Forex News
Commerzbank’s Volkmar Baur explains that the PBoC will shift its operational policy rate from the 7‑day to the overnight reverse repo, aligning with actual money‑market usage and previously signaled testing at 1.25%. Bond yields and markets had already priced this lower rate, and Commerzbank still expects a gradual appreciation of the CNY, driven more by PBoC guidance than rate differentials.
Operational change, unchanged FX outlook
"The People’s Bank of China (PBoC) announced yesterday that it intends to make a slight adjustment to the operational implementation of its monetary policy. At present, the central bank uses the 7-day reverse repo rate as its policy rate to steer the 7-day repo rate between deposit-taking institutions in the money market. The PBoC has now announced that it will switch to the overnight reverse repo rate as its policy rate, with the overnight interbank repo rate becoming its new money-market target."
"This may sound rather technical, but for the exchange rate the key point is simple: in essence, nothing really changes. Admittedly, the PBoC’s 7-day reverse repo rate currently stands at 1.4%, while the overnight rate is set to be 1.25%, which at first glance looks like a rate cut. However, markets had already anticipated this development."
"Trading volumes tell a similar story. Deposit-taking institutions have in any case been using the overnight repo market much more heavily than the 7-day market for years. Over the past five years, average daily volumes in the overnight repo market have been around 30 times higher than in the 7-day repo market."
"Bond markets had also anticipated a lower policy rate for some time. Yields on 2-year Chinese government bonds have been hovering around 1.25% since the end of April, while even 3-year government bond yields have been only slightly higher since June."
"Aside from the fact that the CNY exchange rate tends to respond more strongly to the PBoC’s guidance than to interest-rate differentials anyway, the change in the policy framework should therefore do little to alter our expectation of a continued gradual appreciation of the CNY."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
MUFG’s Michael Wan reports Indonesia has pledged new equity-market reforms to restore investor confidence, including excluding tightly owned stocks from the Jakarta Composite Index and disclosing affiliations of 1%+ shareholders. He notes these measures target transparency and coordinated trading concerns, but implementation timing and MSCI’s assessment are key, with investors still hedging against short- to medium-term Indonesian Rupiah downside.
Reforms meet lingering FX caution
"Indonesia’s pledged new equity-market reforms yesterday to restore a semblance of investor confidence, although the implications for foreign participation will depend on implementation and MSCI’s assessment."
"The exchange plans to exclude tightly owned stocks, accounting for around 18% of benchmark weight, from the Jakarta Composite Index. It will also disclose whether shareholders owning at least 1% are affiliated with the company."
"These steps address concerns over ownership transparency and coordinated trading, but implementation timelines remain pending. For now, investors have placed hedges against further IDR downside in the short-medium term."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Gold falls 0.43% despite declining US Treasury yields.
- October Fed hike odds stand at 14%, rising for December.
- BoE and BoJ tightening signals weigh on XAU’s recovery prospects.
Gold (XAU/USD) drifts lower on Tuesday even as US Treasury yields dive and the US Dollar weakens, with a light US economic docket mostly ignored by investors ahead of Federal Reserve’s (Fed) meeting next week. At the time of writing, XAU/USD trades at $4,122, down over 0.43%.
XAU/USD slips despite weaker Dollar and yields as central banks signal further tightening
Overall, bullion is poised to consolidate further after last week’s remarks by Fed officials that they are not in a rush to hike rates in October, which investors considered. Consequently, money markets have priced in a 14% chance for an October Fed hike, but for December, the odds are near 90%, according to Prime Terminal.
This week, the US economic schedule is very light. Fed officials commenced their blackout period, which will end with Fed Chair Kevin Warsh's press conference on October 28.
Meanwhile, investors are leaning on US housing data, which showed the effect of higher US bond yields: high mortgage rates are the main reason US Pending Home Sales collapsed by 7.3% in September. Ahead in the week, investors eye Initial Jobless Claims for the week ending on Thursday, forecast to rise from 199K to 200K. Alongside this, S&P Global Flash PMIs will provide an update on sentiment among businesses in the US, and the University of Michigan Consumer Sentiment Index will release its final reading for October.
