Forex News

Brown Brothers Harriman’s (BBH) Elias Haddad warns France’s budget crisis is deepening and complicating Eurozone fiscal dynamics. A minority government’s deficit-reduction plan faces parliamentary hurdles, while the fiscal watchdog calls assumptions optimistic. A likely rollover of the 2026 budget could push the deficit higher, moving France further from its EU commitment to bring it below 3% of GDP by 2029.

Fiscal slippage seen as likely

"Yesterday, France’s minority government presented details of a plan to reduce the country’s budget deficit to 5.0% of GDP next year. We doubt the proposal will clear parliament without significant concessions."

"Even then, France’s fiscal watchdog warned that the economic assumptions in the 2027 draft budget are “optimistic.”"

"A rollover of the 2026 budget is the most likely outcome given the limited appetite for compromise before the presidential election on April 18, 2027."

"That could push the deficit from 5.4% of GDP in 2026 to roughly 6.0% in 2027, taking France further away from its European Commission commitment to bring it below 3% by 2029."

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

Nordea’s Global Macro team of Tuuli Koivu, Jan von Gerich and Anders Svendsen note Euro-area inflation accelerated in September, driven mainly by energy and food. They note that core inflation remains relatively stable and broader price pressures are moderate and add that they do not expect the European Central Bank (ECB) to raise rates at the upcoming policy meeting.

Energy-driven rise keeps ECB cautious

"Euro-area inflation continued to accelerate in September mainly due to higher energy and food inflation."

"Furthermore, predicting the future energy price pressures is challenging at the moment given the extremely high uncertainty regarding the developments in the oil market. On one hand, the geopolitical tensions in the Middle East do not show signs of cooling down but at the same time, the most recent estimates about the global oil production and the positive information about the traffic in the Red Sea imply that there could be room for positive surprises from that segment."

"Thus, we keep keep our forecast of rate hikes in December and in March unchanged and do not see another hike already in October to be likely at this point."

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

Brown Brothers Harriman’s Elias Haddad notes the recent US Dollar rally and bond selloff have stalled as FOMC officials temper expectations for an October rate hike. However, the Dollar uptrend since the hot August CPI and September Fed hike remains intact, supported by resilient US growth, strong labor demand and sticky inflation ahead of September NFP data.

Dollar rally pauses before payrolls

"Meanwhile, the USD rally and bond market selloff stalled. This week’s comments by three FOMC heavyweights helped trim bets of a back-to-back hike in October."

"The USD uptrend sparked by the hot August CPI print in early September and turbocharged by the Fed’s hawkish hike on September 16 remains intact. Resilient US economic activity, improving labor demand, and sticky inflation back the case for additional Fed tightening."

"The Atlanta Fed GDPNow model estimates above trend annualized real GDP growth of 3.7% in Q3 vs. 2.2% in Q2. Today, the September nonfarm payrolls (NFP) report will provide a fresh gauge of labor demand (1:30pm London, 8:30am New York)."

"Consensus is looking for NFP gains of +90k vs. +162k in August. Bloomberg’s whisper number is +84k while ADP private payrolls and Revelio Labs employment imply NFP gains of +67K."

"Fed Funds futures imply 75bps of hikes over the next twelve months."

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

MUFG’s Derek Halpenny notes that rising rates volatility is driving a broader unwind of EM FX carry trades, with LatAm currencies under particular pressure. USD/MXN has surged and MXN long leveraged positions are being squeezed as implied volatility jumps.

Volatility-driven unwind in LatAm FX

"We have been flagging the increased risk of the volatility in the rates market spreading to other markets and the increased risks of a broader liquidation of carry positions. EM FX is certainly seeing that now with significant moves in LatAm FX as carry liquidation intensifies."

"Since the middle of September USD/MXN has now jumped 8% and is the worst performing LatAm currency since the start of September. IMM positioning data explains why MXN is suffering. The latest data shows Leveraged Funds’ long position at the highest level since the start of 2023."

"This risk aversion could well have further to go. In G10, the Swiss franc and the yen were the top performing currencies yesterday and those moves could extend further."

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

• US Nonfarm Payrolls are expected to rise by 90K in September, following August’s impressive 162K increase.
• The Unemployment Rate is forecast to hold steady at 4.1%.
• US employment data could influence the market pricing of a potential Fed interest rate hike in October.

The United States (US) Bureau of Labor Statistics (BLS) is set to release September Nonfarm Payrolls (NFP) data on Friday at 12:30 GMT. 

With investors struggling to make up their minds about a potential Federal Reserve (Fed) interest rate hike in October, the underlying details of the employment report could influence how markets assess the US central bank’s policy outlook and drive the US Dollar’s (USD) valuation. 

What to expect from the Nonfarm Payrolls report?

Investors expect NFP to rise by 90K in September following August’s impressive 162K increase. The Unemployment Rate is seen holding steady at 4.1%, while the monthly wage inflation, as measured by the change in Average Hourly Earnings (AHE), is projected to hold steady at 0.3%.

