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Brown Brothers Harriman’s (BBH) Elias Haddad says the Brazilian Real (BRL) and local assets are poised to open higher after Flávio Bolsonaro’s stronger-than-expected first-round election result. Haddad adds that Bolsonaro’s momentum ahead of the October 25 runoff, together with proposals for faster fiscal repair and lower taxes, reinforces a positive BRL outlook already supported by Brazil’s attractive carry and strategic commodity exposure.

Flávio Bolsonaro momentum boosts Real

"BRL and Brazilian assets are poised to open higher after Bolsonaro’s stronger than expected showing in the first round of the presidential election."

"Rightist Senator Flávio Bolsonaro of the Liberal Party (PL) won roughly 47% of the vote against 45% for leftist President Luiz Inácio Lula da Silva of the Workers’ Party (PT), overturning the narrow lead most polls had given the incumbent."

"The result gives Bolsonaro momentum heading into the October 25 runoff."

"Bolsonaro’s plan for faster fiscal repair and lower taxes would add to the positive BRL outlook, already underpinned by Brazil’s attractive carry and strategic exposure to commodities linked to energy, AI, and defense."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• Gold holds modest gains as weak US economic data lowers the chance of an October Fed rate hike.
• Persistent inflation risks keep the broader Fed policy outlook tilted towards further tightening.
• Buyers need to reclaim $4,200 to regain near-term bullish momentum.

Gold (XAU/USD) extends its sideways price action on Monday, entering New York trading hours on a subdued note. The metal remains caught between easing Federal Reserve (Fed) interest-rate hike bets and a stronger US Dollar (USD), while US Treasury yields also remain elevated near multi-year highs. At the time of writing, XAU/USD trades around $4,155, up 0.30% on the day.

Recent US economic data has weakened the case for another rate hike at the Fed’s October 27-28 meeting. Data released on Friday showed that Nonfarm Payrolls (NFP) increased by only 29K in September, well below the 90K forecast. Employment gains for the previous two months were revised down by a combined 60K while the Unemployment Rate edged up to 4.2%. Annual wage growth slowed to 3.0%.

The weak employment figures followed August’s Personal Consumption Expenditures (PCE) inflation report, which also fell short of expectations, while previous readings were revised lower.

According to the CME FedWatch Tool, traders now price in only around a 20% chance of a rate hike in October, down from nearly 70% last week. The dovish repricing lends some support to the non-yielding metal. However, the broader policy outlook remains tilted towards further tightening as policymakers remain concerned about inflation running above the 2% target, while Middle East tensions keep energy-driven inflation risks alive. This caps Gold’s upside while keeping the US Dollar and Treasury yields supported.

Economists at Deutsche Bank argue that “although the headline payroll number was disappointing, the wider labour-market picture remains relatively resilient, particularly alongside recent ADP and jobless-claims readings,” and on that basis “our economists continue to expect two further 25bp Fed hikes over the next couple of quarters.” They add that “since the meeting, Fed communication has broadly reinforced the quarterly pace of rate hikes implied by the September SEP,” leaving their view of the Fed’s trajectory broadly unchanged despite the softer payroll print.

The US Dollar also draws support from a sharp decline in the Euro (EUR) amid growing political and fiscal concerns in France. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 102.26 after touching an intraday high of 102.53, its highest level since April 2025.

Meanwhile, the benchmark 10-year US Treasury yield holds near 5.30%, after touching 5.34% last week, its highest level since 2002. A stronger US Dollar makes Gold more expensive for overseas buyers, while elevated yields increase the opportunity cost of holding the non-yielding metal.

Looking ahead, the US economic docket features the ISM Services Purchasing Managers’ Index (PMI) on Monday, followed by the September Federal Open Market Committee (FOMC) meeting minutes on Wednesday and Initial Jobless Claims on Thursday. The preliminary University of Michigan Consumer Sentiment Index and inflation expectations will be released on Friday.

Technical analysis: Buyers struggle to reclaim $4,200

The 4-hour chart shows XAU/USD consolidating below its major moving averages, keeping the near-term bias tilted to the downside. Buyers are struggling to sustain gains above the $4,200 psychological mark, which closely aligns with the 50-period Simple Moving Average (SMA) at $4,198 and acts as the first resistance.

