trimmed mean rose 0.2% against 0.3% expected, while the annual rate came in at 3.6%, unchanged from July and in line with expectations.
Source: ABS
Looking at the unrounded index, though, the monthly trimmed mean increase was a relatively high 0.24%, while the annual rate was 3.57%. So while there was a modest undershoot, it was still basically in line with both the prior month and what markets had been looking for.
While the year-on-year rate appears to be rolling over, fitting with the view expressed by Bullock yesterday that policy settings are now restrictive, the nearer-term inflation pulse still leaves plenty of room for caution. Trimmed mean inflation is running at a 4.12% annualised pace over three months and 3.94% over six months, keeping the prospect of additional rate hikes firmly on the table.
However, the market is showing a clear inclination to jump on even the smallest dovish signal after what had been a very significant hawkish move in RBA pricing, and that's exactly what we've seen following the inflation report.
The implied probability for a 25 basis point hike at the RBA’s next meeting on November 3 now sits at just 20%, down from 44% last week.
Source: TradingView
Domestic inflation detail looks softer
Looking at the underlying detail in the August report, there was a clear trend within the data, with tradable inflation, which largely reflects global rather than domestic factors, rising 1.3% to be 2.9% higher than a year earlier.
In contrast, domestically derived categories were soft. Non-tradables were flat on the month, although still up 4.5% on a year earlier. Goods, largely reflecting higher energy prices, surged 1% to be 4.2% higher, but services, which often have linkages to wage pressures, and discretionary categories both declined 0.2%.
Source: ABS
While one month is not enough to create a trend, it fits with the view that high inflation, tighter monetary policy and recent declines in house prices across the country may be combining to curtail consumer demand.
That was also evident in a separate report released on Tuesday ahead of the RBA decision, which showed household spending was flat in August.
Rates unwind drives bullish breakout in threes
Source: TradingView
With front-end RBA hawkish pricing unwinding rapidly, Australian three-year government bond futures have staged a bullish breakout, successfully pushing above resistance at 95.035 that had capped bounces earlier this month.
With RSI (14) shifting back into neutral territory and MACD staging a bullish crossover while remaining in negative territory, evidence is accumulating that we may have seen the lows for threes, at least in the near term.
If that is the case, 95.16, which was a breakdown level earlier this month, and 95.26 are the immediate overhead levels to watch.
If we were to see a reversal of the move, which at this stage appears unlikely, 94.875 is where the price bounced on two separate occasions earlier this month.
AUD/USD sinks to its lowest since July
Source: TradingView
The move in front-end rates has seen the modest corrective bounce in AUD/USD overnight reverse and then some, sending the pair to its lowest level since late July on the back of the inflation data.
The price is now testing a key support zone comprising horizontal support at 0.6964 and the 23.6% Fib retracement of the April 2025 to June 2026 bull move.
On the topside, 0.7004 is the immediate focal point from where the pair now trades. Unless the price can reclaim that level, the bias remains towards further downside.
A sustained break beneath the Fib level would point to the potential for an unwind back towards support at 0.6920. Below that, there’s not a lot to speak of until 0.6865, the swing low set in June this year.
The message from the oscillators continues to favour selling into strength and downside breaks, with RSI (14) struggling to recover from oversold territory, while MACD remains deeply negative after crossing the signal line from above.
AUD/USD just looks heavy on the charts.
ASX 200 loves the rates unwind
Source: TradingView
While the Aussie dollar is struggling with the unwind in hawkish pricing, Australia’s ASX 200 is loving it, breaking to its highest level in more than a week after clearing downtrend resistance drawn from the highs set in August.
With the breakout now in place and the oscillators indicating that upside strength is rebuilding on the four-hourly timeframe, buying dips and bullish breaks is favoured in the near term.
8710 had been the top of the prevailing sideways range the index was trading in prior to the RBA, so it looms as a level of interest underneath where the index now trades, along with 8750, where the price stalled in overnight trade.
Overhead, 8810 has acted as resistance on multiple occasions this month, with 8840 and 8890 the other nearby levels of note.
EUR/USD sklouzl do klíčové supportní zóny a obchoduje se nad červnovým minimem 1,1325. Lloyds varuje, že průraz této úrovně by mohl otevřít cestu k dalšímu poklesu.
The Euro-Dollar has slipped into Lloyds' critical support zone, putting the June low in focus as Goldman forecasts further losses over six months. The Euro to Dollar (EUR/USD) exchange rate has reached the support zone Lloyds says could determine whether the decline becomes a broader reversal of the 2025-26 rally.
EUR/USD traded around 1.1334 on Tuesday afternoon, down 0.34% from Monday's close after touching 1.1329 intraday.
That leaves the pair below Lloyds' initial 1.1340-1.1354 support band but still above June's 1.1325 low.
The bank's warning is conditional:
"If we see a failure of 1.1325-54 it would suggest a broader reversal of the 2025-26 rally is underway, leaving 1.1214 exposed, but creating potential for a decline sub-1.1000."
Lloyds also identifies intervening support at 1.1276.
A move below 1.10 is therefore a technical risk following a breakdown, with no deadline attached.
Image: EUR/USD intraday chart Goldman Sachs supplies a more moderate, dated forecast path of 1.14 in three months and 1.12 at both six and twelve months.
Its six-month projection implies roughly 1.2% downside from Tuesday's level, although the three-month call allows a modest rebound first.
In its broader Dollar assessment, Goldman identifies the conditions that could strengthen the US currency further:
"On the other hand, we see risks to the upside from more pronounced inflation pressures or a more prolonged capital expenditure cycle that would require stronger policy steps to tighten financial conditions."
The latest decline also brings EUR/USD close to the 1.1320-1.1330 area highlighted by ING and JPMorgan last week.
ING's assessment linked downside risks to higher oil prices and stronger US data.
A recovery would need to clear Lloyds' 1.1411 resistance before challenging its more demanding reversal threshold:
"To really turn that tide we would need a recovery back through 1.1455/69, a tall order here."
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.
UBS has trimmed its near-term Mexican Peso recovery expectations, although it still sees interest rates supporting the MXN.
Foreign exchange analysts at UBS have raised year-end US Dollar to Mexican Peso (USD/MXN) exchange rate forecasts to 17.50 from 17.20, scaling back the recovery they expect from the Mexican currency.
Its March 2027 projection also rises to 17.40 from 17.20, while June and September remain unchanged at 17.20.
The revision follows a difficult week for the Peso: Federal Reserve exchange-rate data show USD/MXN rising from 17.2252 on 21 September to 17.6932 on 25 September.
UBS's new December target still sits below that Friday reference rate, implying some recovery in the Peso rather than further depreciation.
Higher global yields have reduced Mexico's interest-rate advantage, but UBS retains its case for carry, the income available from holding a higher-yielding currency.
"Despite the narrower US-Mexico rate differential, the global backdrop remains supportive for carry strategies given still benign financial conditions."
The bank expects Mexican policymakers to resist following the Federal Reserve mechanically:
"We expect Banxico to hold rates at 6.50% through 2026, prioritizing domestic conditions over its policy stance relative to the Fed."
Banxico held rates in September but removed guidance favouring an extended pause.
Goldman Sachs envisages a stronger near-term Peso recovery, forecasting USD/MXN at 16.75 in three months and 17.00 in six months.
Its twelve-month target of 17.25 is slightly above UBS's September 2027 forecast of 17.20, leaving little disagreement at that horizon.
UBS identifies US growth and trade relations as potential threats to the Peso's interest-rate appeal:
"A significant slowdown in the US economy would pressure the peso, as would USMCA trade disputes. Conversely, healthy risk sentiment and a search for carry could boost the peso, as would positive signals to investors from the US president."
Carry can cushion returns, but a large fall in the Peso can outweigh that income.
Exchange Rates UK Research
Our currency coverage draws on live market data, official economic releases and published bank research.
The AUD/USD was unable to benefit from the Reserve Bank of Australia’s 25-basis-point rate hike overnight. The RBA lifted the cash rate to 4.60%, in line with expectations. However, the Australian dollar weakened following the decision, with much of the Bank’s hawkish stance seemingly priced in ahead of the announcement. The US dollar has also remained largely supported following the recent turmoil in the bond markets. The near-term AUD/USD outlook is subject to more volatility with Aussie CPI, US core PCE and jobs data all due for release in the coming days.
Before discussing the macro outlook further, let’s quickly turn our attention to the chart of the AUD/USD which is looking quite interesting….
Technical AUD/USD forecast: 200-day average, bullish trend and key all level break
Source: TradingView.com
The question now is where the Aussie dollar will close today's session. A break below 0.7000 on a closing basis would be considered a bearish development because that would confirm the break below the 200-day moving average, the bullish trend line, and that psychological level.
In that case, we could then see some follow-up technical selling towards the 0.6900 handle in the days ahead, with the potential for the sell-off to accelerate towards the 0.6800 level, where the previous breakout took place back in January.
So, there is some downside risk now to the AUD/USD outlook, following what was a strong bullish trend previously. That was until the US dollar fought back against all major currencies.
As things stand, the near-term path of least resistance is to the downside. For me to turn tactically bullish again on this currency pair, I'd like to see some technical developments, namely, a quick recovery and a climb back above the 200-day moving average to form a hammer-like candle. That doesn’t have to happen today. And ideally, also, a break above the most recent highs of around 0.7045 would be a clear sign of the bears getting trapped.
If we see that, then at that point, things will start to look bullish once again from a technical analysis point of view. In which case, we could then see some follow-up technical buying towards the resistance around 0.7100, with 0.7120 being the next level of resistance.
So, the burden of proof is with the bulls now to show up and create bullish-looking price action around current areas. If you don't see that, then the risk is tilted to the downside towards the 0.6900 handle.
RBA’s hawkish hike was priced in
The RBA’s decision was unanimous, reinforcing its determination to bring inflation sustainably back to target. Its accompanying statement retained a hawkish tone, with the Board reiterating that it would do whatever it considers necessary to contain inflation. Governor Michele Bullock echoed that message, pointing to tight labour market conditions, resilient demand and persistent inflationary pressures as reasons to maintain a restrictive policy stance.
Bullock also highlighted renewed tensions in the Middle East as an additional source of inflation uncertainty, while cautioning that the full effects of previous rate increases could take up to 12 months to filter through the economy. The Governor pushed back against suggestions that Australia is facing stagflation, arguing that inflation of around 3.5% and unemployment at 4.6% do not fit that description.
Despite the hawkish messaging, the Aussie came under pressure, suggesting investors had already priced in the prospect of further monetary tightening. Attention now turns to the latest Australian inflation figures, due tomorrow, which could influence expectations for the RBA’s next move.
The Bank’s latest stance leaves the door open to another rate increase, with a further 25bp hike in the fourth quarter remaining a possibility. However, a sustained decline in oil prices could ease inflationary pressures and allow policymakers to remain on hold.
Attention to turn to US data
For AUD/USD, the immediate focus will be on the Aussie CPI. But then, the focus will be on US data including the Fed’s favourite inflation measure – the core PCE Price index – on Wednesday, followed by non-farm payrolls report on Friday.
Any strength in any of these US macro numbers should keep the US dollar’s bullish trend alive heading into CPI release next week. For now, the greenback remains the key driver in the AUD/USD, with further direction likely to depend on incoming inflation data, interest-rate expectations and broader market sentiment.
GBP/INR se v pondělí vrátil nad 127, když libra posílila kvůli sázkám na další zvýšení sazeb Bank of England. Rupie oslabila, protože Brent vzrostl nad 107 USD za barel.
GBP/INR climbed above 127 on Monday, September 28, with one British pound worth around ₹127.19 during the session. The British pound strengthened as markets increased bets on a Bank of England rate hike, while the Indian rupee weakened as Brent crude rose above $107 per barrel. GBP/INR now faces competing central-bank expectations, with markets pricing tighter policy from both the Bank of England and Reserve Bank of India as inflation risks rise. The GBP/INR exchange rate moved back above ₹127 on Monday, September 28, as renewed strength in the British pound combined with fresh pressure on the Indian rupee. GBP/INR traded around ₹127.19 during Monday’s session, rising from an early low near ₹126.70 and reaching approximately ₹127.40 before giving back some of its gains.
The move comes as both currencies respond to the latest surge in global oil prices, but for very different reasons. In Britain, expensive energy is increasing expectations that the Bank of England may need to raise interest rates again. For India, higher crude prices are weighing on the rupee because of the country’s heavy dependence on imported energy.
Why Is GBP/INR Rising Today? The latest GBP to INR move reflects strength in sterling alongside renewed weakness in the Indian rupee. Reuters reported Monday that the pound rebounded from multi-month lows against both the US dollar and euro as investors increased bets on tighter monetary policy from the Bank of England.
Governor Andrew Bailey and Deputy Governor Dave Ramsden have highlighted growing inflation risks associated with high energy prices. Markets are now pricing around an 85% probability of a Bank of England rate hike in November.
