Forex News
- USD/CAD gains ground to near 1.4220 in Wednesday’s early European session.
- Softer US employment data pare bets of an imminent Fed rate hike.
- The Fed Minutes will be the highlight later on Wednesday.
The USD/CAD pair gathers strength to around 1.4220 during the early European trading hours on Wednesday. All eyes will be on the Minutes of the Federal Open Market Committee (FOMC) later in the day for signals on a potential rate hike.
Traders lower their bets on the Federal Reserve (Fed) rate hike at its October policy meeting following the soft US jobs data. However, markets are still expecting more increases later in the year and next year.
The US Nonfarm Payrolls (NFP) rose by 29K in September, versus a rise of 133K prior, below the market consensus of 90K, according to the US Bureau of Labor Statistics (BLS) on Friday. Meanwhile, the Unemployment Rate climbed to 4.2% in September from 4.1% in August.
Kansas City Fed President Jeff Schmid said on Tuesday that the central bank still needs to raise its policy rate further to tame inflation, even if higher long-term yields are weighing on activity in some parts of the US economy.
The odds of a rate hike of at least 25 basis points (bps) in October stand at 21.6%, from about 51% a week ago, according to the CME FedWatch tool. Markets are pricing in an 86.2% probability of a rate increase at the December meeting.
"With little forward guidance from Chair (Kevin) Warsh, markets have reacted sharply to each US data release and policymaker speech," said Commonwealth Bank of Australia currency strategist Samara Hammoud. "We expect the Fed to wait until December before hiking again,” Hammoud added.
Crude oil prices rose on Wednesday as the market weighed supply constraints from a storm heading for US oil-producing regions and attacks by Yemen's Iran-backed Houthis on Saudi Arabia against increased supplies of Middle East crude. It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the Loonie.
Canada’s political fault lines widen as separatist momentum builds
Analysts at Rabobank highlight rising political fragmentation in Canada, noting that “the separatist Parti Québécois won around 30 percent of the vote in Monday’s provincial election, gaining 59 of 127 seats—just shy of a majority but enough to form a minority government.” They add that tensions are not confined to Quebec, with Alberta “to vote on its own independence (or at least, the process to start considering independence) from Canada on October 19,” underscoring a broader increase in domestic political uncertainty.
Fed’s Schmid flags AI-driven price pressures, keeps hawkish bias alive
Fed’s Schmid delivers a slightly more hawkish tone relative to the historical average, with an 8/10 FXS Speechtracker score versus a 7.5/10 baseline, underscoring persistent concern about inflation. The emphasis that the labor force “remains in a good place” alongside the assertion that “AI is now one of the largest drivers of inflation” and that the Fed’s credibility is at stake signals a willingness to lean on the short end of the curve despite already elevated long-term yields. Overall, the message that “we still have a way to go in beating inflation” reinforces a bias toward keeping policy restrictive for longer, supporting the Dollar on balance.
The FXS Fed Sentiment Index rose by 0.34 points to 137.91, confirming that the latest remarks push the aggregate Fed tone further into hawkish territory. With the index well above the neutral 100 mark and the FXS Speechtracker score elevated, markets are likely to interpret Schmid’s comments as supportive of higher-for-longer short rates, a backdrop that typically underpins the Dollar against lower-yielding peers.
Technical Analysis: USD/CAD keeps a bullish vibe in the near term
In the daily chart, USD/CAD maintains a bullish near-term bias as spot holds above both the 100-day simple moving average (SMA) and the Bollinger Bands’ 20-day middle band. Price is pressing into the upper half of the recent range, with the upper Bollinger band acting as the next topside cap, while the Relative Strength Index (14) near 69.5 flirts with overbought territory, hinting that upside momentum is strong but increasingly stretched.
On the downside, initial support emerges at the Bollinger middle band around 1.4085, ahead of a deeper structural floor at the 100-day SMA near 1.4005, with the lower Bollinger band down at 1.3820 reinforcing the broader bullish structure. On the topside, the only nearby resistance is defined by the upper Bollinger band at 1.4355, and a clear break above this barrier would open the door for an extension of the uptrend while a failure there could trigger a corrective pullback towards the cited supports.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
MUFG’s Michael Wan highlights that USD/JPY is still trading above 158, but Governor Ueda’s comments point to further Bank of Japan (BoJ) policy normalisation. Ueda stressed anchoring inflation around 2% and noted upside risks from imports, AI demand and JPY weakness. Wan remains constructive on the Japanese Yen, though further gains likely need faster BoJ rate hikes to validate market expectations.