A sustained break above this area could expose the 100-period SMA at $4,265, followed by the 200-period SMA near $4,374. A decisive move above these moving averages would be needed to strengthen the bullish outlook. The Relative Strength Index (RSI) hovers near 46, reflecting neutral-to-soft momentum, while the Moving Average Convergence Divergence (MACD) remains slightly above zero, pointing to a modest recovery attempt.

On the downside, the $4,100 psychological mark offers immediate support. A clear break below this level could intensify selling pressure and expose the $4,000-$3,950 support zone.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

• The Euro remains under pressure as fiscal and political concerns deepen across Europe.
• A sharp sell-off in French government bonds revives fears of Eurozone fragmentation.
• Stronger-than-expected UK PMI figures provide additional support to the British Pound.

EUR/GBP extends its decline on Monday, sliding to its lowest level since mid-July as political turmoil and mounting concerns over Europe’s public finances weigh on the Euro (EUR). At the time of writing, the cross trades around 0.8478, down 0.24% on the day, after touching an intraday low of 0.8458.

Concerns centre on France, where high debt, a widening budget deficit and doubts over the government’s ability to pass its 2027 budget have triggered a sharp sell-off in government bonds. Adding to the political unease, Spanish Prime Minister Pedro Sánchez has called a snap election amid intensifying housing protests.

Analysts at MUFG note that the Euro has "continued to weaken at the start of this week" as "intensifying fears over the destabilizing financial conditions in the Eurozone" follow a "sharp sell-off in French government bonds." They highlight that the move has "encouraged a broad-based softening of the euro," with the single currency falling to "fresh year-to-date lows overnight against the US Dollar and Yen at 1.1161 and 176.41 respectively."

MUFG points out that "the yield spread over German Bunds has blown to just over 140bps, which is almost 60bps wider than before the summer," adding that "the increasingly rapid sell-off is adding to a sense of crisis in the French government bond market." According to the bank, these "unfavourable developments have triggered fears over the re-emergence of fragmentation risks in the Eurozone that could impede the transmission of monetary policy."

The European Central Bank’s (ECB) Transmission Protection Instrument allows the central bank to purchase bonds from individual Eurozone countries when an unwarranted and disorderly rise in borrowing costs threatens the smooth transmission of monetary policy. However, access depends on fiscal sustainability and compliance with broader European Union economic rules.

ECB Chief Economist Philip Lane said on Monday that “the rise in long-term rates will slow growth and reduce pass-through by more than projected.” Lane added that policymakers remain on a “middle path” and that a measured response is appropriate, while warning that a second wave of the energy supply shock poses upside risks to inflation and downside risks to growth.

On the data front, final Eurozone figures showed that the HCOB Composite PMI rose to 53.1 in September from 52.0, while the Services PMI climbed to 53.0 from 51.6. Meanwhile, the UK S&P Global Composite PMI was revised up to 52.0 from the preliminary estimate of 51.7, while the Services PMI came in at 52.1, also above the initial reading of 51.7.

OCBC’s Christopher Wong notes that widening Eurozone bond spreads and fragmentation concerns are tightening financial conditions and putting renewed pressure on the Euro. EUR/USD has fallen to its weakest level since May 2025, and while the Dollar could extend gains if French-German spreads stay wide, the ECB’s anti-fragmentation tools are expected to limit systemic stress.

Spreads and ECB backstops in focus

"Rising fragmentation fears are tightening financial conditions through higher sovereign borrowing costs and wider risk premia. This raises the risk that the ECB becomes more cautious on further policy tightening as financial stability concerns begin to compete with inflation risks. As a result, EUR has come under renewed pressure, with EUR/USD falling to its weakest level since May 2025."

"USD could extend its gains against the EUR if the recent widening in the French-German OAT-Bund spread persists. Wider peripheral spreads tend to tighten Eurozone financial conditions and weigh on EUR sentiment. However, betting on a disorderly sell-off in European bonds remains risky given the ECB's extensive anti-fragmentation toolkit."

"The ECB retains powerful tools to limit unwarranted spread widening, including the Transmission Protection Instrument (TPI), which was specifically designed to counter disorderly market dynamics that threaten monetary policy transmission across the Eurozone. While the activation threshold remains high and requires political and economic conditions to be met, the ECB is unlikely to remain passive if market fragmentation intensifies. In the near term, verbal intervention is likely to be the first line of defence should spreads continue to widen."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Societe Generale’s analysts use their Brent, West Texas Intermediate (WTI) and Diesel price forecasts to derive forward-looking inflation surprises for the US and Eurozone. By linking spreads, inventories and refining cracks, they construct 12‑month crude and Diesel paths and show that, if these are accurate, Consumer Price Index (CPI) surprises can be estimated well ahead of official releases using an energy-centric framework.