That shift has provided support for sterling after a difficult September. The pound is still heading for a roughly 2% monthly decline against the US dollar, showing how dramatically higher oil prices and changing global rate expectations have reshaped currency markets this month.
Indian Rupee Falls as Brent Crude Climbs Above $107 The other side of the GBP/INR exchange rate is an increasingly vulnerable Indian rupee. The rupee weakened to 95.9825 per US dollar on Monday, its lowest level in more than a week. Reuters reported that intervention from state-run banks, most likely acting for the Reserve Bank of India, helped prevent a larger decline.
Oil is central to the rupee’s weakness.
Brent crude jumped about 2.5% above $107 per barrel after US President Donald Trump rejected an Iranian proposal aimed at resolving the conflict and reopening the Strait of Hormuz. India imports nearly 90% of its crude requirements, leaving the economy particularly exposed to sustained increases in global energy prices.
Higher crude prices can increase India’s import bill, worsen inflation pressures and increase demand for US dollars from importers. All three factors can weigh on the rupee.
RBI Intervention Keeps INR Near 96 Against the Dollar The Indian rupee outlook could have been weaker without support from the Reserve Bank of India. Reuters reported that traders saw signs of RBI intervention again on Monday as USD/INR approached the important 96 level. Bank of America analysts said they believe the RBI is prepared to use additional foreign-exchange reserves to limit rupee weakness beyond 96 per dollar.
India’s foreign-exchange reserves fell by around $15 billion in the week ending September 18, with intervention to support the rupee likely contributing to the decline. The RBI is also dealing with the inflationary consequences of high oil prices and excess domestic liquidity. Expectations for an RBI rate hike in October have consequently increased, potentially providing some support for INR if those expectations strengthen further.
GBP/INR Forecast: Can the Pound Rise Above ₹128? The near-term GBP/INR forecast is increasingly tied to the monetary-policy outlook in both countries. GBP/INR has recovered above ₹127, but the pair remains below levels seen earlier in September. Reference-rate data show the pair has traded between roughly ₹126.95 and ₹129.57 over the past 30 days.
For GBP/INR, ₹127.50 is the first area to watch if sterling extends Monday’s recovery. Beyond that, ₹128 could return to focus. On the downside, a move back below ₹127 would put the ₹126.50-₹126.70 region in focus.
The larger question is which central bank turns more hawkish. Further increases in UK rate-hike expectations could support the pound, while stronger RBI intervention or growing expectations of an Indian rate increase could limit GBP/INR gains.
Oil prices will remain important for both sides of the pair.
Is GBP to INR going to increase?
GBP/INR has risen back above ₹127, but its next move is likely to depend on Bank of England and RBI interest-rate expectations, oil prices and the performance of the US dollar. Sterling could receive support if expectations for a November BoE rate hike continue to strengthen.
Why is the Indian rupee falling?
The Indian rupee is under pressure primarily from high crude oil prices, a strong US dollar and elevated global bond yields. India imports nearly 90% of its crude requirements, making sustained oil-price increases particularly important for INR.
How many Indian rupees is one British pound?
On September 28, £1 was worth approximately ₹127.19 during the session. Exchange rates change continuously, and bank or money-transfer rates may differ from market rates.
AUD/USD je tento týden sledovaný měnový pár, protože trh čeká v úterý zvýšení úrokových sazeb RBA o 25 bazických bodů na 4,60 %. Další růst by mohl podpořit australský dolar.
The week has started with stocks, gold, silver and bitcoin all falling, as crude oil rebounded and bond yields pushed further higher. Trump refusing to agree to Tehran’s proposal to re-open the Strait of Hormuz has left the markets disappointed. Still, reports that mediators are expected to hold talks with the two sides on an amended version of the 7-day proposal that Iran presented, keeps hopes alive that we may see some progress. Meanwhile, the focus will also turn to data. Upside surprises in jobs data could take cement another rate hike expectations for the October FOMC meeting. But after the sharp dollar rally, I am expecting to see some stabilisation in major FX pairs in the coming days. Among the pairs to watch is the AUD/USD this week as it trades around the 200-day average. If we see an expected hawkish hike by the RBA on Tuesday, this should keep the longer term bullish AUD/USD forecast intact.
US dollar could stabilise after sharp rally
At the start of the week, the focus was again on oil prices after the weekend news. But as the week progresses, economic data could take centre stage as the main driver of the dollar. After a steady run of hawkish Fedspeak, markets need fresh evidence of economic resilience to reinforce expectations of a rate hike on 28 October.
Arguably, it will be the August CPI report on 14 October that will be the main event, but Friday’s September jobs report could also prove pivotal in shaping expectations for the Fed’s next move. The market expects payrolls to rise by 90,000, although there is a risk that August’s surprisingly strong 162,000 increase will be revised lower. This week’s other labour market indicators include ADP and JOLTS. Meanwhile, the Fed’s favourite inflation measure will also be release this week. The August PCE inflation, due on Wednesday, is indeed an important release, although its impact on rate expectations is likely to be more limited than that of the jobs figures, or CPI the following week.
Unless payrolls deliver another substantial upside surprise, however, the dollar may struggle to sustain its recent momentum. Oil prices may not be ready for a meaningful retreat, but any fresh reports that Washington and Tehran are working towards a deal over the Strait of Hormuz could limit the risk of another leg higher in energy prices. That, in turn, could potentially help stabilise bond markets and improve risk sentiment, removing some of the dollar’s recent support.
With much of the recent pricing around Fed tightening arguably reflected in the major pairs, there is a good chance we could see currencies that are already showing some relative strength like the AUD to outperform this week.
AUD/USD forecast: RBA set to deliver a hawkish hike
The AUD/USD is the currency pair of the week because not only do we have the above mentioned macro releases to look forward to from the US, but we also have the Reserve Bank of Australia rate decision. The RBA announces its latest policy decision in the early hours of Tuesday, with a 25bp rate hike to 4.60% widely expected. Markets have fully priced in the move, and consensus is unanimous, leaving the Australian dollar’s reaction largely dependent on how much further tightening Governor Michele Bullock signals may be required.
I suspected her to keep the door open to additional hikes. Inflationary pressures remain persistent, labour market remains tight and economic growth has proven to be more resilient than anticipated in Australia.
Against this backdrop, the RBA is unlikely to signal that its tightening cycle is over. Therefore, any strong indication that further rate increases remain on the table should help sustain market expectations for higher rates and provide continued support to the Australian dollar.
Technical AUD/USD forecast: 200-day average being tested
Due to the above macro reasoning, I suspect the AUD/USD may be able to hold its ground around the 200-day average where it was also testing prior support and resistance between the 0.7000 to 0.7025 area.
Source: TradingView.com
If we see a bullish reversal formation here, then expect to see some recovery towards the next resistance levels at 0.7090ish, followed by 0.7120ish. Above that, the extent of further gains will depend on the RBA’s willingness to tighten policy further and the broader direction of the US dollar.
If the selling continues, however, then 0.6950 and then 0.6900 could be the next stops for the AUD/USD.
AUD/USD enters a packed week after falling for a third consecutive week, with an expected RBA hike and Australian CPI likely to drive the early moves. Attention then turns to US PCE inflation, ISM manufacturing and nonfarm payrolls as traders reassess the Fed rate outlook.
View related analysis:
AUD/USD Q4 Outlook: RBA and Fed Hikes Set the Tone
AUD/USD Crushed Ahead of Jobs Report as US Dollar, Yields Surge
Yen Bulls Bruised by BOJ, But Intervention Could Prove Them Right
USD/JPY and USD/CHF Could Diverge as CHF/JPY Approaches Resistance
How to Read the COT Report to Track Forex Market Sentiment
AUD/USD Faces RBA and CPI Before US Data Takes Centre Stage
The Trump-Xi summit had little to no impact on currency traders, though we did at least see a two-month extension of the US-China trade truce. But with no obvious breakthrough on Iran or Taiwan, it was a meeting focused more on stability than achievement.
While RBA commentary last week clearly leaned hawkish, making tomorrow’s RBA call a clear hike, the employment report complicated the picture somewhat. The 39.5k jobs growth was all fuelled by part-time work and hid the reduction of 6.3k full-time jobs, and the 4.6% headline unemployment could really have ben rounded up top 4.7% given it landed at 4.65%.
For the US, Fed officials leaned hawkish and September’s flash PMI shows business activity rose to a 5-year high. The US dollar index reached a two-month high, sending AUD/USD to just shy of 70c and down for a third week.
Australia This Week: Economic Data and Events for AUD/USD Traders
RBA Meeting and CPI Put the Australian Dollar in Focus
This is the busiest calendar I have seen in a while, with a good mix of key data between the US and Australia, with an RBA meeting thrown in for added fun. I believe it has been well established that the RBA is expected to hike by 25bp, so traders will look for policy clues in the statement and press conference.
I expect the RBA will retain the threat of further hikes without committing. Unemployment has crept up to 4.65% - which could easily be rounded up to 4.7%. And with CPI data due on Wednesday, time is on their side so they may not feel so obligated to signal that fifth hike of the cycle, though the mere threat of a hike still allows them to manage inflation expectations.
Household spending is the warm-up act for Tuesday’s RBA meeting. But a hot spending report coupled with higher inflation figures could rekindle expectations of another hike.
This content was created by an affiliate of FOREX.com and represents the views and opinions of the author/speakers, not the views and opinions of FOREX.com, StoneX Group Inc., or its subsidiaries. The content has not been independently reviewed by FOREX.com.
US Data and Fed Speakers Shape Rate Expectations
As for US data, PCE inflation, nonfarm payrolls and ISM manufacturing are at the top of the list – though we also have ADP employment, JOLTS job openings and Challenger job cuts. There are also plenty of Fed speakers this week, and while only two of them are current FOMC voters, their collective opinions can sway market pricing. That places Williams and Kashkari at the top of the list, although incoming data will ultimately have greater influence over expectations for next year and whether the Fed’s next hike comes in November or December.
Source: BLS, ADP, LSEG
AUD/USD Technical Analysis: Australian Dollar vs US Dollar
AUD/USD Correlations
The US dollar remains the dominant driver: AUD/USD has a -0.95 correlation with DXY over both 10 and 20 days, so further dollar strength remains the clearest external headwind for the Aussie.
China-sensitive markets are still providing useful confirmation: AUD/USD’s 10-day correlation is +0.97 with CNH/USD, +0.93 with iron ore and +0.83 with the CSI 300. A stronger yuan/China complex would therefore support any AUD/USD rebound.
Broad commodities are strongly aligned with AUD/USD: CRB, gold and iron ore all show strong positive 10-day correlations. But copper and WTI have broken away sharply over five days, so they are currently less reliable signals.
Equity signals are mixed: the ASX and CSI 300 remain positively correlated with AUD/USD, while the S&P 500 relationship is weak-to-negative. For now, DXY and China-related markets look more useful than generic “risk-on/risk-off” signals.
Source: LSEG
AUD/USD Futures Positioning | COT Report
Price action is finally reflecting what futures positioning has been showing for several months – a bearish outlook for AUD/USD. It seems Aussie bears were right to hold on with conviction overall, despite its 10-week rally before momentum turned. Gross-shorts remained near their record levels among large speculators and asset managers, though the standout stat is seeing total open interest plunge at its fastest week on record. This measures all futures activity – not just speculative – suggesting there has been a strong capitulation amid the increasingly bearish selloff.
Source: CFTC (COT) CME, LSEG
For traders wanting a deeper understanding of futures positioning, I’ve also published a guide on how to read and interpret weekly COT data in forex markets.
AUD/USD Options, Yield Spreads and US Dollar Strength
We really need to begin the analysis for the Australian dollar via the US dollar, given its apparent strength. While prices pulled back on Friday, it does little to undermine the rally that took DXY above 100 with little resistance. And with 1-week implied volatility for AUD/USD above the 1-month for a third week and the spread rising, it suggests options traders are anticipating more turbulence.
AUD/USD fell for a third week as bearish momentum increased. Risk reversals show that options traders continued to increase their demand for puts relative to calls, with the 10-delta – a proxy for tail risk – reaching a 10-week low.
And with the AU-US 2-year yield spread falling to its lowest level since November, it continues to hint at further downside for AUD/USD. The spread peaked back in April and has proven to be a decent lead for the Aussie by several weeks since.
Even if the RBA hike manages to prompt a bounce, all other clues point towards a ‘fade the rally’ scenario for AUD/USD for now, which seems like it wants to eventually break below 70c.
Scotiabank vidí USD/CAD jako překoupený a čeká silnou rezistenci kolem 1,4200; pár v pátek klesl o 0,05 % na 1,4140. Banka zároveň považuje kanadský dolar za mírně podhodnocený a vidí férovou hodnotu na 1,4055.
Scotiabank sees the Canadian Dollar as marginally undervalued, with USD/CAD momentum stretched and BoC rate hikes potentially underpriced. Four consecutive daily gains gave way to a modest retreat in the US Dollar to Canadian Dollar (USD/CAD) exchange rate on Friday, as Scotiabank questioned how much further the rally could run.
