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Federal Reserve (Fed) Vice Chairman Philip Jefferson said Thursday that “inflation has resulted from a cascade of shocks” at the Darden School of Business at the University of Virginia in Charlottesville, Virginia.

He commented that inflation expectations show the Fed is credible in tackling inflation, that the “Fed is firmly committed to returning inflation to 2% in a timely manner,” and that the economy is close to “maximum employment.”

Key highlights:

Inflation has resulted from a cascade of shocks

Longer-term inflation expectations show the Fed is credible on getting inflation down

The Fed has to be prepared to do the needed work to validate inflation expectations

Fed is firmly committed to returning inflation to 2% in a timely manner

The economy is quite close to maximum employment

Fed has more space to focus on inflation mandate right now

There is great wisdom in the Fed's dual mandate

It's possible AI will power big productivity gains down the road

I encourage the responsible development of AI

It is hard to say what AI has done to natural rate estimates so far

The Fed does not have great insight into private credit developments

• DXY breaks above 102.00 to its highest since April 2025 as the Euro sinks.
• The Euro below 1.1300 against the Dollar for the first time since May 2025.
• Odds of an October Fed hike under 40%, down from about 70% on Monday.

The odds of an October Fed rate hike have roughly halved since Monday, and the Dollar Index has risen on every one of those days. It trades near 102.10, its highest since April 2025. The index is moving with Crude Oil and the Euro rather than with the odds for the Fed's next meeting.

Close to four hikes still priced, and only October in doubt

The Fed raised its rate to 3.75-4.00% on September 16, and Fed Chair Warsh said inflation had been too high for too long. New York Fed President Williams said on Tuesday there was no need for urgency in raising it again, though he expects another increase this year.

Job openings and consumer confidence both came in soft the same day, and core Personal Consumption Expenditures (PCE) prices rose 0.2% in August, less than forecast. Minneapolis Fed President Kashkari said on Thursday he has no strong view on October and still expects more hikes. His own projection has one more quarter-point this year and another in 2027.

Futures put the chance of an October hike at about 70% on Monday and under 40% after the PCE release. They still price another hike this year and close to four by the end of 2027, so the market has moved the next hike rather than cancelled it. President Williams asked for no urgency, and traders applied that to October and to nothing after it.

The 10-year Treasury yield set a 24-year high above 5.30% on Wednesday, with the 30-year at 5.65%. Every step higher pays foreign buyers more to hold Dollar assets. Factories reported paying more in September too. The Institute for Supply Management (ISM) prices index jumped to 77.9, close to the 78.3 it recorded in March at the start of the war, and readings like that keep the later hikes in the price.

Europe buys more of its Crude Oil and fuel from the US than from anyone else

The Euro fell below 1.1300 against the Dollar on Thursday for the first time since May 2025, its fourth straight loss, and it makes up 57.6% of the Dollar Index. Worries over French government debt have added to the selling. It's possible that hotter September inflation in Germany, France, Italy and Spain will push the European Central Bank (ECB) to act, though the Euro fell on the day all four were published.

The European Union imports 96.6% of the Crude Oil and fuel it uses, and the US supplied 16% of those imports in 2024, more than any other country. Japan, 13.6% of the index, has almost no Crude Oil of its own, so the economies behind 71.2% of the basket face the same bill.

The US now exports more Crude Oil and fuel than it imports, a record 5.8 million barrels a day net in April. Each rise in Crude Oil is a cost for Europe and Japan and income for US exporters, which moves the Dollar Index whatever the Fed decides.

Crude Oil rose on Thursday on China's fuel export halt and on the Pentagon report of a third carrier group, and the Dollar Index set its session high on the second. Both stories add to the import bill in Europe and Japan, and neither depends on what the Fed does at its next meeting.