Using oil paths to project CPI

"Since most inflation surprises (measured as the gap between realised inflation and one year-ahead forecasts) can largely be attributed to fluctuations in oil prices, we can derive a forecast for inflation surprises using our own oil price outlook. Based on the scenarios presented in our latest outlook, we construct crude oil and diesel price paths for the next 12 months."

"The key idea is straightforward: if the oil price forecast is sufficiently accurate, it becomes possible to estimate CPI surprises well in advance, without having to wait for the actual inflation releases."

"We forecast Brent using a proprietary model that links spreads and inventories. We then derive a WTI price forecast by assuming an average $5/bbl discount to Brent. A discerning reader may challenge this "fixed" spread, but it simplifies the exercise for our purposes."

"We then examine recent trends in refining cracks to derive a diesel price forecast. Again, this relies on the simplifying assumption of a stable relationship between product prices and crude oil prices, which readers are free to challenge and adjust based on their own views."

"The next CPI release is expected on 14 October. According to our model, inflation should surprise modestly to the upside, coming in just below a 2-percentage point surprise relative to one-year-ahead expectations."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• The US ISM Services PMI is expected to show the sector’s resilience in September. 
• The US services sector is expected to remain well into expansionary territory.
• Bets of further Fed tightening appear to have lost traction in the last few days.

On Monday, we’ll get the latest read on the US services sector when the Institute for Supply Management (ISM) publishes its September gauge. Consensus points to a marginal downtick to 55 from August’s 55.4. If confirmed, the reading is unlikely to significantly dent the current sector’s resilience and confidence in the broader economy.

Back in August, the details from that release were mixed: hiring momentum picked up pace, with the ISM Employment Index climbing a tad to 47.8 (from 47.4). In the same line, New Orders gathered decent steam, increasing to 60.9, which hinted that demand may be picking up pace. In tandem with the steady growth, the Prices Paid Index rose to 72.6, echoing the strengthening momentum of inflation pressures.

What to expect from the ISM Services PMI report?

Inflation in the US is still running hotter than the Federal Reserve’s (Fed) 2% target, and that keeps policymakers uneasy, especially amid the still unresolved crisis in the Middle East and with the full effects of US tariffs yet to filter through the economy.

The inflationary pressure in the US appears to have lost some traction in August, following the latest data from the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE). However, Fed officials and Chair Kevin Warsh have been cautious in their latest comments, keeping the issue of (still elevated) inflation on the table and the main source of the recent increase in speculation surrounding extra rate hikes in the second half of the year. 

Against that backdrop, an ISM Services PMI that lands in line with expectations probably won’t move the US Dollar (USD) much. It would simply confirm the picture of an economy that’s still resilient but still wrestling with sticky price pressures. A softer-than-expected print, though, could shake confidence and see investors probably trimming their USD holdings on fears that growth is losing momentum.

When will the ISM Services Purchasing Managers Index report be released, and how could it affect EUR/USD?

The Institute for Supply Management (ISM) will publish the Services Purchasing Managers Index (PMI) on Monday at 14:00 GMT.

Pablo Piovano, Senior Analyst at FXStreet, explains that the near-term outlook for EUR/USD has markedly deteriorated since the beginning of September, coincidentally with a break below its critical 200-day SMA.

Against that, Piovano argues that with spot trading near the 1.1200 yardstick, the continuation of the bearish trend should meet the next support at the May 2025 floor at 1.1064 (May 21). Further south comes the psychological 1.1000 contention zone prior to the weekly trough at 1.0732 (March 27, 2025).

On the flip side, “If the pair manages to reclaim the 1.1515-1.1520 zone, where both the provisional 55-day and 100-day SMAs sit, the next target is expected to emerge at the more relevant 200-day SMA around 1.1610," Piovano adds.

“Momentum indicators also suggest that further pullbacks are likely for now, although a technical bounce cannot be ruled out given that the Relative Strength Index (RSI) is around 17, while the Average Directional Index (ADX) near 40 indicates that the current trend remains robust," he concludes.