After the August employment data confirmed healthy labor market conditions, the Fed raised the policy rate by 25 basis points (bps) at the September meeting, as expected. In its policy statement, the US central bank noted that job gains have kept pace with the workforce, and the unemployment rate has changed little. Reiterating this sentiment, Fed Chair Kevin Warsh explained that the jobless rate remained low, while openings and hours increased, adding that “the labor side of the Fed’s remit is in good shape.”

According to TD Securities, "September NFP likely moderated to 50k, with the Unemployment Rate rising to 4.2%," following a strong August print. The bank attributes the slowdown largely to "a reversal in seasonal factors," noting that "private payrolls at 50k will likely be led by healthcare and leisure & hospitality," while "flat government will be weighed down by a reversal in local hiring." TD also expects "AHE was likely subdued at 0.1% m/m (3.0% y/y)," with the unemployment rate moving higher "along with participation." Overall, TD stresses that it would "look through dovishness in the report due to seasonal factors and rising participation," arguing that the softer headline numbers may be less meaningful for the broader policy outlook. 

How will the US September Nonfarm Payrolls affect EUR/USD?

Following the Fed’s September meeting, hawkish comments from policymakers and upbeat macroeconomic data releases from the US fed into expectations for a consecutive rate increase in October and supported the USD. The S&P Global’s Manufacturing and Services Purchasing Managers’ Indexes (PMI) improved to 57 and 58.7, respectively, showing a healthy expansion in the private sector’s business activity. 

Philadelphia Fed President Anna Paulson argued that they may need to raise interest rates again, explaining that even though the September hike improved the inflation-fighting stance, underlying inflation remained "stubbornly high." Similarly, Chicago Fed President Austan Goolsbee warned that future productivity gains from AI raise a “high danger of overheating now.” In addition, his emphasis on massive fiscal deficits, prolonged overshooting of the inflation target, and the need to revisit the logic of looking through supply shocks, signalled a bias toward tighter policy.

The CME FedWatch Tool’s probability of a rate hike in October rose toward 70% earlier in the week but retreated below after the US Bureau of Economic Analysis reported that the Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, rose 3% in August, matching July’s print and coming in well below the market expectation of 3.3%. 

In the current market environment, another NFP print above 100K could revive expectations for an interest rate increase at the upcoming meeting and trigger another leg higher in the USD, causing EUR/USD to turn south heading into the weekend. Conversely, a significant negative surprise, a reading below 50K, could hurt the USD with the immediate reaction. A figure between 50K and 100K could have little impact on market pricing of the Fed’s rate outlook.

Analysts at OCBC note that “recent claims data have continued to trend lower, suggesting labour market conditions remain firm,” and warn that “the risk of an upside payrolls surprise appears to be increasing.” They argue that a “stronger-than-expected employment report would likely reinforce expectations of further Fed tightening, keep Treasury yields elevated and provide additional support for the USD,” underscoring the importance of this week’s US labour market release for the Dollar’s near-term trajectory. 

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD: 

“EUR/USD’s near-term technical outlook highlights a bearish stance as it trades well below the 100-day and 200-day Simple Moving Averages (SMA) and the descending trend line. However, the Relative Strength Index (RSI) indicator on the daily chart sits below 20, pointing to oversold conditions”

“On the downside, 1.1145 (static level) aligns as the next key support level ahead of 1.1000 (static level, round level). Looking north, the first important resistance level could be spotted at 1.1460 (static level, Bollinger Band mid-point) before 1.1520 (100-day SMA) and 1.1615 (200-day SMA, descending trend line).”

(This story was corrected at 08:47 GMT to note in the second subheading that the Nonfarm Payrolls data is for September, not August.)

• EUR/USD trades practically flat around 1.1250 after pulling back from session highs near 1.1270.
• The Euro is on track for a 1.26% weekly selloff, hit by France's fiscal concerns and high Oil prices.
• Eurozone inflation accelerated beyond expectations in September amid higher food and energy prices.

The Euro (EUR) is practically flat against the US Dollar (USD) on Friday, with the EUR/USD pair trading at the mid-1.1200s, still close to the 16-month low of 1.1210 hit on Thursday. Eurozone inflation figures have added pressure on the European Central Bank (ECB) to tighten its monetary policy further, but high Oil prices and increasing concerns about France’s fiscal health are keeping Euro buyers away.

September’s preliminary Harmonised Index of Consumer Prices (HICP) revealed that inflation accelerated to a 3.8% year-over-year (Y-o-Y) rate, from 3.2% in August, beating expectations of a more moderate increase to 3.6%. The report suggests that food and, most likely, energy prices are the main drivers for the rise, as the core HICP ticked up to 2.5%, from 2.4%, in line with market expectations.

Oil prices are pulling lower on Friday, with the barrel of Brent Crude retreating below the key $100 level amid reports that supplies from Gulf countries increased sharply in September. Crude Oil, however, has rallied more than 30% over the last three months and remains at levels that pose a critical risk to Eurozone economies.