Major central banks expected to increase rates
In the meantime, officials from major central banks are signaling further monetary policy tightening, a headwind for Gold, which usually fares well in low-interest-rate environments.
Bank of Japan (BoJ) Governor Kazuo Ueda recognized that core inflation is “quite close” to the 2% goal, though hinted at further rate hikes. Bank of England (BoE) Megan Greene said that the risks of second-round inflation effects are higher than thought, adding that the current policy stance “is not restrictive enough.”
XAU/USD technical analysis: Gold pressured below $4,200, eyes on $4,100
Gold trades laterally within $ 4,100 and $4,200, extending its losses for the third straight day, even though it has shown signs of bottoming out near the lower end of the range. Nevertheless, uncertainty continues to weigh on bullion prices, with speculation that the Fed could raise rates in December.
Momentum favors further downside as the Relative Strength Index (RSI) remains bearish, although it has flattened somewhat.
For a bearish continuation, sellers must clear $4,100. Once surpassed, the next stop is the October 14 low at $4,073, ahead of the July 29 cycle low at $3,996. On further weakness, the next areas of interest are the July 17 low at $3,959 and the year-to-date (YTD) low at $3,941.
For a bullish reversal, XAU/USD’s first resistance is $4,200, followed by the 100-day Simple Moving Average (SMA) at $4,235. Above sits the 50-day SMA at $4,321, with the $4,500 mark above it.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
- DJIA hits its highest in more than five weeks and ends near 52,500.
- UnitedHealth, Amazon, IBM and 3M add the most points as Treasury yields fall.
- IBM reports Wednesday, with Honeywell and Procter & Gamble due Thursday.
Artificial intelligence (AI) stocks pulled the NASDAQ 100 lower on Tuesday, but the Dow Jones Industrial Average (DJIA) rose to its highest in more than five weeks on earnings and cheaper crude Oil. It climbed from the opening bell to just above 52,700. It fell to about 52,400 in one five-minute bar when a diplomat in the US-Iran talks called reports of a close deal wrong, and it ended just under 52,500.
Health care led the S&P 500's sectors, and UnitedHealth (UNH), Amazon (AMZN), IBM (IBM) and 3M (MMM) added the most points to the price-weighted Dow. 3M raised its 2026 profit forecast to $9.10-$9.15 a share and issued Amazon a warrant for up to 3.2 million shares tied to $6 billion of data centre sales. UnitedHealth, which reported on October 13, added about three times as many points as 3M.
Crude Oil fell and the 10-year Treasury yield fell with it, a week after higher yields and worries over AI debt gave US stocks their worst week since June. Korean AI firm Elice fell more than 30% in its Seoul debut. Nvidia (NVDA) and Microsoft (MSFT) both rose anyway, so the AI selling took little off the Dow.
On the calendar
IBM reports on Wednesday with a call at 21:00 GMT, and Honeywell (HON) and Procter & Gamble (PG) report before the opening bell on Thursday, with calls at 12:30 GMT. American Express (AXP) follows before the opening bell on Friday, the fourth Dow member to report in three days.
Initial jobless claims are due on Thursday at 12:30 GMT, forecast at 200K after 199K. The flash Purchasing Managers' Index (PMI) surveys from S&P Global come out on Friday at 13:45 GMT, with services forecast at 57.9 after 58.8. Both feed the Fed's October 28 decision on whether to raise rates again.
On the charts
The Dow ended back over its 50-day Exponential Moving Average (EMA), now near 52,000, after dipping under it on Friday and Monday. It has won back nearly half of its drop from the August peak just above 54,700 to the October 1 low, which held just above the 200-day EMA near 50,500. Daily momentum is at the edge of overbought for the first time since early July.