The pair finished at 1.4140, down 0.05% on the day but still around 1.1% higher over the week.
Scotiabank's concern centres on the interest-rate expectations supporting US Dollar demand:
"Wider US-Canada spreads have been a major headwind for the CAD over the past couple of weeks, however the move feels somewhat stretched with limited scope for further tightening in Fed expectations while the BoC feels somewhat underpriced."
Its Friday assessment put the probability of an October Bank of Canada quarter-point hike at roughly 50%, with 34 basis points of cumulative tightening priced by December.
Thursday's retail sales release showed a 0.7% July decline, followed by an advance estimate of a 1.3% August rebound that remains subject to revision.
Scotiabank said the figures had little currency impact and placed USD/CAD fair value at 1.4055, suggesting modest Canadian Dollar undervaluation.
That valuation estimate is roughly 85 pips below Friday's close, without specifying when the exchange rate might return there.
Image: USD to CAD exchange rate performance over the last week The bank still classifies the short-term technical outlook as bullish/neutral, despite signs of stretched momentum:
"The rally in USDCAD looks overdone at this point however, with momentum already in overbought territory given the RSI at 72."
It expects considerable resistance around 1.4200 after the pair struggled to extend gains above the mid-1.41s.
Should the advance reverse, Scotiabank sees relatively few obstacles before a larger pullback:
"To the downside, we see little in terms of support between current spot and the psychologically important 1.40 level."
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.
Key points for the Euro 2026 Q2 outlook
The Fed delivered its first rate hike since 2023 in September, with updated projections reinforcing expectations for additional tightening into year-end.
The ECB has raised rates twice this year as policymakers confront persistent inflation pressures alongside increasing risks to the growth outlook.
The policy backdrop continues to favor the U.S. dollar, although the relative pace of Fed and ECB tightening will be critical for EUR/USD through Q4.
EUR/USD has reversed more than 3% from the August high, bringing the pair back to the same major support region that underpinned the Q3 recovery.
Monthly momentum is deteriorating into the quarterly close, raising the stakes for the October open as Euro tests a pivotal technical threshold.
EUR/USD enters the fourth quarter at a critical juncture after the summer recovery gave way to renewed selling into the close of September. The fundamental backdrop remains challenging as both the Fed and ECB confront persistent inflation, although differences in growth, policy expectations, and the pace of additional tightening could prove increasingly important into year-end. With Euro once again testing a major technical threshold, the coming quarter will hinge on whether the recent decline can stabilize or develops into a broader correction.
Fed Keeps Price Stability Front and Center
In September, the Federal Reserve raised its target range by 25 basis points to 3.75%–4.00%, marking the first rate increase since 2023. The decision was unanimous, with the accompanying policy statement highlighting solid economic activity, resilient domestic spending, strong productivity growth, robust capital investment, and a steady labor market. During the subsequent press conference, Fed Chair Kevin Warsh reaffirmed the central bank’s commitment to restoring price stability as inflation remains above target for a fifth consecutive year.
Warsh pointed to three developments since the previous meeting: evidence that the economy had strengthened, little evidence that underlying inflation trends had improved, and a changed geopolitical backdrop. He stressed that the Fed looks at trends across a range of information, not just an individual data release, and declined to signal a preset sequence of moves. Warsh characterized the rate hike as removing “a dose of accommodation,” while noting that he was hard-pressed to describe broad financial conditions as restrictive.
FOMC Summary of Economic Projections
Source: FOMC
The Fed Chair’s remarks reinforced expectations for a more aggressive tightening cycle, with the updated Summary of Economic Projections (SEP) pointing to a resilient labor market, stronger economic growth, and more persistent inflation through the end of 2026. The latest projections also show a median federal funds rate of 4.1% through year-end 2027, before gradually declining in 2028 and 2029. Taken together, the forecasts reinforce a higher-for-longer policy outlook, with additional tightening still projected before year-end.
FOMC Interest Rate Dot Plot
Source: FOMC
The September dot plot shifted markedly higher from June, with twelve participants now see the rate at 4.125% by year-end, while four project 4.375% and two see it holding at 3.875%. The shift signals a stronger bias toward further tightening, with most policymakers now projecting at least one more quarter-point increase before year-end.
Fed Fund Futures- FedWatch Tool
Source: CME
As a result, markets are now pricing a 68% probability of another 25-basis-point Fed hike in October, with the odds of a third increase by December approaching 58%. The increasingly hawkish Fed outlook has strengthened the policy backdrop for the U.S. dollar, creating a significant headwind for EUR/USD and making it more difficult for the pair to stabilize before mounting a meaningful recovery into year-end. With additional tightening still on the table, the evolution of inflation and the relative Fed-ECB policy path will be critical in determining whether the dollar can extend its recent advance.
ECB Policy Caught Between Inflation and Growth
The European Central Bank has delivered two 25-basis-point hikes so far this year: in June, then again in September, lifting the deposit rate to 2.50%. The ECB has adopted a more restrictive policy stance as the Middle East conflict and associated energy shock intensify inflation risks across the Eurozone. The Governing Council expects inflation to remain above target for an extended period, with President Christine Lagarde emphasizing that risks remain tilted to the upside for prices and to the downside for growth.
ECB Staff Inflation Projections
Policymakers are closely monitoring the magnitude and duration of the energy shock, particularly the extent to which higher costs feed through to broader prices and wages. The baseline shows headline inflation peaking this year, while core inflation edges higher into 2027 before easing.
ECB Staff GDP Growth Projections
For now, the Eurozone economy has remained resilient, supported by broad-based second-quarter growth, improving consumer confidence, and public spending. At the same time, headline inflation accelerated to 3.3% in August from 2.9% in July, reinforcing concerns over persistent price pressures. While the ECB has not pre-committed to another increase, markets are increasingly positioned for further tightening, with traders pricing roughly a 93% probability of a December hike that would lift the deposit rate to 2.75%. A deterioration in growth or moderation in energy-driven inflation, however, could challenge those expectations
The policy backdrop continues to favor the U.S. dollar, with the federal funds target range at 3.75%–4.00% compared with an ECB deposit rate of 2.50%. But for EUR/USD, the current rate differential may be less important than how that gap evolves into year-end. The ECB’s increasingly hawkish response to persistent inflation provides some fundamental support for the euro, while the Fed’s own tightening bias continues to underpin the greenback. With both central banks leaving the door open to further action, the relative pace of tightening—and the incoming inflation and growth data driving those expectations—will likely remain a key catalyst for EUR/USD through the fourth quarter. That said, the technical backdrop puts EUR/USD back at a major inflection zone into the close September, and the focus is on whether the bulls can stabilize this recent decline heading into the close of the year.
EUR/USD Technical Outlook: Q4 Outlook Hinges on Make-or-Break Support
Euro Price Chart – EUR/USD Monthly
Chart Prepared by Michael Boutros, Sr. Technical Strategist; EUR/USD on TradingView
In our 2026 EUR/USD Q3 Outlook, we noted that Euro was testing critical support into the close of June at 1.1355/94- a region defined by the 38.2% retracement of the 2025 advance, the 2025 April high close, and the July low. We highlighted, “The risk / focus is on possible inflection off this zone into the start of Q3. From a trading standpoint, a good zone to reduce portions of short exposure / lower protective stops..” EUR/USD registered a close low at 1.1369 the following month before rebounding sharply with the rally extending more than 3.4% off the yearly low. The bulls exhausted just head of the yearly open in mid-August before plunging more than 3% with price once again testing key support into the close of the quarter. The focus remains on a possible inflection from this threshold heading into the October open.
EUR/USD Monthly RSI (14)
Note that monthly momentum has now fallen to the lowest levels since March of 2025 with RSI attempting to break below the 50-level. A monthly close below 1.1355 alongside a momentum break below 50 would be needed to signal that a deeper correction may be unfolding within the broader uptrend from 2022.
Euro Price Chart – EUR/USD Weekly
Chart Prepared by Michael Boutros, Sr. Technical Strategist; EUR/USD on TradingView
A closer look at the weekly chart shows EUR/USD continuing to trade within the confines of a descending pitchfork extending off the yearly high. A reversal off the 75% parallel in August has broken the median-line with Euro trading just above support into the close of September at the 38.2% retracement and the April high week close (HWC) at 0.. A break / weekly close below this threshold exposes subsequent support objectives at the 2023 high close at 1.1228 and 1.1110/64- a region defined by the 38.2% retracement of the broader 2022 advance, the 2024 high-week close (HWC), and the 2025 May low-week close (LWC). Note that the 25% parallel of the broader uptrend converges on this threshold into the close of the year. Look for a larger reaction there IF reached. The next major technical consideration rests with the 100% extension of the January decline neat 1.0954.
Resistance is now eyed back at the January swing low at 1.1578 and is backed by the August high-week close at 1.1679. Note that the 75% parallel of the yearly pitchfork converges on this level in mid-October and a breach / weekly close above would be needed to suggest a more significant low is in place, and a larger recovery is underway. Subsequent resistance objectives are eyed at the yearly open, the 2025 HWC and the 2025 high close at 1.1745/75, and the 2025 high close at 1.1850. Strength surpassing this level would invalidate the yearly downtrend and mark potential resumption of the 2025 uptrend towards 1.1917 and 1.2020.
Bottom Line: EUR/USD is trading just above pivotal support into the close of Q3, and the focus is on possible inflection off this zone for guidance into year end. A good zone to reduce portions of short exposure / lower protective stops. From a trading standpoint, rallies would need to be limited to 1.1578 IF price is heading for a break lower on this stretch with a close below 1.1355 needed to fuel the next major leg of the decline.
--- Written by Michael Boutros, Senior Market Analyst
The EUR/CHF is tracking upwards after the SNB held rates at 0.00% but still retains the weapon of intervention to curtail CHF strength. Current Setup EUR/CHF is up 0.4% on the day after the Swiss National Bank kept its policy rate at 0.00% and emphasized its willingness to intervene to curb excessive Franc strengthening. In other words, the SNB is ready to buy US Dollars and Euros while selling the Swiss franc to increase demand for these foreign currencies and push up Franc supply so the CHF weakens relative to them.
Today’s SNB decision was an important step in the bank’s quest to balance rising inflation against excessive CHF appreciation. So today’s decision was not a simple hold at 0.00%; it was a move toward using FX intervention as an exchange-rate control measure without shifting rates into negative territory.
This decision leaves the interest rate differential between the CHF and the EUR + USD higher than at the last policy meeting, as the Fed and ECB have both hiked 25 bps this month. For EUR/CHF specifically, the 0.00% policy rate = increased carry advantage for Euro holders. However, safe-haven demand for the Franc is a limiting factor.
The key level is 0.9350, below which CHF momentum accelerates and increases the SNB intervention risk.
SNB decision — what happened? The Swiss National Bank made no change to its policy rate, leaving it at 0.00%
The Swiss apex bank also retained the discount on sight deposits above the 0.25 percentage-point threshold, while explicitly indicating its willingness to intervene in the foreign-exchange market when necessary to maintain normal monetary conditions (i.e., to curb excessive CHF strength).
The key point is the rise in Swiss inflation from 0.6% in May to 0.8% in August, primarily due to goods inflation from higher oil prices. The SNB’s inflation expectations are 0.7%, 0.8% and 0.8% for 2026, 2027 and 2028, respectively. This assumes a forecast policy rate of 0.00%.
The message is that the SNB has ruled out rate hikes as a means of inflation control, as it expects no rise in inflation in its 3-year forecast.
What this means for EUR/CHF SNB Chairman Martin Schlegel has repeatedly reiterated the SNB’s willingness to intervene to weaken a Franc that has gained significant strength due to safe-haven demand. Today’s statement reinforces the FX-intervention narrative.
EUR/CHF downside risk will be limited if the SNB intervenes. But that doesn’t create a price floor. Instead, traders should look at the charts for direction. I took time to describe the scenario that will likely play out if the SNB towed the line it did today in this video here.
EUR/CHF Forecast Scenarios Base case: Limited upside to keep the pair at 0.9350–0.9450. The SNB’s latest move will limit short-term CHF appreciation, but any short-term upside will be capped as safe-haven demand kicks in to prevent a large-scale recovery.
Bull EUR/CHF case→ Major upside above 0.9400 leads to exposure of upside targets at 0.9440 initially, with a possibility to extend to 0.9480.
Bear EUR/CHF case→ Downside move with risk of intervention if the pair pushes below 0.9350. This brings up downside targets at 0.9300 and potentially 0.9250, with intervention risk rising with increasing CHF strength.
Technical Outlook The push from the 0.9390 support must break past the recent weekly high at 0.9476 to reclaim the 0.9514 resistance and prior highs of Jan/Feb 2025. Above this barrier, 0.9652 serves as the next upside target.
Fig 1: EUR/CHF daily chart showing key price levels (snapshot: 25 September 2026) However, a retracement that breaks the 0.9390 support unlocks access to downside targets at 0.9268 initially, followed by 0.9180 if there is a deeper retracement.