BoJ stance key for Yen outlook
"USD/JPY continues trading above the 158 level, although Governor Ueda’s remarks continued to point towards further BoJ policy normalisation."
"Ueda emphasised the importance of anchoring underlying inflation around 2% and highlighted upside risks from import costs, AI-related demand and JPY weakness."
"Meanwhile, the 10-year JGB auction drew stronger-than-average demand as yields above 3% attracted buyers, suggesting investors are better compensated for duration risk despite lingering fiscal concerns."
"However, the solid auction result may also limit further upward pressure on yields."
"Our global team remains constructive on the yen, but further gains will likely require the BoJ to validate expectations for a faster pace of rate hikes, particularly after the GPIF report prompted some unwinding of recent JPY strength."
"The report was interpreted as signalling continuity in portfolio allocation rather than a meaningful shift towards domestic assets, dampening expectations for an additional source of structural JPY demand and prompting some unwinding of long-JPY positions."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Here is what you need to know on Wednesday, October 7:
The US Dollar (USD) Index stays in positive territory near 102.00 in the European morning on Wednesday after closing in negative territory on Tuesday. Later in the American session, the Federal Reserve (Fed) will publish the minutes of the September policy meeting and the US Treasury will hold a 10-year note auction.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.30% | 0.21% | 0.09% | 0.09% | 0.18% | 0.29% | 0.11% | |
| EUR | -0.30% | -0.09% | -0.16% | -0.22% | -0.12% | -0.01% | -0.20% | |
| GBP | -0.21% | 0.09% | -0.08% | -0.12% | -0.02% | 0.09% | -0.08% | |
| JPY | -0.09% | 0.16% | 0.08% | -0.03% | 0.07% | 0.16% | -0.00% | |
| CAD | -0.09% | 0.22% | 0.12% | 0.03% | 0.10% | 0.21% | 0.04% | |
| AUD | -0.18% | 0.12% | 0.02% | -0.07% | -0.10% | 0.11% | -0.06% | |
| NZD | -0.29% | 0.01% | -0.09% | -0.16% | -0.21% | -0.11% | -0.16% | |
| CHF | -0.11% | 0.20% | 0.08% | 0.00% | -0.04% | 0.06% | 0.16% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The benchmark 10-year T-bond yield corrected lower on Tuesday and caused the USD to weaken against its major rivals. Early Wednesday, the 10-year yield regains its traction and holds above 5.3%, supporting the USD. In the meantime, US stock index futures lose between 0.1% and 0.2% to start the European session, reflecting a cautious market stance.
US long-end under pressure as Danske Bank flags risk of 6% yields
Analysts at Danske Bank note that “the pressure is on the long end of the US Treasury curve given not only supply of Treasuries but also from the hyperscalers.” Against this backdrop, they warn that “we do see the risk of 10Y and 30Y Treasuries hitting 6% as investors demand a higher premium for the long end,” highlighting growing concerns over term premia at the back end of the curve.
US Vice President (VP) JD Vance said that Iran must reduce nuclear enrichment capacity to satisfy US demands and end the countries’ seven-month war, Reuters reported late Tuesday. Vance added that Washington retained open to an agreement but would require concrete Iranian nuclear concessions. At the same time, the Saudi-led coalition in Yemen said that it intercepted and destroyed a ballistic missile launched by the Houthi group toward Khamis Mushait in southwestern Saudi Arabia. After rising about 1% on Tuesday, crude Oil prices hold steady midweek, with the barrel of West Texas Intermediate (WTI) trading little changed on the day, at around $89.50.
The data from Germany showed earlier in the day that Industrial Production increased by 2% on a monthly basis in August. This print followed the 1.2% decrease recorded in July and came in better than the market expectation of 0.5%. Nevertheless, the Euro (EUR) failed to benefit from this data and EUR/USD was last seen losing 0.3% on the day at 1.1225, pressured by France's debt issues and the political turmoil in Spain.
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) announced on Wednesday that it raised the benchmark Repo Rate by 25 basis points (bps) to 5.50% from 5.25% following the conclusion of the October monetary policy meeting. This decision came in line with the market expectation and didn't allow the Indian Rupee (INR) to gather strength. As of writing, USD/INR was trading at its highest level since late May at 96.70, rising about 0.3% on the day.