The US Dollar rallies amid the global bonds' rout

The Greenback, however, keeps drawing support from risk-averse sentiment, amid the global bonds’ rout, which has pushed long-term US Treasury yields to their highest levels in 24 years. In Europe, concerns about France’s ballooning debt have sent the differential between the French and German government bond yields to fresh 14-year highs, above 140 basis points, spooking investors away from the Euro this week.

France’s public debt has reached levels unseen since the postwar period, which has boosted borrowing costs. The yield for the French 10-year government bond has surged more than 70 basis points in September to reach its highest level since 2002 and bring back echoes of the Eurozone’s 2009 credit crisis.

Investors’ focus will shift now to the release of the US Nonfarm Payrolls report, due later on the day. The market consensus anticipates 90K new jobs in September, with the Unemployment rate seen as steady at 4.1%. These figures would endorse expectations of further monetary tightening by the Federal Reserve (Fed), although recent inflation data have cooled expectations of an interest rate hike in October. 

Silver prices (XAG/USD) rose on Friday, according to FXStreet data. Silver trades at $61.24 per troy ounce, up 0.43% from the $60.98 it cost on Thursday.

Silver prices have decreased by 13.84% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 68.38 on Friday, down from 68.51 on Thursday.

(An automation tool was used in creating this post.)

ING’s Chris Turner argues that the French debt sell-off has broken the narrative of ever-higher short-term rates and raised doubts about further European Central Bank (ECB) tightening.

Debt stress drives Euro downside

"Markets reached a point of inflection yesterday, where the sell-off in French debt broke the narrative of ever-higher short-term market interest rates. This questions whether central banks are about to extend into policy error territory with tightening cycles. If that is the case, the ECB has less cause to tighten than the Fed, and EUR/USD can stay offered."

"My colleague, Francesco Pesole, wrote a nice article on how the market could easily add another 2% in risk premium to the euro if this bond market sell-off extends. And after the break of technical support yesterday, near-term EUR/USD looks biased to 1.1100/1120, if not closer to 1.10. We would expect upside corrections to be relatively shallow now."

"Investors assume that any ECB fix to the bond market sell-off either involves much less or no tightening of policy (euro bearish) or, in extremis, the use of the Transmission Protection Instrument to buy bonds (very euro bearish)."

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

Eurozone’s preliminary Harmonized Index of Consumer Prices (HICP) data for September arrives at 3.8% Year-on-Year (YoY), higher than 3.6% estimates and August’s final reading reading of 3.2%. On a monthly basis, inflationary pressures grew at a faster pace of 0.6% against the prior release of 0.4%.

The core HICP – which excludes volatile components like food, energy, alcohol, and tobacco – rises by 2.5% YoY, as expected, faster than the previous reading of 2.4%. Month-on-month core HICP grew steadily by 0.2%.

Market reaction

No significant movement is seen in the Euro (EUR) after the Eurozone HICP data release. As of writing, EUR/USD is up 0.1% to near 1.1250.

• USD/JPY declines to near 157.60 as the US Dollar Index corrects to near 101.88.
• Investors shift their focus to the US NFP data for September.
• Tokyo inflation data ex. Fresh Food, Energy accelerates to 3% YoY in September.

The Japanese Yen (JPY) trades higher against the US Dollar (USD) ahead of the United States (US) Nonfarm Payrolls (NFP) data for September, which will be published at 12:30 GMT.

In the European trade, the USD/JPY pair is down 0.3% to near 157.60 due to weakness in the US Dollar.  The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.15% lower to near 101.88. The DXY corrects from its yearly high of 102.20 posted on Thursday.

Analysts at OCBC wrote in a note that Bloomberg consensus expects "nonfarm payrolls to rise by 90,000 in September, down from 162,000 in August, while the unemployment rate is forecast to remain unchanged at 4.1%."

OCBC points out that "recent jobless claims data have continued to trend lower, suggesting labour market conditions remain firm." In their view, "the risk of an upside payrolls surprise appears to be increasing," and a "stronger-than-expected employment report would likely reinforce expectations of further Fed tightening, provide additional support for the USD."

On the Yen front, Tokyo’s Consumer Price Index (CPI) data for September remained stronger-than-projected. Tokyo CPI ex. Fresh Food jumps to 2.7% Year-on-Year (YoY) from 1.8% in August. The inflation data was seen at 2.4%. Tokyo CPI ex. Food, Energy accelerates at a significant pace to 3% YoY from the previous reading of 2%.

USD/JPY Technical Analysis

In the daily chart, USD/JPY trades at 157.61. The pair holds a mildly bullish near-term bias as spot trades above the 20-period exponential moving average (EMA) at 157.26, suggesting underlying demand on dips after the recent recovery from the mid-153s.

The Relative Strength Index (14) at 51.50 sits just above its neutral line, hinting at a steady, non-overextended upswing rather than aggressive trending conditions.

On the downside, immediate support is located at the 20-day EMA at 157.26, followed by the September 30 low at 156.38. On the upside, the September 24 high at 159.04 is the immediate resistance. Above 159.04, the September 2 high at 160.39 will be the key hurdle.

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