AUD/USD testuje support 0,7006, zatímco trh už téměř plně započítal zářijové zvýšení sazeb RBA o 25 bazických bodů na 4,60 %. Slabost australského dolaru souvisí hlavně s vybíráním pozic před nejistou komunikací banky.
TL;DR: The Australian Dollar is the week’s worst-performing major currency even with a September RBA hike to 4.60% essentially fully priced—the weakness reflects position lightening ahead of uncertain vote composition and guidance, not doubt about the hike itself, with AUD/USD now testing 0.7006 support.
Aussie Underperformance Goes Beyond Risk Aversion The Australian Dollar is heading into next Tuesday’s RBA meeting as the worst-performing major currency of the week, down around -1.4% against the Dollar and underperforming even NZD. Broad Dollar strength and rising US yields explain much of the move: every major currency has weakened against USD, with lower-beta currencies generally holding up better than their more risk-sensitive peers. But AUD’s additional weakness points to something more specific. With a 25bp RBA hike to 4.60% essentially fully priced, the market has little remaining upside to capture from the headline decision itself while still facing uncertainty over the vote, statement tone, and guidance on what comes next.
That makes the current move best read as position lightening ahead of asymmetric event risk, rather than evidence traders already expect a divided or dovish board. The distinction matters. Investors can remain convinced the RBA will hike on Tuesday and still reduce long-AUD exposure because the information attached to that hike is far less certain. A clean, unanimous decision with firm guidance may merely validate what’s already priced. A split vote or softer language on further tightening, however, could force a much larger repricing.
Currency heat map.
The Hike Is Priced. The Event Risk Isn’t. That uncertainty is visible further along the rates curve. While the September hike is priced at essentially 100%, the implied probability of another move drops sharply to around 40.8% for November and 26.4% for December, before recovering only partially by February. The market is therefore not pricing a smooth continuation of tightening. It’s pricing one highly probable hike followed by a much more uncertain path.
The sell-side divide reinforces that distinction. Commonwealth Bank expects a unanimous decision with hawkish statement language, while Westpac expects a split vote, despite both arriving at the same 4.60% cash-rate forecast. August’s hold was unanimous on the rate itself, but the minutes already showed differing assessments beneath that decision, with some members emphasizing the possibility upside inflation risks could crystallize while others placed greater weight on offsetting downside risks.
RBA Monetary Policy Board member Iain Ross added another layer this week, saying there was “no evidence of the emergence of a wage-price spiral” and that recent data suggested such an outcome was unlikely. That weakens the case for treating wages themselves as an accelerating inflation engine, but it doesn’t remove the broader tightening argument. Above-target underlying inflation, excess-demand concerns, and the possibility that imported energy shocks generate second-round effects remain central to the hawkish case.
Domestic Data Give Both Sides Something to Use The latest labor data illustrate why the Board’s internal debate could remain difficult even if the rate decision itself is straightforward. August employment rebounded by 39.5k, but all of the net increase came from part-time work, while full-time employment fell by around -6k and unemployment rose from 4.5% to 4.6%. The message isn’t that labor demand has collapsed, but that spare capacity is continuing to build at the margin even as employment still grows.
Wages point in a similar direction. The Q2 Wage Price Index held at 3.2% y/y, down from 3.4% a year earlier, with private-sector wages at 3.1% and public-sector wages at 3.4%. Against headline CPI of 3.5% and trimmed-mean inflation of 3.6%, households aren’t receiving a meaningful real-income cushion from wages. That’s consistent with Ross’s rejection of a wage-price spiral and complicates the argument for repeated tightening based on domestic wage pressure alone.
Financial markets are also increasingly discounting a weaker household backdrop. Australian consumer discretionary shares have fallen sharply over the past year, while housing prices have retreated from their April peak. Those moves aren’t direct measures of consumption, but they do show investors becoming more cautious about the earnings and growth consequences of higher rates. HSBC’s Paul Bloxham has gone further, putting the probability of a technical recession near 50% if both September and November hikes materialize, well above the roughly 20% consensus. That remains a minority view, but it illustrates how much more contentious the second hike is than the first.
The RBA Must Decide Before the Next CPI Print Another complication is timing. The RBA will make Tuesday’s decision one day before the August CPI release, meaning policymakers won’t have the freshest inflation reading when they vote.
That helps explain why the market can be nearly certain about September while remaining much less confident about November. The Board already has enough inflation evidence to justify another increase if it chooses, but guidance beyond Tuesday may need to remain conditional because the next inflation print could either reinforce or soften the case for follow-through.
The asymmetry for AUD is therefore clear. The expected 25bp hike itself offers limited new information. The market will instead focus on whether the vote is unanimous, whether the statement retains language signaling willingness to tighten further, and whether the Board presents September as another step in a sequence or as a more cautious insurance move.
ActionForex’s Technical View on AUD/USD: Testing the 0.7000 Decision Zone That positioning risk is already visible in AUD/USD, which has extended its decline from 0.7237 and broken decisively below the daily 55 EMA as well as former 0.7074 support. The pair is now pressing the 0.7006 level, the 61.8% retracement of the rise from 0.6864 to 0.7237.
The decline is currently viewed as the third leg of the corrective pattern from the 0.7277 high. A sustained break below 0.7006 would expose 0.6864, with the larger 0.6756 area—38.2% retracement of the rise from 0.5913 to 0.7277—becoming the next major medium-term support. Unless AUD/USD is undergoing a broader bearish trend reversal, stronger buying interest should emerge around that 0.6756 zone.
On the upside, 0.7074 has become the first meaningful resistance. Reclaiming it would suggest near-term stabilization, although a more convincing recovery would still require the pair to rebuild above its falling short-term moving averages.
Tuesday Is About the Information Around the Hike The key point is that AUD weakness doesn’t necessarily mean markets expect the RBA to disappoint. It’s more consistent with investors reducing long exposure because the headline hike is already known while the accompanying information remains uncertain.
A unanimous 25bp increase with clearly hawkish guidance would remove some of that uncertainty and could stabilize AUD. A split vote or softer language around further tightening would be the more obvious downside surprise and could accelerate a break below 0.7006.
Perhaps the most revealing outcome would be a clean, hawkish hike that still fails to lift the currency. That would suggest the broader Dollar backdrop, domestic growth concerns, and positioning are overpowering the rate differential. For now, the market isn’t really debating whether the RBA hikes on Tuesday. It’s deciding how much AUD exposure it wants to carry into an announcement whose tone may matter far more than the rate move itself.
Key Takeaways AUD is the week’s worst-performing major currency (-1.4%) despite a September RBA hike being essentially 100% priced, reflecting position lightening ahead of uncertain vote and guidance. Sell-side banks disagree on vote composition even while agreeing on the 4.60% outcome: CBA expects a unanimous hawkish decision, Westpac expects a split vote. November hike odds sit at just 40.8%, well below September’s near-certainty, showing markets are pricing one confident move followed by real uncertainty. Weak full-time employment (-6k) and wages holding at 3.2% y/y, below both headline and trimmed-mean CPI, complicate the case for aggressive follow-through tightening. AUD/USD is testing 0.7006 support; a break opens 0.6864 and then the major 0.6756 medium-term support, while reclaiming 0.7074 would suggest near-term stabilization.
ActionForex
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GBP/USD spadl na tříměsíční minimum, protože sázky na další zvýšení sazeb Fedu podpořily USD. Slabší americké objednávky zboží dlouhodobé spotřeby by ale mohly libře přinést úlevu.
Pound-Dollar could remain under pressure if Fed hike bets stay elevated, although weaker US durable goods orders may offer Sterling some respite. The Pound US Dollar (GBP/USD) exchange rate fell to a three-month low on Thursday as Federal Reserve interest rate hike bets boosted USD.
At the time of writing, GBP/USD was trading at $1.3226, having bounced off its lowest point of $1.3215 but still down on the day.
Latest — Exchange Rates:
Pound to Dollar (GBP/USD): 1.321538 (-0.17%)
Euro to Dollar (EUR/USD): 1.136745 (-0.12%)
Dollar to Yen (USD/JPY): 158.93551 (+0.42%)
DAILY RECAP:
The US Dollar (USD) remained strong on Thursday as markets continued to price in more muscular action from the Federal Reserve to tame inflation.
Hawkish Fed bets were boosted by Wednesday's forecast-smashing PMI releases, which fuelled beliefs that the American economy may be running hot.
On Thursday, an unexpected decline in initial jobless claims added to Fed hike bets.
Markets now see a greater than 50% chance that the Federal Reserve will deliver 50 basis points of tightening by the end of the year.
Meanwhile, the Pound (GBP) struggled as Fed rate hike bets triggered turmoil in global bond markets.
This raised concerns about the UK’s tough fiscal position ahead of the Autumn Budget, amid reports that the Treasury will look to reduce its fiscal headroom to avoid raising taxes.
Additionally, weaker-than-expected figures from the Confederation of British Industry (CBI) weighed slightly on the Pound, although the impact was limited.
Near-Term GBP/USD Forecast: US Durable Goods Orders to Dent the Dollar? Looking forward, Friday brings the latest US durable goods orders figures. An expected contraction in August could dent USD.
However, the ‘Greenback’ could remain supported if hawkish Federal Reserve interest rate bets continue to boost USD demand.
In addition, market risk appetite could influence the GBP/USD pairing, with the safe-haven US Dollar potentially drawing support from a risk-off mood. Geopolitical tensions and worries about higher global borrowing costs could dampen risk appetite and support the American Dollar.
Meanwhile, a lack of UK economic data means Sterling may also be primarily influenced by wider market trends, including risk sentiment, bond market movements, and domestic headlines.
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.
AUD/USD vstupuje do 4. čtvrtletí pod tlakem silnějšího USD, protože Fed i RBA mohou ještě zvýšit úrokové sazby. Australská inflace zůstává vysoká, ale rostoucí nezaměstnanost dává RBA prostor k pauze.
The Australian dollar enters Q4 with monetary policy firmly back in control of the macro narrative. The Fed has already resumed tightening, while markets expect the RBA to deliver at least one more hike as persistent inflation keeps policymakers on alert.
That leaves AUD/USD facing a more balanced rate backdrop than it did entering Q3. Australian rate expectations have risen sharply, yet the Aussie has still retreated from its Q3 highs as US dollar strength and broader risk sentiment outweigh the increasingly supportive yield differential.
The question for Q4 is whether rising unemployment gives the RBA enough room to pause after one more hike, while the Fed potentially tightens once or even twice more before year-end.
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AUD/USD Fundamental Outlook: RBA, Fed and Economic Data
The Australian economy continues to lose momentum, although the slowdown remains relatively orderly.
GDP increased just 0.4% in Q2 and 2.1% over the year, while the unemployment rate climbed to 4.6% in August. Full-time employment also fell during the month, even though headline employment increased by 39,500 as part-time jobs rose sharply.
Those figures provide further evidence that the labour market is gradually easing under the weight of higher interest rates. However, they hardly point to an economy falling off a cliff. Participation remains historically high, household spending increased for a third consecutive month in July and wages were still growing at 3.2% year-on-year in Q2.
Inflation therefore remains the greater headache for the RBA. Trimmed mean inflation remains elevated at 3.6% year-on-year, while the RBA expects underlying inflation to ease only gradually back towards its 2–3% target range. Markets also expect at least one further RBA hike this quarter, which would take the cash rate to 4.60%.
That leaves policymakers facing the uncomfortable combination of slowing growth and rising unemployment alongside inflation that remains too high.
Source: ABS
Takeaway: Australia's economy is slowing, but persistent underlying inflation gives the RBA little room to declare victory.
RBA Outlook: One More Hike, then a Q4 Pause?
Markets expect another 25bp increase to 4.60%, and OIS pricing implies some risk of further tightening beyond that. However, I suspect rising unemployment will allow the RBA to stop at 4.60% through the remainder of Q4 and reassess whether another hike is required in February.
The renewed rise in crude oil prices has complicated the outlook considerably. Energy prices initially retreated during Q3, but renewed Middle East tensions have pushed crude oil sharply higher and increased the risk that higher fuel, freight and production costs feed into consumer prices.
Governor Michele Bullock has also warned that some of the inflation risks identified by the RBA appear to be materialising. With underlying inflation still running at 3.6%, another hike remains difficult to rule out.
However, the labour market provides an important counterweight. Unemployment has already risen to 4.6%, and further increases would strengthen the case for giving the existing tightening more time to work.
That makes 4.60% my base case for the cash rate through Q4. Unless inflation delivers another material upside surprise, February looks a more likely opportunity to reassess whether further tightening is required.
Source: LSEG, Reserve Bank of Australia, Federal Reserve.
Takeaway: I expect one further RBA hike to 4.60%, before rising unemployment allows policymakers to pause through Q4 and reassess the need for further tightening in February.