Pay has trailed prices for five months, and Friday is expected to add another

Nonfarm Payrolls (NFP) for September are due on Friday at 12:30 GMT, forecast at 94K after 162K in August, with the unemployment rate forecast at 4.1% for a third month. Average hourly earnings are forecast to rise 0.3% on the month. Payroll firm Automatic Data Processing (ADP) counted 90K private jobs on Wednesday against a 70K forecast, and announced layoffs fell to about 43K in September, down 18% from August.

The euro area's first estimate of September inflation comes out earlier the same day. A strong payroll number puts October back in play before the Fed decides on October 28, and a weak one pushes the next hike to a later meeting. For an index pricing the destination rather than the date, that is a choice between a hike and a hike.

Levels and bias

Resistance: Thursday's high just above 102.20 is where the push on the carrier report stopped. Above it, 102.50 and 103.00 are round levels the index hasn't traded since April 2025.

Support: 102.00 has held since Thursday's break above it. Below it, the June peak near 101.80 capped the index from June 24 until Thursday, then Wednesday's high near 101.50, where Thursday's run started.

Bias: The lean is long above 101.80, with 102.50 the first objective and 103.00 after it. Momentum on the daily Stochastic Relative Strength Index (Stoch RSI) is near 96 as the index heads for a fourth straight gain, so a dip toward 102.00 could come without breaking the run. A daily close back under 101.50 takes the index back into its late-September range and ends the trade.

DXY daily chart

• WTI extends its rally to just above $92.50 as the Pentagon adds a carrier group.
• Chinese refiners suspend fuel exports through a holiday that ends October 7.
• US distillate inventories 14% below the five-year average, Crude Oil 2% above.

A report that the Pentagon is sending a third aircraft carrier strike group to the Middle East has added a second leg to Thursday's rally in Crude Oil. Crude Oil trades near $92.00, its highest since Tuesday, after the first leg came on reports that China's refiners have stopped selling fuel abroad. Neither leg takes a barrel of Crude Oil off the market in October.

A third carrier means one of the first two doesn't go home

The Pentagon is sending a third carrier strike group and more Marine Corps ships to the Middle East, US officials said in a report on Thursday. The deployment adds up to 10K troops, all due in the region by the end of November. President Trump has told a magazine it's possible he will order strikes on Iran after the November 3 midterms, days after rejecting Iran's seven-day ceasefire plan on September 26.

The strike group led by the carrier Theodore Roosevelt, which makes three, left San Diego on September 27, so Crude Oil rallied on a ship that had been at sea for four days. It sailed as the reported relief for the George Washington, and a US official said on Thursday that the Washington will now stay alongside the George H.W. Bush.

The US last had three carriers in the region in April, the most since the 2003 invasion of Iraq. Iran said on Wednesday it had received a US response to its latest ceasefire proposal, and Qatar is still passing messages between the two sides. The extra forces arrive after the vote and a deal could come before it, so the premium the report added is the easiest part of Thursday's rally to give back.

Beijing steadies fuel supplies, starting with China's

Chinese refiners have suspended fuel exports to everywhere except Hong Kong and Macau until Beijing says otherwise, people familiar with the matter said on Thursday. A state-owned refiner cancelled a handful of October gasoline and jet fuel cargoes on Wednesday, most of them deals it had agreed within the previous two weeks.

The halt came less than a week after President Trump asked President Xi in Washington to help steady global fuel supplies. Beijing first restricted fuel exports in March, after the war began, and eased the curbs in July. China's week-long holiday runs to October 7 with no export approvals in place, and whether they resume could depend on domestic fuel stocks and refinery output.

China has the largest refining capacity in the world but usually exports less fuel than India or South Korea. The reason trade sources give for the halt matters more than the cargoes, and that reason is a drop in China's own fuel stocks. Rebuilding them takes Crude Oil, and in Asia diesel now sells for about $75 a barrel more than the Crude Oil it's made from.

The US has more Crude Oil than usual and 14% less diesel

Middle East Crude Oil exports rose in September to their highest since the war began on February 28. US Crude Oil stocks sit 2% above their five-year average, according to the Energy Information Administration (EIA). Distillate stocks, which cover diesel and heating fuel, are 14% below theirs after falling 2.3 million barrels in the week to September 25. US refiners are short of fuel to sell rather than barrels to run.