USD/JPY continues to edge higher and trades above 158.00 in the European session on Wednesday after posting marginal gains for two consecutive days.
GBP/USD fails to build on Tuesday's recovery gains and trades in the red at around 1.3250 early Wednesday.
Gold turns south as US T-bond yields rebound and trades below $4,150, losing about 0.7% on the day.
TD Securities analysts note that “weaker data, decreasing rate hike odds, a continued bid from discretionary traders, ETFs, and central banks have been enough to see gold hold firm in the face of surging real rates,” underscoring the depth and breadth of current demand supporting the market.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Danske Research Team observes US equities extending their rebound, with the S&P 500 and Nasdaq posting fresh record highs and cyclical laggards leading gains. The team argues markets are not excessively optimistic, noting valuation multiples have compressed over the past year and quarter. They stress that future nominal earnings growth remains the key driver of broad equity performance despite energy and rate headwinds.
Record highs framed by cheaper valuations
"Equities continued its rebound yesterday, with both the S&P 500 and Nasdaq reaching fresh record highs, gaining 0.5-0.6% respectively. Unlike earlier this week, yesterday's session had a clear relief-rally character. Some of the weakest-performing sectors in recent months led the market higher, with utilities, real estate, and consumer discretionary up between 1% and 3% on the day."
"New all-time highs may seem inconsistent with the renewed escalation in the Middle East, sticky high oil prices, rallying bond yields and central banks' increasingly tightening. However, it is worth remembering that the S&P 500 has already shed roughly a fifth off its valuation multiple over the past year. Only over the last quarter, S&P 500 has become 5% cheaper, even after the recent rebound."
"For that reason, we disagree with the view that equity markets are excessively optimistic. In our view, markets have priced the current earnings backdrop fairly conservatively throughout this year."
"The fact that equities, credit markets, and bonds have reacted differently in recent weeks does not necessarily mean that one asset class is right and another is wrong. Rather, they represent different things."
"For equities, the dominant driver is future nominal earnings growth. The energy shock is visible, more so in certain sectors than others, and higher rates are restraining parts of the market. Nevertheless, earnings remain the key determinant of broad equity performance, provided that returns on investment continue to grow faster than the discount rate, which, so far, is the case."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- EUR/USD gives away Tuesday's gains on Wednesday and drops to session lows at 1.1225 so far.
- German Industrial Production beat expectations in September, but Brent Oil prices above $100 weigh heavily on the Euro.
- The US Dollar appreciates against its main peers with all eyes on the minutes of the latest Fed meeting.
The Euro (EUR) heads south against the US Dollar (USD) on Wednesday, giving away Tuesday's gains weighed by rising Oil prices and broad-based US Dollar strength ahead of the release of the minutes of the last Federal Reserve (Fed) meeting. The EUR/USD pair is trading at session lows in the area of 1.1225, down from Tuesday’s highs at 1,1275, and unfazed by the strong German Industrial Production release.
Data from the German official statistics office revealed that the country’s factory output bounced up 2% in September, largely reversing August's 1.2% decline and beating expectations of a 0.5% increment. Year-over-year, Industrial Production increased 2.3%, following a 1.6% contraction in the previous month.
Markets have ignored these figures, as a mild risk-averse mood prevails, with fresh tensions in the Middle East boosting Oil prices again. The price of the Brent Oil barrel has climbed back above $100, levels that pose critical pressure on the Eurozone’s economic growth.
Le Pen’s savings plans thrilled investors on Tuesday
The Euro found some relief on Tuesday as the far-right Marine Le Pen, the best-positioned candidate to win next year’s presidential elections, announced a plan to cut spending. Le Pen vowed to save costs by EUR 140 billion in the next five years, and bring the fiscal deficit to levels below 3% by 2030 from the current 5.1%. The plan thrilled investors. French government bond yields retreated from multi-decade highs and the EUR/USD bounced to the upper range of the 1.1200s from 17-month lows, near 1.1160 on Monday.
The US Dollar, on the other hand, is regaining lost ground against its most peers on Wednesday, as investors brace for the release of the minutes of September’s Federal Open Market Committee (FOMC) meeting due later in the day. The Fed hiked rates by 25 basis points for the first time in three years and hinted at further tightening ahead.