Fed Outlook: Another Hike Remains a Live Q4 Risk
The Fed delivered the rate hike that markets were only beginning to contemplate when the Q3 outlook was published. September’s unanimous 25bp increase lifted the federal funds target range to 3.75–4.00%.
The Fed’s updated projections point to a median year-end policy rate of 4.1%, which is broadly consistent with one further 25bp hike before the end of the year. However, market pricing has turned more hawkish. Fed funds futures currently imply around a 76% chance of another hike in October, while December pricing assigns roughly a 59% probability to rates reaching 4.25–4.50% — effectively two further 25bp hikes in Q4.
There is enough resilience in the US economy to support that argument. Payrolls increased by 162,000 in August and unemployment remained at 4.1%, while the ISM services index accelerated to 55.4. More importantly for the Fed, the services prices index climbed to 72.6, its highest level since August 2022.
Inflation also remains uncomfortable. Headline CPI increased 3.4% year-on-year in August, while July PCE inflation stood at 3.7%. Core CPI was softer at 2.4%, although core PCE remained higher at 3.3%.
However, there are signs that tighter financial conditions are beginning to bite. Q2 GDP slowed to an annualised 1.5%, while the ISM services employment index remained in contraction territory at 47.8.
That makes incoming inflation and employment data critical. Continued resilience alongside elevated inflation would strengthen the case for one or even two further hikes and likely keep the US dollar supported. A sharper deterioration in activity would make that path harder to deliver and could instead bring forward a peak in US yields and the dollar.
Takeaway: The Fed’s own projections point to one more hike in Q4, but markets are increasingly pricing the risk of two. That keeps the US dollar supported unless growth or inflation data weaken materially.
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AUD/USD Technical Outlook: Charts, Positioning and Seasonality
AUD/USD Chart Signals Turn More Cautious
If the Aussie can close the month above 0.6919, it will have notched up its seventh consecutive bullish quarter. However, it could also mark its second shooting star candle over this period, with both forming around the upper wick of Q3. And with quarterly volatility also falling, it has the hallmarks of a market that may be topping out.
The correlation with the Chinese yuan is not what it once was, with AUD/USD instead showing a stronger relationship with the US dollar — albeit an inverse one.
The US dollar index appears to be headed for 104 and is on the cusp of forming a three-month bullish reversal pattern called a morning star. With the Fed potentially hiking twice this quarter, the US dollar could be in for a strong Q4, which could weigh on AUD/USD.
That could see traders fading into rallies and eyeing a potential break of the March low. Note that the three-month implied-volatility band has blown out to around 420 pips either side, which could potentially see the Aussie heading below 67c if the selloff continues.
Source: ICE, TradingView
Takeaway: AUD/USD has lost momentum below 0.7200, but its Q4 direction may ultimately depend more on whether the US dollar extends its rebound or finally forms a cyclical peak.
Q4 Seasonality Improves Towards December
Australian Economy Slows as Inflation Remains Sticky
The basic seasonality pattern in Q4 is diminishing volatility through to December, alongside positive win rates, average returns and median returns. December has posted the strongest average return of the quarter at 0.84% and a win rate of 57.7%, although its median return is just 0.24%.
Returns have been effectively flat in November, while its average loss of 2.7% outweighs the average gain of 2.5%.
While seasonality patterns are useful to know, they’re not a roadmap to future gains. Macro drivers — such as a hawkish Fed or broader risk-off tone — could easily override seasonal tendencies and weigh on AUD/USD.
Source: LSEG
Takeaway: Q4 seasonality carries a modest bullish bias for AUD/USD, with positive returns across the quarter and volatility tending to diminish into December. But macro drivers can easily override the seasonal pattern.
AUD/USD Futures Positioning Sends Mixed Signals
Throughout Q3 I noted that AUD/USD prices were accelerating higher despite futures traders remaining net short. That caution now looks better justified following the reversal around 72c and the accelerating three-week decline. Total open interest had also risen to a record high, with the latest data showing its fastest 10-week increase on record.
Yet the recent deterioration in positioning may actually be more about a reduction in gross longs than a fresh wave of short selling, given gross shorts were already just below record highs last week. This suggests positioning may be approaching a sentiment extreme, even though prices currently are not.
Source: CME, CFTC (COT), LSEG
Takeaway: AUD futures positioning remains bearish, but with shorts already near record highs and open interest elevated, sentiment may be closer to an extreme than price action suggests.
Rabobank snížila měsíční výhled pro EUR/USD na 1,14 z úrovně 1,16, protože euro brzdí válka v Íránu a silnější očekávání ohledně sazeb Fedu. Ve tříměsíčním horizontu dál čeká návrat k 1,16.
Rabobank's Euro recovery forecast depends on a retreat in Fed hike expectations, while the Iran war constrains near-term gains. Rabobank has lowered its one-month Euro forecast from 1.16 to 1.14, while retaining a three-month recovery target of 1.16.
The Euro to US Dollar exchange rate (EUR/USD) stood near 1.1377 on Thursday, down 0.04% on the day after Wednesday's 0.58% decline.
Latest — Exchange Rates:
Euro to Dollar (EUR/USD): 1.137217 (-0.08%)
Pound to Dollar (GBP/USD): 1.321229 (-0.20%)
Dollar to Yen (USD/JPY): 158.86911 (+0.38%)
The bank highlighted how far the Dollar's performance has departed from expectations:
"Clearly, the market had not expected that the USD would be entering the final quarter of the year on the front foot."
Rabobank argues that European growth has held up, but energy risks discourage investors from rebuilding Euro positions:
"That said, we retain the view that the EUR will struggle to find upside momentum during the duration of the Iran war and have revised down our 1 month forecast to 1.14 from 1.16."
That leaves even the reduced forecast slightly above spot, with June's annual low of 1.1325 just over half a cent away.
Image: EUR to USD intraday chart The bank estimates markets now assign roughly a 70% chance to an October Fed hike, following September’s increase.
Although the eurozone composite PMI rose to 53.1 in September, Rabobank says stronger US survey results have overshadowed Europe’s improvement.
Its recovery case rests on investors expecting more US tightening than the Fed ultimately delivers:
“Our expectation that EUR/USD will return to 1.16 on a 3 month view reflects the Rabobank house view that the market has priced in too much Fed policy tightening.”
That broadly aligns with ING’s 1.160 year-end call, discussed in our earlier comparison with Goldman Sachs.
Goldman’s three-month target is 1.14, falling to 1.12 at six and twelve months.
Rabobank’s 1.16 would require a recovery of approximately 2%, but the bank cautions:
“Next year’s French Presidential election may also limit potential for the EUR. We will be reviewing our EUR/USD forecasts in the coming weeks.”
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.
Crédit Agricole čeká postupné oslabování mexického pesa a vidí USD/MXN na 19,00 v prosinci 2027. To by proti referenční sazbě 17,27 znamenalo asi 9,1% pokles hodnoty pesa vůči dolaru.
Foreign currency strategists at Crédit Agricole expects gradual Mexican Peso depreciation throughout 2027, despite recognising the support that higher yields give emerging-market currencies. The Mexican Peso is among the currencies Crédit Agricole expects to weaken even as much of the emerging-market sector withstands higher US interest rates.
The bank forecasts the US Dollar to Mexican Peso exchange rate (USD/MXN) at 18.00 in December 2026, rising to 18.25 in March 2027 and 18.50 in June.
Its targets then reach 18.75 in September and 19.00 in December 2027.
Against the bank’s 22 September reference rate of 17.27, the final target implies a 10% rise in USD/MXN, equivalent to roughly a 9.1% fall in the Peso’s Dollar value.
Crédit Agricole explicitly separates Mexico from its more favourable regional views:
“From an FX regional angle, we expect a slight appreciation of Asia vs the USD, and of CE4 vs the EUR, but expect more weakness in Latam (the COP and MXN in particular).”
Higher yields offer support, but currency losses remain a risk The bank acknowledges that emerging-market currencies have resisted pressure from rising US yields:
“Since the beginning of July, the US 10Y yield has increased by about 60bp. Yet, during the same period, our EM FX index appreciated vs the USD.”
On the interest-rate advantage over the US, it adds:
“Third, the average EM-US carry gap has remained decent, in spite of the recent increase in US short-term rates. This is because higher oil prices have also put a floor under EM short-term rates.”
Even so, the bank cautions:
“We do not expect a full-fledged appreciation of EM FX vs the USD.”
For Mexico, Crédit Agricole forecasts the policy rate remaining at 6.50% through December 2027, matching the current rate in Banco de México’s official figures.
The distinction between interest income and currency performance also featured in Rabobank’s warnings about Peso carry in May.
Our reading is that attractive yields alone do not invalidate Crédit Agricole’s forecast: investors can collect interest while losing value when Peso holdings are converted back into Dollars.
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.
AUD/JPY has run into firm resistance near 121.00, with its bullish momentum stalling. This follows significant volatility, driven by shifts in global risk sentiment and the appeal of carry trades The pair is now consolidating in a range. Its next move will likely hinge on central bank hawkishness and other big global economic signals. Carry traders might see their positions at greater risk of unwinding during this consolidation. Still, the interest rate difference slightly favors the Australian dollar for now. The AUD/JPY forex pair has seen its upward trend stall this week after a period of gains. The currency pair is facing resistance around the 112 level and has been consolidating between approximately 111.30 and 111.50 today.
This period of consolidation prompts consideration of whether a more significant pullback or a strengthening of the yen is imminent, potentially mirroring the corrective movement seen from late August to mid-September.
Technical Barrier Signals Exhaustion Technical indicators suggest upward momentum might be running out of steam. While not breaking 112 doesn’t immediately signal a market downturn, it does resemble the peak seen in late August.
The pair currently trades below its 100-day moving average, and the 14-day Relative Strength Index (RSI) sits near 49, suggesting neutral momentum.
If it breaks below the short-term support at 111.00, we could see a further drop toward the 110.00 support level, where its 200-day exponential moving average sits.
Will the Yen Repeat Its Earlier Rebound? Market conditions are different now. That earlier decline, which started after September 4, happened as risk appetite fell due to the US-Iran conflict and growing speculation about the Bank of Japan (BoJ) tightening its monetary policy.
Since then, the BoJ has raised interest rates by 25 basis points to 1.25%, the highest since 1995. Still, this wasn’t a unanimous decision, with two board members dissenting in a 7-2 vote.
Market participants see about a 30% chance of another rate hike to 1.50% in October. This suggests the yen might get less policy support than it did during its last rebound.
The AUD/JPY pair has been trading in a multi-week range lately. It doesn’t look like it has much room to move higher without a big push, perhaps from a major shift in market risk sentiment or surprising news from central banks.
What This Means for Carry Traders Carry traders have often found the AUD/JPY appealing due to the interest rate gap between Australia and Japan. The Reserve Bank of Australia’s higher policy rates, particularly compared to the BoJ’s slower path to normalization, typically helped those who bought Australian dollars by borrowing yen.
Today’s price action near resistance levels reminds us of the risks in carry strategies. If momentum drops or markets get more volatile, positions can unwind. That’s especially true if global risk sentiment sours or if the BoJ hints at tightening money faster.
Carry traders might want to strengthen their risk management, cut back on leverage, or take some profits while the market consolidates.
This week’s pause in upward momentum doesn’t necessarily mean a big trend reversal is coming. But it does highlight why traders, especially those involved in trend following and carry trades, should be careful.
Has AUD/JPY reversed its recent upward trend?
After gaining last week, AUD/JPY stalled near 112 resistance this week. Its momentum has slowed, but to call it a reversal, we’d need to see a clear break of key support levels.
Could the Japanese yen rebound as it did earlier?
Yes, a yen rebound, much like what we observed between late August and mid-September is possible if support levels don’t hold
What does the stall signal for carry traders?
This stall highlights a growing risk of positions unwinding, meaning carry traders should consider tighter risk controls. Less momentum can really pressure leveraged long AUD positions against the yen.
EUR/USD klesl na 1,1378, tedy na dvouměsíční minimum, protože dolar podporují silná americká data a jestřábí signály Fedu. Trh nyní oceňuje říjnové zvýšení sazeb zhruba na 70 %.
EUR/USD fell to 1.1378 on Thursday, with the US dollar holding near a two-month high. The dollar has been supported by strong macroeconomic data, which have heightened inflation concerns and expectations of further Federal Reserve tightening.
According to S&P Global, US private sector business activity expanded at its fastest pace in more than five years in September. Improvements were recorded in both the services and manufacturing sectors, although price pressures also intensified.
Several Fed officials also backed last week’s rate hike and again highlighted inflation risks. Against this backdrop, markets now estimate the probability of another rate hike in October at approximately 70%, up from 55% the previous day.
Elevated oil prices remain an additional factor. Uncertainty surrounding US-Iran negotiations is keeping oil prices high and continuing to fuel inflation expectations.
Technical Analysis
On the H4 EUR/USD chart, the market completed a downward move towards 1.1369, followed by a corrective rebound to 1.1392. A consolidation range is now effectively forming between these levels.