One consultancy estimates a ban on US diesel exports could cut US refinery runs by as much as 12% as storage fills within a month. A barrel a US refiner doesn't run has to find another buyer abroad, where high freight costs and scarce tankers have already held US exports back. On September 24, talk of a ban pushed US Crude Oil to its widest discount to the international benchmark since early May.

The US average diesel price passed $6.50 a gallon for the first time in September, and the administration wants it lower before the November 3 midterms. President Trump said on Wednesday he is still discussing a US diesel export ban, and the White House has asked the European Union to release its emergency diesel stocks to lower world prices.

Levels and bias

Resistance: The session high just above $92.50 is where the jump on the report stopped. Friday and Tuesday both sold off from the $93.00-$93.50 area, and Monday's spike to $95.00 fell short of the September 24 high near $96.00.

Support: The jump on the report started just above $90.50, the top of a $90.00-$90.50 area that held on September 25 and September 28 before Tuesday's break. Beneath it, Thursday was the third straight session to bottom just under $88.00.

Bias: Lean long while $90.50 holds, with $93.50 the first objective and Monday's $95.00 spike high the second. The daily Stochastic Relative Strength Index (Stoch RSI) is near 18, at the bottom of its range and yet to turn up. The long is wrong on a daily close below $90.00.

WTI daily chart

• The US Dollar climbs to a fresh year-to-date high as strong economic growth and sticky inflation support a hawkish Fed outlook.
• DXY holds above its key daily moving averages after forming a double bottom near 98.50.
• Bullish momentum remains strong, although overbought conditions raise the risk of near-term consolidation.

The US Dollar Index (DXY) rally gathers pace on Thursday, climbing to a fresh year-to-date high as resilient US economic growth, a firm labour market and stubborn inflation support expectations of further monetary policy tightening by the Federal Reserve (Fed). Meanwhile, elevated US Treasury yields provide additional support to the Greenback by increasing the appeal of Dollar-denominated assets.

At the time of writing, the index trades around 102.18, up 0.70% on the day, after gaining 2.07% in September. Traders now look ahead to Friday’s US Nonfarm Payrolls (NFP) report. Strong data could further boost the Greenback, while a weaker reading could trigger some profit-taking.

Strategists at Brown Brothers Harriman observe that recent USD gains are closely aligned with “widening US-G6 interest rate differentials,” even as “tightening by other major central banks limits policy divergence with the Fed.” In their view, the Dollar’s appeal is reinforced by “US economic growth outperformance and strong foreign appetite for US securities,” factors that together “can keep USD risks skewed to the upside” despite the narrowing scope for further relative policy moves.

Technical Analysis

From a technical perspective, the US Dollar Index maintains a strong bullish bias after forming a double bottom near 98.50 in early September and reclaiming its key daily Simple Moving Averages (SMAs). The index now holds above the 50-day, 100-day and 200-day SMAs, which are clustered between 99.29 and 100.12.

Momentum indicators also favour buyers. The Relative Strength Index (RSI) stands near 78, while the Moving Average Convergence Divergence (MACD) remains in positive territory, pointing to firm upside momentum. The Average Directional Index (ADX) near 35 confirms that the underlying trend is gaining strength. However, overbought RSI conditions suggest that the rally could pause or consolidate before extending higher.

On the topside, a sustained move above 102.00 would keep the focus on immediate resistance at 102.50, followed by the 103.50 area. On the downside, a return below 102.00 would bring initial support at 101.50 into focus, with a deeper pullback exposing 100.50.

The outlook remains constructive as long as the index holds above the moving-average cluster, comprising the 100-day SMA at 100.12, the 50-day SMA at 99.94 and the 200-day SMA at 99.29. A decisive break below these averages would weaken the bullish structure and expose the double-bottom area near 98.50, which provides stronger support.