Soft US inflation and labour figures have prompted investors to dial down hopes of another rate hike in October. The overall US economy, however, remains resilient, and inflation is well above the Fed's target, which keeps futures markets hopeful that the bank will hike rates again in December and at least one more time in the first quarter of 2027, according to the CME’s Fed Watch Tool.
Economic Indicator
Industrial Production s.a. (MoM)
The Industrial Production released by the Statistisches Bundesamt Deutschland measures outputs of the German factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. A high reading is seen as positive (or bullish) for the EUR, whereas a low reading is seen as negative (or bearish).
Read more.Last release: Wed Oct 07, 2026 06:00
Frequency: Monthly
Actual: 2%
Consensus: 0.5%
Previous: -1.1%
Source: Federal Statistics Office of Germany
Economic Indicator
Industrial Production n.s.a. w.d.a. (YoY)
The Industrial Production released by the Statistisches Bundesamt Deutschland measures outputs of the German factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. A high reading is seen as positive (or bullish) for the EUR, whereas a low reading is seen as negative (or bearish).
Read more.Last release: Wed Oct 07, 2026 06:00
Frequency: Monthly
Actual: 2.3%
Consensus: -
Previous: -1.6%
Source: Federal Statistics Office of Germany
ING analysts Warren Patterson and Ewa Manthey note that Oil supplies from the Persian Gulf are improving, but ICE Brent remains supported above $100/bbl as ongoing attacks on ships keep regional supply risks elevated. They highlight a tug-of-war between better flows and lingering threats, arguing that sustainably lower prices would require these risks to be resolved.
Brent supported by regional risks
"The oil market traded under pressure for much of the session yesterday, with ICE Brent trading down towards $97/bbl. However, with supply risks from the Persian Gulf still very real — with continued attacks on ships — the market still managed to settle above $100/bbl. There is a clear tug-of-war at the moment between improving supply from the region and lingering threats to supply."
"Clearly, it’s looking as though the only way to see prices trade sustainably lower is for lingering risks to be addressed. For now, the market is likely to remain nervous to any potential supply disruptions."
"One part of [the] oil market seeing more weakness recently: middle distillates. The ICE gasoil crack is trading around $73/bbl, down from a little more than $90/bbl in September. The prospect of diesel releases from European strategic reserves, along with the reduced risk of a US diesel export ban, has taken some pressure off the market."
"However, it’s only the front-end of the curve which has seen weakness, with cracks further along the curve remaining better supported. This reflects diesel releases being frontloaded. The market is also of the view that this is a temporary fix that doesn’t solve the underlying tightness in the middle distillate market."
"In order to solve this, the market needs to see a normalisation in Persian Gulf and Russian diesel flows. This clearly seems unlikely anytime soon."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- The US Dollar reflects strength ahead of the FOMC minutes release later in the day.
- Fed officials have signaled no urgency for another interest rate hike.
- Oil prices bounce back amid fears of storm hitting US energy capacity.
The US Dollar (USD) trades higher against its major peers ahead of the release of Federal Open Market Committee (FOMC) minutes of the September policy meeting at 18:00 GMT.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.31% | 0.22% | 0.17% | 0.11% | 0.22% | 0.34% | 0.19% | |
| EUR | -0.31% | -0.09% | -0.12% | -0.20% | -0.08% | 0.02% | -0.13% | |
| GBP | -0.22% | 0.09% | -0.04% | -0.09% | -0.00% | 0.13% | -0.01% | |
| JPY | -0.17% | 0.12% | 0.04% | -0.07% | 0.05% | 0.16% | 0.02% | |
| CAD | -0.11% | 0.20% | 0.09% | 0.07% | 0.11% | 0.24% | 0.10% | |
| AUD | -0.22% | 0.08% | 0.00% | -0.05% | -0.11% | 0.13% | -0.02% | |
| NZD | -0.34% | -0.02% | -0.13% | -0.16% | -0.24% | -0.13% | -0.13% | |
| CHF | -0.19% | 0.13% | 0.01% | -0.02% | -0.10% | 0.02% | 0.13% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
In the early European trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.22% higher at around 102.07.
Investors will pay close attention to FOMC minutes to get fresh cues regarding the Federal Reserve’s (Fed) monetary policy outlook.
Lately, Fed board members have signaled that there is no urgency for another interest rate hike, but have maintained a hawkish stance on the outlook.