• USD/CAD retreats to 1.4240, from highs near 1.4300, turning flat on the daily chart.
• The US Dollar rally loses steam ahead of the release of the ISM Services PMI report.
• The Loonie has lost more than 3% in a four-week selloff, hammered by Fed-BoC divergence.

The Canadian Dollar (CAD) pares previous daily losses on Monday, as the US Dollar (USD) pulls back from multi-month highs against most peers, with market concerns about higher global debt yields keeping investors away from risk. The USD/CAD pair is trading at the 1.4240 area at the US session opening times, turning flat in the daily chart, after being capped at 1.4293 earlier in the day, the highest level since March 2025.

The turmoil in the global bonds market has been moving currencies in Monday’s Asian and European session, pushing the US Dollar higher amid the EUR/USD weakness. The Euro is back in the spotlight as the escalating borrowing costs in France have spurred fears of some contagion among other EU members, which brings back echoes of the 2009 credit crisis.

This has offset the negative impact from the disappointing US Nonfarm Payrolls report on Friday, which has practically discarded a back-to-back interest rate hike by the US Federal Reserve after the October 27-28 meeting.

US ISM Services PMI is expected to moderate slowdown in September's business activity

In the US calendar on Monday, the highlight is the ISM Services Purchasing Managers’ Index (PMI) report, due at 14:00 GMT. The headline figure is expected to show that the sector partially reversed August's acceleration in September, with the Index pulling back to 55 from 55.4 in the previous month.

Investors will also be attentive to the Final S&P Services PMI. Preliminary data showed that the sector’s activity accelerated to 58.7 in September, its strongest reading in more than five years, from 56.5 in August.

Fed-BoC divergence is keeping the CAD on the back foot

In Canada, the calendar is void on Monday, and investors will await Tuesday's Ivey PMI data and Friday's employment report for more insight into the country’s economic outlook. The CAD, however, has depreciated more than 3% over the last four weeks, as the Fed’s hawkish turn accentuated the monetary policy divergence with the Bank of Canada (BoC).

The BoC has kept its benchmark interest rate steady at 2.25% for already a year, and is not expected to hike it anytime soon. Consumer prices remain above the 2% target, but a somewhat softer labour market and, above all, the economic uncertainty stemming from the trade war with the US will force the central bank to tread cautiously with monetary policy.

MUFG’s Lee Hardman notes that unwanted tightening in Euro-zone financial conditions is prompting markets to pare back expectations for further ECB rate hikes. Pricing has shifted closer to MUFG’s forecast of two additional moves, which may still be too aggressive if fragmentation risks intensify, while speculation grows that the ECB could slow QT or activate its Transmission Protection Instrument.

Tightening conditions challenge ECB path

"The unwanted tightening in financial conditions has already encouraged market participants to scale back expectations for further ECB rate hikes in response to the energy price shock."

"Market pricing for ECB hikes has moved more in line with our own forecast for two further hikes which could still prove too aggressive if the re-emergence of fragmentation risks intensify."

"There is also building speculation that the ECB may have to take further policy action to ease contagion risks by slowing down QT, and/or even utilizing their Transmission Protection Instrument (TPI) for the first time."

"However, a decision to utilize the TPI would create the impression that the ECB is helping governments to finance their deficits."

"As such, the ECB would only decide to purchase government bonds through the TPI if the purchases are temporary, and governments take action as well to tighten fiscal policy to restore investor confidence."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

United Overseas Bank (UOB) strategist Quek Ser Leang reports AUD/USD closed at 0.6951 after a brief spike to 0.6976, with intraday price action expected to stay between 0.6930 and 0.6975. He judges the recent weakness from mid-September remains intact but, given oversold conditions, further declines may struggle to reach 0.6866. On a 1–3 month horizon, he flags a bearish EMA crossover with the July low at 0.6923 in focus.

Aussie-Dollar weakness seen constrained near supports

"24-HOUR VIEW: Last Thursday, AUD fell to a low of 0.6904 and rebounded. When it was at 0.6930 in the early Asian session yesterday, we indicated that “downward momentum has slowed somewhat with the rebound, and AUD is unlikely to weaken much further.” We added that AUD “is more likely to consolidate between 0.6900 and 0.6950.” AUD subsequently dipped to 0.6914, but during the NY session, it briefly popped to a high of 0.6976. AUD closed 0.29% higher at 0.6951. The brief rise did not result in any increase in upward momentum. Today, we expect AUD to trade sideways between 0.6930 and 0.6975."