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

Minneapolis Federal Reserve (Fed) President Neel Kashkari said on Thursday he is unsure about an October rate hike but added that he is “open-minded about how fast the Fed should raise interest rates.”

Kashkari reiterated that “his September rate projections were for one more hike this year, another in 2027,” indicating that he sees the Fed funds rate near 4.25%-4.50%, and reiterating his hawkish posture.

Key highlights:

'I don't have a strong view' about October rate hike

Says he is open-minded about how fast fed should raise interest rates

Says his September rate projections were for one more hike this year, another in 2027

No sense monetary policy providing much restraint at current moment

Says he doesn't see meaningful tightening in financial conditions given data

Economy has outperformed expectations since fed's September policy meeting

Says he has some confidence inflation will fade, but shocks keep happening

Fed's September rate hike showed central bank will act to lower inflation

Markets now see that fed chairman warsh will act to cool inflation

Depending on economy's performance, fed may have to hike more than expected

Supply shocks should fade, rate hikes are aimed at tempering price expectations

Market inflation expectations still centered on 2%

Says he does not see signs of systemic risk in financial system

Even with yield rise, treasury market has been functioning

Vice Chairman of the Federal Reserve (Fed) Philip Jefferson said on Thursday that the Fed "is fully committed to returning inflation to 2% target” and that future interest rate decisions “should be driven by data.”

Jefferson added that the Fed “may take more time to decide the next rate move,” echoing comments from New York Fed President John Williams on Wednesday, who said that the Fed is in no rush to tighten monetary policy.

Key highlights:

Fed is fully committed to returning inflation to 2% target

Future fed rate changes should be driven by the data

Says us central bank 'may take more time' to decide next rate move

Weighing more data will allow fed to make better call on rates

Economic output and job market are broadly SOLID

Bond yields show market participants rethinking outlook

September rate hike will help anchor inflation expectations

Inflation remains above target with upside risks

Says he still expects inflation pressure to ease over longer term

Sees jobless rate holding steady into end of this year

Says he is worried high inflation could spill into expectations

A Bank of Mexico (Banxico) survey of private economists revised down headline and core inflation forecasts, updated projections for the USD/MXN exchange rate, and revised projections for future interest rates set by the Mexican institution.

Economists expect headline inflation to end at 3.87% in 2026, down from 3.90% in August, while core figures are expected to end at 3.90%, beneath August’s 3.99% projection.

For the next year, they see inflation at 3.82%, with the underlying print expected to drop to 3.78%.

Regarding economic growth, the Gross Domestic Product (GDP) for this year is forecast to rise 1.40%, up from 1.30% in August. Meanwhile, USD/MXN is projected to end this year at 17.50 and at 18.04 by the end of 2027.

The survey showed that analysts expect Banxico to hold rates unchanged at 6.50% through the end of next year.

• USD/MXN surges above 18.30 as Peso selling accelerates.
• DXY clears 102 while elevated yields reinforce Dollar demand.
• Mexico manufacturing returns to growth, but underlying recovery remains fragile.

The Mexican Peso (MXN) collapses on Monday, extending its depreciation by over 1.50% as the Greenback strengthens sharply amid growing fears that the Middle East conflict will be prolonged, keeping energy prices under pressure. The USD/MXN pair trades at 18.35, after bouncing off daily lows of 18.06.

Geopolitical risk, high yields and Dollar strength overwhelm improving Mexican factory data

Sentiment remains negative amid growing concerns of a potential escalation in the US-Iran conflict. This pushed energy prices and US Treasury yields higher, boosting the safe-haven appeal of the Greenback at the expense of the Mexican currency.

Aside from this, Mexico’s economic docket showed that manufacturing activity improved in September, according to S&P Global. The Manufacturing PMI expanded from 49.8 to 50.3.

Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, was cautious, saying that “September's PMI data suggested that Mexico's manufacturing economy moved fractionally back into growth territory, but the underlying picture was still quite fragile.”

