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MUFG’s Halpenny warns that Brazil’s election-driven market sell-off could fuel further volatility, while a right-leaning Congress may force President Lula da Silva to compromise on policy. Investors could still price in worst-case outcomes, although earlier position liquidations suggest limited contagion across Latin American markets.

Brazil shock but limited LatAm contagion

"The scale of the move is still significant and marks the potential for further volatility in Brazil markets over the coming days."

"This could force Lula to compromise in order to make any progress with policy."

"But that will not become clear immediately and hence investors will be quick to assume the worst leaving the markets vulnerable."

"What does look clear from the initial reaction is that this is being viewed understandably as very Brazil-specific with little sign of contagion in the region."

"However, the limited sign of contagion reflects the fact that there has already been a position clear-out."

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

• Gold reverses earlier losses as easing Oil prices offer some support.
• A stronger US Dollar keeps the metal’s gains in check ahead of Wednesday’s Fed interest rate decision.
• The technical picture remains weak, with momentum indicators favouring sellers.

Gold (XAU/USD) edges higher during American trading hours on Tuesday after trading in negative territory earlier in the day. A slight decline in Oil prices offers some relief, although a firmer US Dollar (USD) limits the upside as traders await the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. At the time of writing, XAU/USD trades around $4,024 after sliding to a three-month low of $3,975 last week.

West Texas Intermediate (WTI) Oil trades around $100.80 per barrel, below Friday’s high of $103.28, its highest level since May, as traders weigh diplomatic efforts against supply risks. Saudi Arabia, Turkey and Pakistan held talks with Iranian officials in Tehran on Monday, with the four countries agreeing to continue discussions. However, security risks to ships in the Strait of Hormuz and Houthi strikes on Saudi Arabia keep supply concerns alive.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, rises to a two-week high above 102.00 after touching 101.45 last week, its lowest level since October 1. A stronger US Dollar makes Gold more expensive for buyers using other currencies.

Dollar support builds as markets refocus on Fed and energy backdrop

Strategists at ING note that the Dollar has “found good support early this week,” as stabilising AI-related sentiment has allowed markets to “reconnect with the broader supportive backdrop of a hawkish Federal Reserve and high energy prices.” They add that “pre-FOMC positioning may also be kicking in,” with the forward-looking FX market viewing Chair Kevin Warsh’s “reiteration of inflation commitments as reinforcing the structural floor for the Dollar.”

US economic data released on Tuesday showed Durable Goods Orders rose 1.8% in September, beating expectations of 0.6% after a 0.1% increase previously. However, orders excluding transportation rose 0.5%, slightly below the 0.6% forecast, while core capital goods orders slowed to 0.5% from 1.6%. Meanwhile, ADP’s four-week average of job gains eased to 16.8K from 17.5K.

The US central bank is expected to keep borrowing costs unchanged after raising them by 25 basis points (bps) in September to 3.75%-4.00%, its first increase since 2023, as rising energy costs linked to the war in the Middle East added to inflation pressures.

With a pause widely expected, traders will look to the policy statement and Chair Kevin Warsh’s press conference for clues on the next move. September’s updated dot plot showed a median rate projection of 4.1% for both end-2026 and end-2027. Against this backdrop, traders price in around an 80% probability of another rate hike in December, according to the CME FedWatch Tool.

A hawkish message could leave Gold vulnerable to a sustained break below $4,000. On the other hand, an emphasis on taking time to assess incoming data could offer the metal some relief. Even so, a stronger recovery may remain difficult as elevated energy prices threaten to keep inflation above the Fed’s 2% target for longer. While Gold is often viewed as a hedge against inflation, higher interest rates increase the opportunity cost of holding the metal, which generates no yield.

Technical analysis: $4,000-$3,950 support zone in focus as sellers dominate

On the daily chart, XAU/USD maintains a bearish near-term bias as it trades below the 50-day, 100-day and 200-day Simple Moving Averages (SMAs), keeping sellers in control. The Relative Strength Index (RSI) at 36 points to weak buying momentum, while the Moving Average Convergence Divergence (MACD) remains in negative territory, suggesting that downside pressure persists.

On the upside, initial resistance stands at the 100-day SMA near $4,218, followed by the 50-day SMA at $4,287. A stronger recovery could bring the horizontal resistance at $4,400 into focus, ahead of the 200-day SMA around $4,503.

On the downside, the $4,000-$3,950 zone acts as immediate support, where a break would open the door to a deeper retracement, while recovery attempts are likely to struggle as long as price trades beneath the clustered daily moving averages.

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

• USD/JPY extends its recovery from five-week lows as the Japanese Yen weakens.
• Improving risk sentiment reduces demand for the Yen, while the US Dollar regains strength.
• Traders brace for Fed and BoJ decisions, with both central banks expected to hold interest rates steady.