DJIA daily chart
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
Commerzbank’s Charlie Lay and Dr. Henry Hao highlight Malaysia’s strong September trade data, with exports and imports far exceeding expectations and the trade surplus widening further. Combined with subdued CPI and core inflation, this supports Bank Negara Malaysia’s hawkish bias while allowing flexibility on timing. The authors expect the Overnight Policy Rate to stay at 2.75% near term, with a possible hike in early 2027 and USD/MYR holding in a 4.00–4.10 range.
MYR supported by trade surplus
"The stronger-than-expected trade performance suggests upside risks to the advance Q3 GDP growth estimate of 5.3% yoy. It reinforces expectations that full-year growth could reach the upper end of the government's revised 4.8–5.3% forecast range. The economy expanded 5.6% in the first three quarters this year, implying around 2.5-4.5% growth in Q4 to hit the government’s full-year target."
"Headline inflation averaged just 1.8% in the first nine months, remaining comfortably within the government's 2026 forecast range of 1.5–2.5%. Looking ahead, inflation is projected to rise modestly to 1.8-2.8% in 2027, reflecting higher energy, food and other input costs. However, fuel subsidies, price controls and a relatively stable MYR should help contain the transmission of higher global commodity prices to consumer prices."
"In terms of implications for monetary policy, the combination of resilient economic growth and subdued inflation provides BNM with some flexibility over the timing and direction of its next policy adjustment. The strong export data supports an increasingly hawkish policy bias, but the softer inflation reading reduces the urgency for an immediate rate hike. Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) at 2.75% in September but removed its previous description of the policy stance as "appropriate", signalling greater flexibility to adjust rates."
"Governor Abdul Rasheed Ghaffour subsequently indicated that BNM has room to act should inflation pressures intensify. We expect BNM to hold rates steady at its next meeting on 5 November. A 25bp hike to 3.00% in early 2027 is possible if growth remains resilient and inflationary pressures build. For MYR, supportive factors come from the combination of strong external demand and a substantial trade surplus. USD/MYR has been relatively stable between the 4.00-4.10 range since July."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Royal Bank of Canada’s (RBC) Claire Fan highlights that the Q3 Canadian Business Outlook Survey underscores a difficult growth-inflation trade-off for the Bank of Canada (BoC) ahead of its next decision. While firm conditions improved into August, sentiment weakened after Canada-U.S. trade talks collapsed, with inflation expectations rising. RBC still expects no rate hikes until 2027 but notes risks skewed toward earlier moves.
BoC weighs fragile growth against inflation
"The Q3 Business Outlook Survey highlights the increasingly contentious growth-inflation trade-off confronting the Bank of Canada ahead of its upcoming policy decision."
"Odds for an October BoC rate hike rose significantly over the weekend following Governor Macklem's hawkish comments."
"But this morning's September CPI data showed core inflation measures averaging 1.9%, while the separate consumer survey suggested weaker spending intentions ahead."
"We continue to see fragile economic recovery as the biggest counterweight to heitened inflation risks, and expect caution from the BoC, especially when rising bond yields are already tightening financial conditions and raising borrowing costs for businesses and households."
"Risks to our base case forecast of no rate hikes until 2027 are tilted toward earlier moves – including potentially as early as next week’s Decision."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Megan Greene, a member of the Bank of England's (BoE) Monetary Policy Committee (MPC), said on Tuesday that she is concerned “over [the] BoE estimate of target-consistent pay growth,” and added that more wage disinflation is needed to meet the Consumer Price Index (CPI) target.
Greene is worried that the monetary policy stance “is not restrictive enough,” and added that “inflation expectations are anchored above norms.”
Key highlights:
Have concerns over BoE estimate of target-consistent pay growth
Wage growth of 3% consistent with 2% inflation
Need more wage disinflation to meet CPI target
People notice inflation when it is above 3%
Will continue to have a lot of supply shocks
Need to worry that stance is not restrictive enough
Inflation expectations are anchored above norms
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
MUFG’s Michael Wan notes China’s Q3 GDP growth firmed to 4.5% year-on-year, slightly above consensus, with September industrial production accelerating and fixed asset investment contractions narrowing. He highlights that stronger production keeps the annual growth target within reach but domestic demand and property investment remain uneven, which is crucial for assessing the sustainability of support for the Chinese Yuan.