Meanwhile, the Bank of Mexico (Banxico) private economists’ poll revealed that most see the main reference rate at 6.50% through the end of 2027, and the USD/MXN exchange rate to end around 17.50 this year.

In the US, data showed that business activity in the manufacturing sector remains solid, despite cooling, with the ISM Manufacturing PMI hitting 54.5, below estimates of 55, a tenth below August’s 54.6. Earlier, Initial Jobless Claims for the week ending September 26 came in at 197K, below forecasts of 200K and down from the previous week's 198K.

Given the backdrop, money markets trimmed their Fed-hawkish bets for October, but for December, the chances of another rate increase are 83%, according to Prime Terminal.

Also, high US Treasury yields keep the Greenback underpinned, as indicated by the US Dollar Index (DXY). The DXY, which measures the performance of the American Dollar against six peers, is at 102.16, up 0.69%, a headwind for the Mexican currency.

The US economic calendar ahead includes the September Nonfarm Payrolls report and additional Federal Reserve remarks.

USD/MXN Price Forecast: Technical Outlook

In the daily chart, USD/MXN trades at 18.3726. The pair holds well above the latest reading of the triple simple moving average (50, 100, 200) at 17.2219, keeping the near-term bias firmly bullish and suggesting an extension of the recent uptrend away from the mid-16.00s base. Momentum looks stretched, however, as the 14-period Relative Strength Index prints an overbought reading near 86.9, hinting that upside may be vulnerable to consolidation or a corrective pullback even as buyers remain in control.

On the downside, initial support is seen at the triple simple moving average cluster around 17.22, which reinforces the broader ascending structure. A deeper retreat would expose the horizontal support level at 16.8866, where previous demand emerged and a more significant downside correction could pause. With no clearly defined nearby resistance levels in the dataset, price action around current highs will guide whether USD/MXN extends the bullish phase or allows overbought conditions to unwind toward the 17.00–17.20 region.

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

The US Dollar (USD) has advanced further on Thursday, trading in levels last seen in early April 2025 on the back of the marked improvement in the sentiment surrounding the US Dollar, geopolitical uncertainty and renewed concerns over the French economy.

Here is what you need to know on Friday, October 2:

The US Dollar Index (DXY) has extended its move higher, leaving behind the key 102.00 hurdle to hit 18-month tops as investors continued to gear up for critical data releases at the end of the week. The NFP will be in the limelight, along with the Unemployment Rate and Factory Orders. In addition, the Fed’s Logan is due to speak.

EUR/USD has added to the ongoing weakness, selling off to the low 1.1200s while reaching new 17-month troughs. The release of the flash Inflation Rate in the euro bloc will wrap up the domestic calendar. The ECB’s Cipollone and Vujčić are also due to speak. 

GBP/USD has faded the previous day’s bullish attempt, reaching new four-month lows in the sub-1.3200 region. The BoE’s Decision Maker Panel (DMP) will be the sole release on the UK docket.

USD/JPY failed to maintain its earlier move past the 158.00 barrier, slipping back toward the low 157.00 afterwards, keeping its decent gains for the day. The Unemployment Rate will be in focus along with the Tokyo CPI and Monetary Base data.

There was no respite for the deep correction in AUD/USD, which has clinched fresh three-month lows near the 0.6900 threshold. Next on tap in Oz will be the publication of the final S&P Global Services PMI on October 5.

Front-month WTI futures have added to Wednesday’s uptick and challenged the $93.00 mark per barrel as supply concerns resurfaced following China’s decision to suspend exports of oil products.

Gold has traded in a volatile fashion, hovering below the $4,200 mark per troy ounce amid traders’ assessment of the Fed’s potential rate path in light of recent softer-than-expected inflation data.

• Gold remains subdued as a stronger US Dollar and surging Treasury yields limit demand.
• Softer-than-expected US inflation reduces October Fed rate-hike bets, offering limited support to Gold.
• The daily setup remains bearish while XAU/USD trades below the Bollinger middle band.