A further move higher towards 1.1396 is possible, followed by a decline towards 1.1360.
The MACD indicator supports the short-term bearish scenario. Its signal line remains below zero and is pointing firmly downwards.
On the H1 EUR/USD chart, the market completed another downward move towards 1.1369. A consolidation range is currently forming above this level.
Another move higher towards 1.1396 is expected today.
The Stochastic oscillator supports this short-term corrective scenario. Its signal line remains above 50 and is pointing firmly upwards towards 80.
Conclusion EUR/USD has fallen to a two-month low as the US dollar continues to benefit from strong US economic data and hawkish Fed signals. US private sector activity expanded at its fastest pace in more than five years in September, intensifying inflation concerns and pushing the estimated probability of an October rate hike to around 70%. Elevated oil prices, amid uncertainty surrounding US-Iran negotiations, are adding further pressure to the inflation outlook.
From a technical perspective, EUR/USD may see a short-term corrective move towards 1.1396. Once this move is complete, the H4 scenario envisages a renewed decline towards 1.1360. The near-term direction will depend on upcoming US data and Fed commentary, with the US dollar likely to remain supported in the current environment.
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Šance na říjnové zvýšení sazeb Fedu vyskočila na 69,7 % po silném flash PMI. EUR/USD míří do zóny 1,1323–1,1353, zatímco výnosy amerických dluhopisů dál rostou.
TL;DR: October Fed hike odds have surged to 69.7% on a booming flash PMI, driving the 2-year and 10-year Treasury yields to fresh multi-year highs—and pushing EUR/USD toward a structural decision zone at 1.1323–1.1353.
Markets Pull the Next Fed Hike Forward A booming US economy is increasingly looking like a bond-market problem. Expectations for another Federal Reserve hike at the October 28 meeting have surged to 69.7%, according to the latest FedWatch snapshot, up from 55.4% a day earlier, 48.7% a week ago, and just 8.8% a month ago. The repricing comes only a week after the Fed delivered its first hike since 2023, lifting the target range by 25bp to 3.75–4.00%. Markets are no longer simply debating whether the tightening cycle has further to run; they’re increasingly pricing back-to-back hikes.
Treasuries have responded accordingly. The 2-year yield has surged to around 4.89%, its highest since May 2024, while the 10-year has climbed above 5.10% to its highest since 2007. Wednesday’s rise in the 10-year was the largest one-day move since April 2025. The front end is being driven predominantly by the repricing of near-term Fed policy, while longer maturities are absorbing the same growth and inflation signal alongside concerns over Treasury supply and investor demand.
Hot PMI Turns Strong Growth Into a Hawkish Signal The immediate macro catalyst was an exceptionally strong September flash PMI report. PMI Manufacturing rose from 53.9 to 57.0, PMI Services from 56.5 to 58.7, and PMI Composite from 56.0 to 58.4, the latter reaching a 62-month high. Manufacturing output also accelerated from 53.1 to 56.7. S&P Global Chief Business Economist Chris Williamson said US business is “clearly booming now in both manufacturing and services,” with the survey consistent with roughly 5% annualized growth at the latest pace and around 4% for the third quarter as a whole.
But it was the inflation side that turned strong growth into a bond-negative signal. Backlogs rose sharply, hiring accelerated, and capacity strains intensified, while overall input-cost inflation reached its highest since October 2022. Williamson said firms’ input costs jumped at the steepest rate in four years, with fuel and transport costs rising sharply as oil prices climbed. That connects Wednesday’s rebound in Brent—settling up 3.86% at $103.08—directly back into the inflation picture rather than treating oil as a separate market story.
The mechanism is increasingly difficult for bond bulls: strong domestic demand is tightening capacity at the same time as higher energy costs are adding another layer of price pressure. That leaves the Fed with less reason to tolerate inflation staying above target, especially while employment remains resilient.
Fed Hawkishness and Weak Auction Demand Add to the Selloff The PMI landed on top of an increasingly hawkish run of Fed communication. Federal Reserve Governor Michael Barr said this week that policymakers had been “out of position” before the September hike and that, in his base case, “further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion.” Alberto Musalem has described policy as being “on the accommodative side,” Susan Collins has backed another hike later this year, and Austan Goolsbee has warned that persistent supply shocks and excessive demand can’t simply be looked through.
The result is that incoming data and Fed rhetoric are now reinforcing each other rather than pulling in opposite directions. The September hike increasingly looks less like a one-off correction and more like the possible start of a renewed tightening sequence.
A weak $70bn 5-year Treasury auction then added another layer of pressure. The auction cleared at 5.033%, compared with a roughly 4.186% average across the previous six auctions, while indirect bidders took just 54%, versus an average around 65%. The 5-year sits in the belly of the curve rather than the long end, but the poor demand reinforced the broader message that investors require more compensation to absorb Treasury supply. The auction therefore amplified a selloff already fundamentally justified by stronger growth, higher inflation pressure, and rising Fed expectations.
ActionForex’s Technical View on the 2-Year Yield: Breaks Through 4.791% The technical breakout in the 2-year yield reflects how quickly markets have brought the next Fed move forward.
The yield has decisively cleared the 4.791% 100% projection of the rise from 3.679% to 4.370% projected from 4.100%. That was a key resistance level and had already been identified as the next major test after last week’s FOMC repricing.
Momentum remains strongly positive. Daily MACD continues to rise, while RSI near 79 is clearly overbought but hasn’t produced a topping signal.
The next target is the 138.2% projection at 5.055%, immediately above the psychological 5% level. Beyond there, the 161.8% projection stands at 5.218%.
The weekly structure raises an even larger question. The decline from the 5.259% 2023 high to 3.365% increasingly looks complete. Current momentum makes a retest of 5.259% increasingly plausible, but a break of that level would still be required before concluding the longer-term yield uptrend has resumed.
ActionForex’s Technical View on the 10-Year Yield: A Three-Way Resistance Cluster The 10-year yield is already at an even more immediate technical decision point.
At around 5.116%, it’s pressing directly beneath a tight resistance cluster:
5.122% — 100% projection of 3.926% to 4.687% from 4.361% The upper boundary of the medium-term rising channel 5.136% — 100% projection of 3.599% to 4.809% from 3.926% That 5.122–5.136% zone is therefore the key breakout area.
Daily RSI around 72 and weekly RSI around 76 show increasingly stretched momentum, so some consolidation would be normal. But overbought conditions aren’t themselves a reversal signal. As long as 4.920% support holds, the near-term structure remains bullish.
A decisive break through the 5.12–5.14% cluster would open the 138.2% projection at 5.413%.
The broader significance is already substantial. The 10-year has pushed above the 5.021% 2023 high, transforming the current move from another test of old resistance into a genuine multi-year breakout.
ActionForex’s Technical View on EUR/USD: Reaching a Structural Decision Zone The widening US yield advantage is now feeding directly into FX.
EUR/USD has accelerated lower toward the 1.1353 level, the 38.2% retracement of the rise from 1.0176 to 1.2081, with 1.1323 support immediately underneath. Together, the two levels create a compact 1.1323–1.1353 decision zone.
Daily momentum is deeply bearish. MACD has accelerated lower and RSI is already near 27, leaving the pair oversold enough for a short-term rebound but not yet providing evidence the decline is finished.
A decisive break through 1.1323 would first confirm resumption of the fall from 1.2081.
The more important implication lies on the weekly chart. The entire advance from the 0.9534 low in 2022 to 1.2081 can still be interpreted as a corrective three-wave rebound. EUR/USD failed around the 1.20–1.2081 resistance cluster, and a clear break through 1.1323 would materially increase the probability that 1.2081 completed that entire corrective rally.
Under that scenario, the next major medium-term downside objective would be the 61.8% retracement at 1.0904.
Payrolls and CPI Hold the Veto The cross-market chain is now unusually coherent: Brent back above $100 is feeding into fuel and transport costs; the PMI shows strong growth alongside renewed inflation pressure; Fed officials are arguing that more restraint may be necessary; October hike odds have climbed toward 70%; Treasury yields are breaking higher; and EUR/USD is approaching structural support.
The weak Treasury auction has intensified that move, but it didn’t create it.
The principal risk to the entire repricing is now incoming US data. A materially softer payrolls report or benign inflation print before the October FOMC could quickly pull hike probabilities lower and trigger consolidation in yields.
Absent that, the immediate technical tests are clear: 5.055% on the 2-year, 5.122–5.136% on the 10-year, and 1.1323–1.1353 on EUR/USD. A simultaneous break in yields and EUR/USD would turn this week’s repricing into something much more consequential.
Key Takeaways October Fed hike odds jumped from 8.8% a month ago to 69.7% now, driven by a 62-month-high flash PMI Composite reading of 58.4. Input-cost inflation hit its highest since October 2022, with Brent’s rebound to $103.08 feeding directly into fuel and transport costs, turning strong growth into a hawkish signal. A weak $70bn 5-year Treasury auction (5.033% clearing yield vs. 4.186% recent average) amplified, but didn’t create, a selloff already justified by growth and inflation data. The 2-year yield broke 4.791% resistance toward 5.055%, while the 10-year is testing a three-way 5.122-5.136% resistance cluster after clearing its 2023 high. EUR/USD faces a structural 1.1323-1.1353 decision zone; a break of 1.1323 would raise the odds the entire 2022-2026 advance from 0.9534 completed as a corrective rally, opening 1.0904 next.
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USD/MXN za poslední tři seance vzrostl o více než 1,7 %, protože peso před zítřejším rozhodnutím Banxica ztrácí sílu. Trh čeká, že sazby zůstanou beze změny už potřetí v řadě.
Over recent trading sessions, the Mexican peso has started to show signs of losing strength against the U.S. dollar. This can be seen in the performance of USD/MXN, which has gained more than 1.7% over the last three sessions, highlighting the dollar's renewed strength against the peso. Buying pressure has remained in place even as markets prepare for tomorrow's Banco de México policy decision, suggesting that expectations surrounding the event have not been sufficient to support a more consistent recovery in the Mexican currency. If this dynamic continues, buying pressure around USD/MXN could remain relevant in the sessions ahead.
What Is Expected from Banxico's Decision?
Tomorrow, Banco de México will announce its latest monetary policy decision. Despite maintaining one of the highest interest rates among major central banks, currently at 6.5%, markets are widely expecting policymakers to leave rates unchanged for a third consecutive meeting.
This expectation is largely driven by the recent evolution of inflation. Although price pressures remain present, inflation has slowed significantly over the past several months. After reaching a peak of 4.59% in March 2026, inflation has followed a consistent downward path, falling to 3.26% in August, a level that is now relatively close to Banxico's 3.00% target. This contrasts with the United States, where inflation continues to hold near 3.4%, still above the Federal Reserve's 2.00% objective. As a result, while markets expect Banxico to maintain a more stable stance, expectations for the Fed continue to point toward a more restrictive monetary policy.
Source: TradingEconomics
This divergence is becoming increasingly important because markets are now assigning more than a 70% probability to another Federal Reserve rate hike at the October meeting, potentially taking rates to the 4.25% area. Although Mexico continues to maintain a significantly higher policy rate than the United States, the discussion is no longer focused solely on current levels but rather on the direction each central bank may take in the months ahead.
This divergence is already beginning to show up in the bond market. Mexican 10-year government bonds continue to offer attractive yields around 9.3%, but those yields have started to moderate as investors increasingly expect Banxico to keep rates unchanged. By contrast, U.S. 10-year yields continue to move higher and remain slightly above 5.00%, supported by expectations of a more aggressive Federal Reserve.
Source: TradingEconomics
This development matters because a significant part of the peso's strength throughout much of 2026 was supported by the wide interest-rate differential with the United States. However, as markets continue to price in a more aggressive Fed and a more neutral Banxico, part of that relative advantage may gradually begin to shrink. While Mexican assets continue to offer higher yields, U.S. assets combine rising returns with a lower perceived level of risk, a combination that could continue to favor demand for U.S. dollars over the Mexican peso.
Under this backdrop, if Banxico once again confirms a stable policy stance tomorrow, the peso could continue to struggle to regain ground against the dollar. As a result, buying pressure around USD/MXN could remain a relevant market theme in the weeks ahead.
USD/MXN Technical Forecast
Source: StoneX, Tradingview
A new bullish move begins to take center stage: For most of the year, USD/MXN traded within a well-defined downtrend that served as the dominant technical structure on the chart. However, the recovery seen in recent sessions has produced a meaningful break above that trendline, with prices now challenging important resistance levels. If buying pressure remains in place, the pair could begin developing a new short-term uptrend in the weeks ahead.
MACD: The MACD histogram continues to develop above the 0 neutral line, a reading that suggests short-term moving-average momentum remains tilted to the upside. As long as this behavior persists, buying pressure could continue playing an important role in the market.
RSI: A similar picture can be observed in the RSI, which remains above the 50 neutral level, supporting the importance of the recent bullish momentum. However, the indicator has also moved above the 70 overbought threshold, suggesting that the pace of the recent advance has been significant and could leave room for short-term corrective pullbacks.