Growth improves but demand uneven
"China’s economy gained momentum in Q3, led by stronger industrial production, although domestic demand remained uneven. GDP growth rose to 4.5%yoy from 4.3%yoy, slightly above consensus of 4.4%yoy, leaving growth at 4.6%yoy YTD. September industrial production accelerated to 5.5%yoy, while the monthly contraction in fixed asset investment narrowed after four months of double-digit declines."
"Stronger production has yet to translate into a convincing recovery in household demand or property investment. Retail sales improved to 1.1%yoy from 0.4%yoy, greatly exceeding the 0.5%yoy estimate, with it benefiting from the Mid-Autumn Festival falling in September."
"The improvement in production and narrower monthly investment contraction helped keep the annual GDP target within reach. For CNY, firmer activity provides a more supportive domestic backdrop, although the composition of growth remains important in assessing whether this improvement can be sustained."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
The US Dollar (USD) has further extended its corrective move on Tuesday, at some point easing to three-week lows, as investors continued to assess hopes of a potential US-Iran agreement, as per still-unconfirmed news.
The US Dollar Index (DXY) has retreated for yet another day, briefly revisiting the 101.50 region, or three-week troughs, always on the back of a firm improvement in the risk-associated universe. The usual MBA Mortgage Applications are due next, followed by the EIA’s weekly report on US crude oil stockpiles.
EUR/USD has added to the current rebound, although the bull run faltered around 1.1260. Next on the domestic calendar will be the flash Consumer Confidence in the euro area on Thursday.
GBP/USD has gathered extra steam, advancing to five-week highs just past 1.3400. The release of the key Inflation Rate takes centre stage across the Channel as well as Public Sector Net Borrowing figures.
USD/JPY has kept its sidelined theme well in place, this time trading on the back foot and returning to the low 158.00s. The Balance of Trade results will be the salient event on the Japanese calendar.
AUD/USD has clinched its third consecutive day of gains, finally challenging the key 0.7000 threshold. Next on the Australian docket will be the advanced S&P Global Manufacturing and Services PMIs on October 23.
Front-month West Texas Intermediate (WTI) futures have come under fresh downside pressure despite hitting tops past the psychological $100.00 mark per barrel earlier in the day. Hopes of an agreement to end the Middle East crisis appear to have dented the recent strong upside traction in the commodity.
Gold has built on the previous weakness, easing to the boundaries of the $4,100 mark per troy ounce on Tuesday. The precious metal’s retracement has come despite the weaker US Dollar and mostly declining US Treasury yields across the board.
Commerzbank’s Dr. Vincent Stamer analyzes Euro area inflation, highlighting that high energy costs are already feeding into goods and services prices. The bank’s Quant Model projects headline inflation near 4% in coming months and core inflation rising above 3% over the next year. This profile suggests the European Central Bank may need to revise forecasts and raise interest rates again.
Energy-driven core inflation and ECB outlook
"Core inflation in the euro area is currently rising only slowly. However, a closer look at the inflation details shows that high energy prices are already pushing up the prices of goods and services. Next year, this indirect effect is likely to intensify noticeably, causing the core rate to rise further."
"Our Quant Model forecasts a gradual rise in the core rate to over 3% for the next twelve months. In this case, the ECB would have to revise its forecasts upward again and is likely to raise key interest rates once more."
"As in recent months, the model – using data as of October 16 – forecasts an inflation rate of just under 4% for the coming months. Inflation is not expected to decline again until spring, due to base effects and lower oil prices."
"According to our forecasts, core inflation is expected to rise from its current level of 2.5% to over 3% by the fall of next year. This is because companies have been paying high energy prices for more than half a year and are now increasingly passing these costs on."
"Based on our current forecasts, the ECB is likely to raise its expectations again in December. This supports our expectation of an ECB interest rate hike in December."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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