Gold (XAU/USD) treads water on Thursday as a stronger US Dollar (USD) and elevated US Treasury yields limit the upside. At the time of writing, XAU/USD trades around $4,175, up 0.45% on the day, as traders assess the latest US economic data and its implications for the Federal Reserve’s monetary policy path.

The US Dollar Index (DXY), which tracks the Greenback against six major currencies, trades near 102.13, while the benchmark 10-year US Treasury yield holds around 5.25%, after reaching 5.34%, its highest level since 2002.

Higher Treasury yields increase the opportunity cost of holding non-yielding assets such as Gold, while a stronger US Dollar makes the precious metal more expensive for buyers using other currencies.

US manufacturing activity remained firm in September, although growth slowed slightly. The ISM Manufacturing Purchasing Managers' Index (PMI) eased to 54.5 from 54.6, missing the 55.0 forecast. Meanwhile, the Prices Paid Index jumped to 77.9 from 71.1, much higher than the 72.3 expected, showing that factories continue to face strong cost pressures.

Other data released on Thursday showed that the US labour market remains on a solid footing. Initial Jobless Claims fell to 197K in the week ending September 26, below expectations of 200K and the previous reading of 198K. The four-week moving average also declined to 200K from 202.5K.

The figures follow Wednesday’s ADP report, which showed that private-sector employment increased by 90K in September, beating the 70K forecast and accelerating from 36K in August.

Minneapolis Fed President Neel Kashkari said on Thursday, “4.1% unemployment rate is good, labor market is healthy,” while noting that “consumer spending is strong across the economy.” Kashkari added, “We will do what we need to get inflation to the goal,” but cautioned, “If we keep raising rates, it will put different pressure on different parts of the economy.”

However, markets have scaled back expectations that the Federal Reserve (Fed) will raise interest rates this month following softer-than-expected US Personal Consumption Expenditures (PCE) inflation data released on Wednesday. Core PCE inflation rose 0.2% MoM, below the 0.3% forecast, while the annual rate remained unchanged at 3.0%, undershooting expectations of 3.3%.

The CME FedWatch Tool shows that traders now see about a 36% chance that the US central bank will raise interest rates at its October 27-28 meeting, down from 70% earlier this week. The dovish repricing offers some support to Gold, although traders are not ruling out another rate hike later this year.

An upward revision to US economic growth highlighted the continued resilience of the world’s largest economy. Annualized Gross Domestic Product (GDP) expanded by 2.2% in the second quarter, above economists’ forecast of 1.5%. Resilient economic growth and firm labour-market conditions give the Fed more room to tackle inflation, which remains above its 2% target.

Meanwhile, the lack of progress in US-Iran negotiations to reopen the Strait of Hormuz keeps Oil prices elevated and inflation risks tilted to the upside, supporting the case for tighter monetary policy.

As a result, the hawkish Fed outlook, a stronger US Dollar and elevated Treasury yields remain key headwinds for Gold. Traders now await Friday’s NFP report for fresh direction.

Technical Analysis: Bearish bias holds as RSI remains below 50

On the daily chart, XAU/USD maintains a bearish near-term bias as it sits below the 20-day Bollinger Simple Moving Average (SMA) at $4,301. The metal is also capped well beneath the upper Bollinger band at $4,471, keeping rallies contained, while the Relative Strength Index (RSI) is around 40 and a negative Moving Average Convergence Divergence (MACD) reading both hint at limited bullish momentum and a corrective tone within a weakening trend, as suggested by the Average Directional Index (ADX) near 19.

On the downside, immediate support emerges at the lower Bollinger band near $4,131, ahead of the horizontal floor at $4,100, with a deeper bearish extension exposing the $4,000 level. On the topside, recovery attempts would first face resistance at the 20-day Bollinger SMA at $4,301, followed by the upper band at $4,471, while a stronger bullish reversal would only take shape on a sustained break above the structural barrier at $4,700.

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