Key Levels:
17.65 – Major Resistance: A significant high from previous months that currently stands as the most important upside barrier on the chart. Sustained price action above this level could reinforce the dominance of buying pressure, support the formation of higher highs, and encourage the development of a more established bullish structure in the weeks ahead.
17.39 – Current Barrier: A level that coincides with the 200-period simple moving average and remains the nearest technical reference to monitor in the event of short-term bearish corrections.
17.15 – Key Support: An area that aligns with the 50-period simple moving average and the base of the former bearish structure. A move back toward this level could highlight a renewed lack of direction and favor the development of a broader trading range over the coming weeks.
Written by Julian Pineda, CFA, CMT – Market Analyst
Euro Technical Outlook: EUR/USD Short-term Trade Levels
EUR/USD has fallen more than 2.9% from the August high after a decisive break of the September opening range.
Euro has declined in seven of the past nine sessions and is poised for a third consecutive weekly loss.
The selloff is approaching a major support zone near the yearly low-day close, where the risk of near-term exhaustion begins to rise.
A sustained break below support would strengthen the case for another leg lower, while a recovery through near-term resistance would suggest a more meaningful low may be forming.
U.S. Core PCE, Eurozone inflation and Non-Farm Payrolls highlight next week’s event risk.
Resistance 1.1419, 1.1472 (key), 1.1501- Support 1.1355/60 (key), 1.1325, 1.1275
EUR/USD remains under heavy pressure after the September range broke lower, extending the decline from the August highs toward the lowest levels since July. The broader technical picture remains bearish but increasingly stretched momentum and the approach of major support argue for caution in chasing the move at current levels. With several key macro releases on deck, the next reaction could prove critical in determining whether the selloff extends or begins to stabilize. Battle lines drawn on the Euro short-term technical charts.
Review my latest Weekly Strategy Webinar for an in-depth breakdown of this EUR/USD technical setup and more. Join live Monday’s at 8:30am EST.
Euro Price Chart – EUR/USD Daily
Chart Prepared by Michael Boutros, Sr. Technical Strategist; EUR/USD on TradingView
Technical Outlook: In last month’s Euro Short-term Technical Outlook we noted that EUR/USD had reversed off confluent uptrend resistance and that, “From a trading standpoint, look to reduce short-exposure / lower protective stops on a stretch towards 1.1564/78- rallies would need to be limited to the median-line IF price is heading lower on this stretch with a close below needed to fuel the next leg of the decline.” Euro dropped into support later that day with the September opening range taking shape just above pivotal support at 1.1564/78.
The range broke on September 14 with Euro plunging more than 2.9% off the August highs to trade at the lowest levels since July. The decline has taken momentum into oversold territory with the daily RSI trading at the lowest levels since June. Price has now fallen seven of the past nine-days with a third consecutive weekly decline now approaching pivotal support near the low-day close of the year. While the immediate decline may be a bit stretched, the outlook remains tilted to the downside while below the weekly high.
Euro Price Chart – EUR/USD 240min
Chart Prepared by Michael Boutros, Sr. Technical Strategist; EUR/USD on TradingView
Notes: A closer look at Euro price action shows EUR/USD trading within the confines of a descending pitchfork extending off the September high. The bears are approaching downtrend support here with major lateral support just lower at 1.1355/60- a region defined by the 38.2% retracement of the 2025 advance and the 2026 low-day close. Look for a larger reaction there IF reached with a break / weekly close below needed to fuel the next major leg of the decline. Subsequent support objective rest with the yearly swing low at 1.1325 and the 2023 swing high at 1.1276.
Initial resistance is now eyed back the 1.618% extension of the late-August decline at 1.1419 with near-term bearish invalidation now lowered to the 61.8% retracement of the June advance at 1.1472. This level converges on the upper parallel into the start of next week and a breach / daily close above this threshold would be needed to suggest a more significant low is in place, and a larger trend reversal is underway. Subsequent resistance objectives are eyed at the August swing low at 1.1501 with a breach above 1.1578 needed to put the bulls back in control.
Bottom line: Euro is approaching pivotal support near the low close of the year, and the focus is on a reaction at this key inflection zone. From a trading standpoint, rallies would need to be limited to 1.1419 IF price is heading lower on this stretch with a daily close below 1.1355 needed to fuel the next leg lower.
Event risk remains elevated for EUR/USD into the close of the week, with President Trump hosting Chinese President Xi Jinping for a state visit Thursday. Traders will be focused on any progress—or renewed friction—over trade, tariffs, rare-earth/critical-mineral supply and investment, all of which could have implications for the dollar and broader risk sentiment. Attention then shifts to next week’s key macro releases, with U.S. Core PCE on Wednesday followed by Eurozone inflation and Non-Farm Payrolls Friday. With inflation and labor-market trends central to the Fed and ECB policy outlooks, the releases could materially reshape rate expectations on both sides of the Atlantic. Any meaningful divergence in the inflation data—or signs of renewed strength or weakness in the U.S. labor market—could shift the relative policy outlook and fuel a larger directional move in EUR/USD. Stay nimble into the monthly cross and watch the weekly closes for guidance. Review my latest Euro Technical Forecast for a closer look at the longer-term EUR/USD trade levels.
Key EUR/USD Economic Data Releases
Economic Calendar - latest economic developments and upcoming event risk.
Active Short-term Technical Charts
British Pound Short-term Outlook: GBP/USD Selloff Breaks June Uptrend
Canadian Dollar Short-term Outlook: USD/CAD Six-Day Rally Challenges Pivotal Resistance
Australian Dollar Short-term Outlook: AUD/USD Reversal Tests Key Uptrend Support
Gold Price Short-term Outlook: XAU/USD Bulls Fight to Stabilize at Pivotal Support
Japanese Yen Short-term Outlook: USD/JPY Breakdown Faces Major Test Ahead of Fed, BoJ
US Dollar Short-term Outlook: USD Selloff Accelerates Toward August Lows Ahead of NFP
Swiss Franc Short-term Outlook: USD/CHF Breakout Puts Yearly Highs Back in Play
--- Written by Michael Boutros, Senior Technical Strategist
AUD/USD klesl pod 0,7100 na týdenní minimum, protože slabší australská data PMI a silnější USD tlačily na pár. Australský Composite PMI spadl na 50,8 a výroba se poprvé od března dostala do poklesu.
AUD/USD fell below 0.7100 on Wednesday, reaching a one-week low as weaker Australian business activity and a stronger US Dollar weighed on the pair. Australia's September Composite PMI dropped to 50.8 from 52.7, while manufacturing contracted for the first time since March. The AUD/USD outlook now turns to Thursday's Australian employment report, which could shape expectations ahead of next week's Reserve Bank of Australia decision. AUD/USD fell below 0.7100 on Wednesday as weaker Australian economic data collided with renewed US Dollar strength following hawkish comments from Federal Reserve officials. The Australian Dollar traded around 0.7086, down roughly 0.4% on the session and close to its lowest level in a week.
The pair has retreated sharply from levels above 0.7200 earlier this month as investors reassess the outlook for interest rates in both Australia and the United States. Wednesday’s move followed disappointing Australian PMI figures, while the Dollar remains supported by expectations that last week’s Federal Reserve rate hike will not be the last of 2026.
AUD/USD Today Falls Below 0.7100 The AUD/USD exchange rate came under fresh pressure during Wednesday’s European session, extending its recent decline below the psychologically important 0.7100 level. The US Dollar Index climbed to a fresh seven-week high above 100.6 before easing from its strongest levels. Expectations for additional Fed tightening have helped the greenback hold its gains even as oil prices retreat.
The Australian Dollar has faced pressure from both sides of the pair. Domestic economic data weakened on Wednesday, while the Fed’s increasingly hawkish policy outlook continues to favour the US Dollar.
Australian PMI Falls as Manufacturing Contracts Australia’s preliminary September PMI data provided the latest reason for caution over the domestic economy. The S&P Global Composite PMI fell to 50.8 from 52.7 in August, leaving overall private-sector activity only marginally above the 50 level separating expansion from contraction.
The deterioration was particularly pronounced in manufacturing. Australia’s Manufacturing PMI dropped to 49.3 from 52.0, marking its first contraction since March. Services activity remained in expansion but slowed to 51.4 from 53.2. The figures point to a loss of momentum at the end of the third quarter.
That matters for the Australian Dollar because the Reserve Bank of Australia is widely expected to raise interest rates next week. Softer economic activity does not necessarily remove the case for a hike, particularly while inflation remains a concern, but it could make markets less confident about how much additional tightening follows.
RBA Interest Rate Outlook Turns to Australian Jobs Data The RBA interest rate outlook now faces another important test with Australia’s employment report due Thursday. The labour-market figures will be the final employment report before the Reserve Bank’s September 29 policy decision and could influence expectations for what happens after the anticipated rate increase.
A resilient labour market would give the RBA greater room to focus on inflation and could strengthen expectations for additional tightening. A weaker report would complicate that picture after Wednesday’s PMI data already showed slowing business activity and weakness in manufacturing.
This leaves the Australian Dollar particularly sensitive to Thursday’s numbers. Rather than simply asking whether the RBA will hike next week, markets are increasingly focused on whether policymakers will need to continue tightening later in the year
US Dollar Strength Remains a Headwind for AUD/USD The US Dollar remains a key headwind for AUD/USD as hawkish Fed officials reinforce expectations for further US rate hikes. At the same time, falling oil prices and hopes for progress in US-Iran talks have eased some inflation concerns, although not enough to significantly weaken the Dollar. For the Australian Dollar, lower energy prices offer some support to risk sentiment but could also reduce expectations for aggressive RBA tightening.
AUD/USD Forecast: Australian Jobs Report Takes Centre Stage The near-term AUD/USD forecast remains cautious as the pair trades around 0.7086 and below its 20-day moving average near 0.7156. The immediate focus is the 0.7075-0.7100 region. A recovery above 0.7100 would ease some of the latest pressure, while a deeper decline could bring 0.7000 back into focus.
However, Thursday’s Australian employment figures are likely to matter more than short-term technical signals. A strong jobs report could revive expectations for a more sustained RBA tightening cycle and provide support for the Aussie. Weak employment data would instead reinforce Wednesday’s softer PMI signal at a time when the Fed continues to make the case for higher US interest rates.
That divergence leaves AUD/USD caught between an expected RBA hike and a US Dollar benefiting from the prospect of further Fed tightening.
Why is the Australian Dollar falling today?
The Australian Dollar is falling after Australia’s September PMI data showed slower private-sector growth and a contraction in manufacturing, while hawkish Federal Reserve commentary continues to support the US Dollar.
What could move AUD/USD next?
The Australian jobs report on Thursday is the next major domestic catalyst for AUD/USD. Markets will also continue watching Federal Reserve commentary, US interest-rate expectations and developments in oil prices ahead of next week’s RBA meeting.
Will the RBA raise interest rates next week?
Markets have been expecting a 25-basis-point RBA rate increase at the September 29 meeting, but Thursday’s Australian employment report could influence expectations for how much further the central bank tightens after that decision
USD/JPY consolidated around 157.60 on Wednesday, with the Japanese yen falling for a fourth consecutive day. Amid Japan’s long weekend, markets are closely monitoring the possibility of currency intervention.
Concerns intensified following reports that the Bank of Japan conducted rate checks with market participants at the end of last week. Japanese authorities have previously intervened during periods of low holiday liquidity, so current USD/JPY levels are once again attracting heightened attention.
A strong US dollar is placing additional pressure on the yen. Hawkish comments from Federal Reserve officials are supporting expectations of further US rate hikes and keeping the US currency attractive.
The yen lost ground last week even after the Bank of Japan delivered an expected rate hike. Governor Kazuo Ueda reaffirmed his readiness to continue tightening monetary policy as economic conditions evolve, but noted that financial conditions would remain sufficiently accommodative to support the economy.
Technical Analysis
On the H4 USD/JPY chart, the market has formed a consolidation range below 158.00. A downside breakout could open the way for a decline towards 155.20.
The MACD indicator supports this bearish scenario. Its signal line remains above zero but is pointing firmly downwards.
On the H1 USD/JPY chart, the market completed an upward move towards 158.00, followed by a correction to 156.56. A triangle pattern has now formed.
A break above the upper boundary at 157.60 is expected, followed by a reversal lower towards 156.50, with the decline potentially extending towards 155.20.
The Stochastic oscillator supports the subsequent bearish scenario. Its signal line remains below 80 and appears poised to turn lower towards 20.
Conclusion USD/JPY is consolidating around 157.60 as the yen extends its losing streak to a fourth day. Markets remain alert to the possibility of currency intervention amid the long weekend in Japan, with reports that the BoJ conducted rate checks further heightening concerns.
At the same time, a strong US dollar continues to weigh on the yen as hawkish Fed comments support expectations of further US rate hikes. Although the BoJ raised rates last week and Governor Kazuo Ueda reaffirmed his readiness to tighten policy further, financial conditions are expected to remain sufficiently accommodative to support the Japanese economy.