"1-3 WEEKS VIEW: We highlighted the following last Friday (02 Oct, spot at 0.6930): “While the weakness that started in the middle of last month remains intact, given the deeply oversold conditions, any further decline may fall short of the next major support at 0.6866. Overall, only a breach of 0.6985 (‘strong resistance’ level) would indicate that the weakness in AUD is stabilising.” There is no change in our view."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• The Indian Rupee edges up against the US Dollar as traders reassess hawkish Fed bets.
• The US Dollar and US Treasury Yields remain firm despite hawkish Fed prospects cool down.
• Investors keenly await the RBI’s monetary policy.

The Indian Rupee (INR) trades marginally higher against the US Dollar (USD) after an extended weekend. Indian markets were closed on Friday due to Mahatma Gandhi Jayanti.

The USD/INR pair ticks down to near 96.29 as traders have trimmed Federal Reserve (Fed) interest rate expectations for the policy meeting this month, a scenario that improves the appeal of riskier assets, such as the Indian Rupee. Still, the pair is close to its over two-month high of 96.32 posted last week.

According to the CME FedWatch tool, the odds of the Fed leaving interest rates unchanged in the October policy meeting have increased to 82.3% from 35.8% seen last week.

Financial markets scale back hawkish Fed expectations after the release of the United States (US) Nonfarm Payrolls (NFP) data for September, which showed a moderate job growth.

What US NFP report showed

On Friday, the US Bureau of Labor Statistics (BLS) showed that the economy created 29K fresh jobs in September, fewer than 90K estimates and the previous reading of 133K, revised lower from 162K. The Unemployment Rate increased to 4.2%, while it was expected to remain steady at 4.1%.

Average Hourly Earnings, a key measure of wage growth, grew by 3% Year-on-Year (YoY), unexpectedly slower than the August reading of 3.1%. The data was expected to rise at a faster pace of 3.2%.

Moderate job wage growth forced financial markets to reassess their hawkish Fed expectations.

However, US Treasury Yields and the US Dollar remain firm due to elevated inflation projections and French fiscal risks.

As of writing, 10-year US Treasury Yields are marginally down at around 5.27% but not so far from its two-decade high of 5.34% posted last week. In the Asian trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, posts a fresh yearly high near 102.53.

Higher US Treasury Yields and the US Dollar could weigh on the Indian currency in the near term.

RBI’s monetary policy awaited

This week, the major trigger for the Indian Rupee will be the Reserve Bank of India’s (RBI) monetary policy announcement on Wednesday.

Analysts at MUFG/BTMU reiterate that they are “officially forecasting RBI to keep rates on hold,” but emphasise that “more importantly we have already been calling for the central bank to start its hiking cycle from December so ultimately we think it’s just a matter of time before policy rates move higher.” They “see a good chance RBI will also move its stance away from neutral to signal a tightening bias,” underscoring a shift in the policy signal even if the near-term decision is unchanged.

In terms of the projected magnitude, MUFG/BTMU note that “we have 50bps of rate hikes in our forecast profile, and have mentioned that there could be a risk of 75bps in total this cycle,” pointing to a backdrop where “growth is strong, liquidity is abundant, credit growth is picking up, fiscal policy is supportive, while higher commodity prices and adverse weather conditions lend inflation risk to the upside in India.” They add that “we are forecasting RBI to hike rates by 50bps this cycle with some risk of 75bps, although we note pricing in the rates market is quite rich already,” suggesting that markets may already be pricing in a relatively aggressive tightening path.

USD/INR Technical Analysis

In the daily chart, USD/INR trades at 96.29, maintaining a bullish near-term bias as spot holds above the 20-period exponential moving average (EMA) at 95.86. The pair is consolidating near recent highs, and the Relative Strength Index (14) at 65.30 is approaching overbought territory, suggesting that upside momentum is strong but could be nearing a stretched zone.

On the downside, initial support is located at the 20-day EMA at 95.86, where any pullback would likely be tested before deeper losses emerge. On the upside, the pair aims to revisit the all-time high near 97.00

(The technical analysis of this story was written with the help of an AI tool. Know more.)