On the global front, oil prices have shown some signs of recovery after remaining under pressure in over two weeks. The WTI Oil price has rebounded as fears of storm hitting energy production in the United States (US) have renewed oil supply fears.
US forecasters said on Tuesday a storm forming in the Gulf of Mexico would become the first Atlantic hurricane of 2026 within two days and would likely hit oil and gas producing facilities, Reuters report.
Higher energy prices could reinforce fears of global price projections remaining higher, a scenario that could boost hawkish Fed bets.
US Dollar Index Technical Analysis
In the daily chart, Dollar Index Spot trades at 102.10. The near-term bias is bullish as price holds above the 20-day exponential moving average (EMA) at 101.04, suggesting the recent advance remains supported by trend dynamics. The Relative Strength Index (14) at 71.92 sits in overbought territory, hinting that upside momentum is strong but increasingly stretched, which could invite bouts of consolidation or shallow pullbacks rather than an immediate reversal.
On the downside, immediate support is seen at 101.80, followed by the 20-day EMA at 101.04, where buyers would be expected to defend the broader uptrend on any retracement. Looking up, the asset aims to revisit its annual high of 102.54 posted on Monday.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
FOMC Minutes
FOMC stands for The Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.
Next release: Wed Oct 07, 2026 18:00
Frequency: Irregular
Consensus: -
Previous: -
Source: Federal Reserve
Minutes of the Federal Open Market Committee (FOMC) is usually published three weeks after the day of the policy decision. Investors look for clues regarding the policy outlook in this publication alongside the vote split. A bullish tone is likely to provide a boost to the greenback while a dovish stance is seen as USD-negative. It needs to be noted that the market reaction to FOMC Minutes could be delayed as news outlets don’t have access to the publication before the release, unlike the FOMC’s Policy Statement.
United Overseas Bank (UOB) strategists Quek Ser Leang and Lee Sue Ann highlight that EUR/USD bounced on Tuesday as the US Dollar Index (DXY) slipped, but they still see the broader Euro (EUR) downtrend intact. Intraday, they expect further recovery to be limited within a defined range, while on a 1–3 week basis they stress that only a clear break above nearby resistance would signal that recent Euro weakness has finally stabilised.
Euro recovery faces key hurdle
"24-HOUR VIEW: On Monday, EUR dropped to 1.1160 and then recovered. When it was at 1.1220 yesterday, we indicated that “despite the relatively sharp drop, there has been no clear increase in downward momentum.” We held the view that EUR “is likely to trade in a range between 1.1180 and 1.1255.” Instead of trading in a range, EUR rebounded to 1.1276 and closed 0.33% higher at 1.1258. There is scope for the rebound to extend but with no clear increase in upward momentum, any advance should stay within a 1.1220/1.1285 range."
"1-3 WEEKS VIEW: Tracking our negative EUR [view] from the middle of last month, we highlighted yesterday (05 Oct, spot at 1.1220) that “downward momentum is showing early signs of slowing, but only a breach of 1.1285 (‘strong resistance’ level) would indicate that the decline is stabilising.” We added, “until then, there is a chance for EUR to test 1.1145 next.” EUR subsequently rebounded to 1.1276, and downward momentum has slowed further. That said, only a clear break above 1.1285 would indicate that the weakness in EUR has stabilised."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Japanese Prime Minister Takaichi Sanae said on Wednesday that the government will consider reviewing policies, revenue, and spending if interest rate shifts differ from expectations.
Meanwhile, Japanese Finance Minister Satsuki Katayama stated that she will thoroughly explain budget compilation to the market.
Key quotes from Takaichi
Will consider reviewing policies, government revenue and spending if interest rate shifts differ from expectations
We will lead international debate on AI governance.
Market reaction
As of writing, the USD/JPY pair is up 0.16% on the day at 158.35.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Industrial Output, in the Eurozone’s economic powerhouse, climbed by 2.0% over the month in August, the federal statistics authority Destatis showed on Wednesday in figures adjusted for seasonal and calendar effects. This figure followed a fall of 1.1% recorded in July and came in stronger than the expected 0.5% growth.
EUR/USD reaction to the German Industrial Production data
The upbeat German Industrial Production data fails to boost the Euro (EUR). At the press time, the EUR/USD pair holds losses near 1.1225, down 0.30% on the day.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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