From a technical perspective, a break above 157.60 is expected in the short term. Once this move is complete, the H1 scenario envisages a reversal towards 156.50, with the decline potentially extending towards 155.20. A downside breakout from the H4 consolidation range would reinforce the broader bearish scenario towards 155.20.
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MUFG čeká, že tlak na oslabení INR potrvá až do roku 2027, i když vyšší rezervy RBI tlumí riziko prudkého poklesu. Dolar vůči rupii se v úterý obchodoval na 95,6039, o 0,11 % níže.
Stronger RBI reserves offer protection against abrupt Rupee losses, but MUFG expects depreciation pressure to persist into 2027. The Indian Rupee's recovery has left Goldman Sachs and MUFG's 2027 forecasts pointing to renewed losses, despite stronger central-bank defences.
Goldman forecasts 97 Rupees per Dollar in six and twelve months, while MUFG projects 96.00 for March 2027 and 96.50 for June.
The US Dollar to Rupee exchange rate (USD/INR) slipped to 95.6039 on Tuesday, down 0.11% after Monday's 0.29% decline, retreating from last week's levels above 96.
The nearer-term comparison is more restrained: Goldman's three-month forecast stands at 96, against MUFG's 95.50 for December 2026, which allows slight Rupee appreciation from today's rate.
RBI support limits the risk of a sudden fall MUFG says foreign-currency deposit inflows have strengthened the Reserve Bank of India's ability to manage volatility, but demand for Dollars persists:
"While the enlarged reserve buffer should contain disorderly moves, it does not remove the underlying demand for dollars from FDI repatriation and the strong IPO pipeline."
That includes foreign investors converting proceeds from Indian investments back into foreign currency.
"Consequently, the balance of risks still favours gradual INR depreciation rather than a sharp adjustment."
Image: USD to INR one-month chart The inflows also created excess Rupee liquidity when banks exchanged their Dollars with the RBI, complicating efforts to contain inflation.
MUFG expects tighter policy:
"We expect 50bp of RBI tightening, split between December 2026 and February 2027, with a risk of a larger 75bp cycle."
These depreciation forecasts contrast with Crédit Agricole's anticipated Rupee recovery in 2027.
Oil remains a key obstacle for import-dependent India, despite its retreat from last week's highs.
Brent traded near $101.64 earlier on Tuesday, leaving substantial energy-cost pressure in place alongside the higher US yields that MUFG identifies as another weight on the Rupee.
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.
GBP/USD trades near 1.3370, close to a six-week low, after UK government borrowing exceeded forecasts and renewed concerns over the country's public finances. UK public sector net borrowing reached £18.3 billion in August, while the deficit for the first five months of the fiscal year climbed above the Office for Budget Responsibility's forecast. The GBP/USD forecast remains under pressure below 1.3500 as the Federal Reserve signals further rate hikes while the Bank of England keeps rates unchanged. GBP/USD is trading near 1.3370 on Tuesday as weaker UK fiscal data and continued US Dollar strength keep the British Pound close to its lowest level in six weeks.
Sterling briefly recovered toward 1.3390 earlier in the session before giving back part of the advance after UK government borrowing came in significantly above expectations. The pair was trading around 1.3368 at 12:36 GMT, according to the latest market data.
The move extends a difficult September for the Pound. The Federal Reserve’s return to rate hikes has strengthened the Dollar, while falling oil prices have reduced expectations that the Bank of England will need to respond aggressively to energy-driven inflation.
GBP/USD Today: UK Borrowing Exceeds Forecasts The latest pressure on GBP/USD today came from UK public finance data. Public sector net borrowing excluding public sector banks reached £18.3 billion in August, up from £15.4 billion a year earlier and above market expectations of around £15.5 billion. It was the second-highest August borrowing figure on record after 2020.
Borrowing during the first five months of the fiscal year has now reached £77.3 billion, around £8.1 billion above the Office for Budget Responsibility’s forecast. The deterioration came despite stronger tax receipts, with higher spending on public services, benefits and debt-interest costs contributing to the increase.
For currency markets, the figures have renewed attention on Britain’s fiscal position ahead of Chancellor John Healey’s first Budget on October 28.
British Pound Outlook: UK Budget Risks Return The British Pound outlook is becoming increasingly sensitive to UK fiscal policy. Higher government borrowing combined with elevated gilt yields could reduce the Chancellor’s room to meet existing fiscal rules without tax increases, spending reductions or other policy changes.
The UK 10-year gilt yield was around 5.24% on Tuesday, reversing part of a four-day decline as bond yields moved higher across Europe.
Higher yields do not automatically strengthen Sterling when they reflect concerns about government finances. Investors are instead assessing whether rising debt-servicing costs will further squeeze the government’s fiscal headroom ahead of the October Budget.
KPMG estimates that fiscal headroom could fall to around £12 billion from £23.6 billion in March, adding to speculation over what measures could be announced next month.
US Dollar Today: Fed Rate Hike Keeps Greenback Supported The other side of the GBP/USD exchange rate remains dominated by the Federal Reserve. The US Dollar has held close to a seven-week high after the Fed raised interest rates by 25 basis points last week, taking the federal funds target range to 3.75%-4.00%.
More importantly for currency markets, policymakers indicated that further tightening may be necessary this year.
Comments from Fed officials have since reinforced that message. Chicago Fed President Austan Goolsbee and St. Louis Fed President Alberto Musalem have both indicated that tighter monetary policy may still be required to bring inflation sustainably back toward target.
That has helped maintain the Dollar’s interest-rate advantage and kept pressure on GBP/USD even as the Pound attempts to stabilise.
Bank of England Interest Rates: Markets Scale Back Hike Bets The Bank of England interest rate outlook is moving in the opposite direction. The BoE left rates unchanged last week, while a retreat in crude oil prices has subsequently reduced some of the urgency surrounding another UK rate increase.
Brent crude fell toward $100 per barrel after President Donald Trump left open the possibility of a diplomatic solution with Iran and additional regional supplies helped ease immediate concerns over shortages.
Lower energy prices matter for the UK because they reduce the risk that the recent oil shock feeds more persistently into inflation. For Sterling, however, that also means markets have less reason to price aggressive BoE tightening.
The resulting Fed-BoE policy divergence has become an important driver for GBP/USD: US policymakers are signalling additional tightening while expectations for another UK hike have softened.
GBP/USD Forecast: Can the Pound Recover Above 1.3400? The GBP/USD forecast remains cautious after the Pound’s sharp decline during September. GBP/USD is trading near 1.3368, below its 20-day moving average at approximately 1.3490. The pair has also fallen below the rising trend that had supported the recovery from its June lows.
The immediate level to watch is 1.3400. A sustained recovery above it could ease some of the current downside pressure, with 1.3490-1.3500 forming the next important area.
On the downside, 1.3300 provides the first major psychological level. A deeper decline would bring the late-July region around 1.3275 into focus, followed by 1.3200.
The broader direction will depend less on any single technical level than on the evolving Fed-BoE interest-rate gap and the UK’s fiscal outlook. For now, both have moved against Sterling, leaving GBP/USD vulnerable while it remains below 1.3500.
Why is GBP/USD falling today?
GBP/USD is under pressure after UK government borrowing exceeded forecasts while the US Dollar remains supported by expectations for further Federal Reserve rate hikes. UK borrowing reached £18.3 billion in August, renewing concerns about the government’s fiscal position ahead of the October Budget.
Will the Bank of England raise interest rates again in 2026?
Expectations for another Bank of England rate hike have weakened as oil prices retreat from recent highs. The BoE left rates unchanged at its September meeting, and markets are now assessing whether easing energy costs will reduce the need for additional tightening.
What is the GBP/USD forecast after the Fed rate hike?
The GBP/USD outlook remains under pressure while the pair trades below 1.3500. Further Fed tightening could maintain support for the Dollar, while a recovery in Sterling would likely require either stronger UK fundamentals or a reduction in expectations for additional US rate hikes.
NZD/USD zůstává pod tlakem kvůli širokému výnosovému náskoku USA vůči Novému Zélandu, který je historicky neobvykle velký. Pár minulý týden klesl na nová několikaměsíční minima.
US two-year yield advantage has rarely been this wide
NZD/USD rate correlation hits 99.6th percentile since 2000
Bearish four-hourly structure keeps downside breaks in focus
Fed speak looms as key near-term directional catalyst
The RBNZ’s dovish hike earlier this month, coupled with a hawkish repricing of the US interest rate outlook, has delivered a hammer blow to NZD/USD, sending the pair to fresh multi-month lows last week.
I recently described USD/CAD as perhaps one of the best-trending major G10 FX pairs around. Looking at NZD/USD, you could make a similar argument.
Since the corrective bounce following the RBNZ’s meeting earlier this month ran out of steam, it’s been almost one-way traffic, extending a broader bearish trend that’s been in place since late August.
What makes this unwind especially interesting is that it appears to have been significantly influenced by shifts in the relative front-end interest rate outlook for New Zealand and the United States, likely explaining much of the price action seen over the past month.
And with NZD/USD now carving out what resembles a bearish continuation structure, the move may not be done yet.
Rate gap reaches rare territory
For a commodity currency that’s historically been closely aligned with risk appetite and the outlook for the global economy, the Kiwi’s had an almost unhealthy focus on relative rates this year, especially since the RBNZ’s September meeting, where it delivered a dovish hike, taking the overnight cash rate to 2.75%.
Source: LSEG
That’s helped drive a significant widening in the US two-year yield advantage over New Zealand, which has blown out to around 87.5 basis points. On a historical basis, that’s an unusually wide gap, sitting around the bottom 2% of observations since 2000.
The relationship with NZD/USD has strengthened dramatically at the same time. The 20-session correlation between daily moves in the pair and daily changes in the NZ-US two-year spread has climbed to around +0.81, putting it near the 99.6th percentile of observations since 2000.
It’s not just a very short-term phenomenon either. The current 40-session correlation sits around +0.53, while the 60-session measure is around +0.61, suggesting that rather than risk appetite or commodity market movements, it’s been relative front-end rates that have been driving the bus for the Kiwi over recent months.
Source: LSEG
It also helps explain why the current bearish trend has been so persistent despite broader risk conditions remaining firm. Put bluntly, rather than being driven by a conventional risk-off shock, the downside pressure has largely come from the shifting rates outlook, with US yields helping to drive the dollar higher in response.
And with that yield advantage sitting near historically extreme levels, there’s little in the rates picture yet to suggest the pressure on NZD/USD has meaningfully eased, making relative front-end rates the focal point when assessing directional risk for the pair.
Bears wait for confirmation
Turning to the technicals, and demonstrating the beautiful trending nature of the pair flagged in the introduction, NZD/USD finds itself coiling within something akin to a rising wedge structure on the four-hourly, having hit fresh multi-month lows last week.
Given the prevailing trend, selling into strength is still favoured, along with potential downside breaks. Of course, we haven’t seen a break of the structure as yet, so until that takes place, patience is warranted.
Source: TradingView
Levels to focus on in the near term are the 23.6% Fib retracement of the May to June bear move, along with 0.5704, the low hit on September 17. If we were to see a break of the lower side of the structure that extends beyond 0.5704, it would create a setup where shorts could be established beneath the level with a tight stop above for protection, initially targeting a retracement towards 0.5680, where the price bounced on a couple of occasions in early July.
Below that, 0.5660 is the next level of note, having acted as both resistance and support for periods in June this year. If that were to break, bears would likely be eyeing off a retest of the swing low set in June at 0.5627.
If we were to see a bounce in the pair in the near term, the upper end of the structure is the first level of note, along with 0.5750. The latter is a minor level that has acted as both support and resistance at times this year, reinforcing the need to wait for confirmation before setting bearish trades.
The message from the oscillators is one of gradually diminishing downside pressure. While RSI (14) and MACD continue to favour short setups over longs, both have been grinding higher over the past few days. Unless we were to see a fresh low print in RSI (14) and MACD curl back lower and cross beneath the signal line, delivering a bearish crossover, it’s another indicator pointing to the need for patience before looking to pounce.
Fed speak takes centre stage
There’s not a great deal on the economic calendar this week that screens as likely to move NZD/USD materially, which suggests Fed speak looms as the most likely catalyst to generate directional cues from a fundamental perspective.
We saw Chicago Fed President Austan Goolsbee out overnight delivering another hawkish message, suggesting persistent inflation pressures could warrant more hikes than the median one additional move signalled by the Fed in its latest dot plot at the September FOMC meeting.
But with markets already pricing another 75 basis points of hikes by the June meeting next year, you could argue the near-term risks around the Fed outlook are skewed towards a slightly less hawkish outcome.
That makes New York Fed President John Williams’ speech later Tuesday worth watching closely. Williams has often come across as a little more dovish than the consensus view on the committee, suggesting there may be grounds for a pop in NZD/USD should he continue down that path, despite voting for a hike last week.