USD/JPY edges higher on Tuesday as last week’s AI-related worries subside, reducing the Japanese Yen’s (JPY) safe-haven appeal and helping the US Dollar (USD) resume its uptrend ahead of the Federal Reserve’s (Fed) monetary policy decision on Wednesday.

At the time of writing, the pair trades around 157.85 after slipping to 156.08 on Friday, its lowest level since September 18. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, rises to a two-week high around 102.23 after falling to 101.45 last week, its lowest level since October 1.

Analysts at OCBC note that while recent “AI concerns have eased,” the “JPY’s return as a portfolio hedge is worth watching.” They stress that “it is too early to call an AI bust,” arguing that investors will “increasingly demand stronger revenues and cash flow to justify higher capex,” but that “for now the jitters look more like noise than a sustained reversal.” In their view, “AI remains broadly USD-positive, but it is no longer a one-way USD trade.”

The Fed is expected to keep interest rates unchanged after raising them by 25 basis points (bps) in September to 3.75%-4.00%. This marked its first hike since 2023 as policymakers responded to inflation pressures fuelled by higher Oil prices amid the war in the Middle East.

With a pause widely expected, attention will centre on the policy statement and Chair Kevin Warsh’s press conference for signals on a December rate hike, which traders see an 80% chance of, according to the CME FedWatch Tool.

Data released on Tuesday offers modest support to the Greenback, with US Durable Goods Orders rising 1.8% in September, above expectations of 0.6%. However, orders excluding transportation increased 0.5%, slightly below the 0.6% forecast, while core capital goods orders slowed to 0.5% from 1.6%. Meanwhile, ADP’s four-week average of job gains eased to 16.8K from 17.5K.

Meanwhile, the Bank of Japan (BoJ) is also expected to keep interest rates unchanged at Friday’s meeting after delivering a cumulative 50 basis points (bps) of tightening earlier this year, with traders anticipating another hike in December.

Analysts at MUFG/BTMU argue that the Yen “may well struggle through this week,” with investors likely braced for BoJ Governor Ueda to adopt a more cautious tone on Friday given the global backdrop. They expect the BoJ to acknowledge that “more rate hikes are necessary,” but note that Ueda’s communication style suggests he “may not provide a strong message on a move in December that remains 80% priced.”

In MUFG/BTMU’s view, that combination of cautious guidance and already elevated expectations “could mean USD/JPY retraces further higher this week, especially if investor sentiment related to AI stabilises.”

Commerzbank FX analyst Michael Pfister reviews the recent sharp depreciation of the Mexican Peso (MXN) against the US Dollar (USD) and argues that the move looks overdone. He highlights Banxico’s dovish stance, USMCA trade uncertainties and rising risk aversion as key drivers. The bank’s forecasts see USD/MXN gradually declining from 17.20 in December 2026 to 16.50 by December 2027.

MXN-specific risks drive sharp selloff

"However, since the beginning of September, sentiment has shifted abruptly. Instead of trading below 17 USD/MXN, the exchange rate is now trading above 18.5, representing a depreciation of over 9%. At first glance, this could be attributed to general US dollar strength or increased risk aversion."

"The minutes from the last meeting made it clear that Banxico is open to further interest rate cuts, contrary to market expectations, and that Fed rate hikes do not have to be mechanically mirrored. This amounts to a very dovish stance, which is causing the peso’s carry advantage to decline further."

"Consequently, the authorities are unlikely to stand by and watch indefinitely, but will at some point signal their readiness to tighten monetary policy, which would support the peso quickly."

"The outlook is more challenging when it comes to two other potential contributing factors. The USMCA negotiations do not currently appear to be a top priority for the US, and it is quite possible that no agreement will be reached by the end of the year, or even until 2027. A weaker US dollar would also help, but this is currently difficult to predict given the geopolitical risks."

"However, there is a glimmer of hope: the peso’s weakness is likely to be limited as most of the risks are probably already factored in by now."

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

United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann report that GBP/USD broke below prior support at 1.3340, with intraday downside momentum modest but sufficient to keep price action constrained between 1.3315 and 1.3365. On a 1–3 week view, earlier bullish momentum has faded and the pair is now seen in a range-trading phase between 1.3290 and 1.3390, while longer-term analysis still flags scope for rebounds toward 1.3480.

Bullish bias fades into a range

"24-HOUR VIEW: When GBP was at 1.3375 yesterday, we indicated that “the current price movements still appear to be part of a range-trading phase, likely between 1.3355 and 1.3400.” We were incorrect, as GBP fell and broke below 1.3355, reaching a low of 1.3326. Downward momentum has increased, albeit not significantly. Today, GBP could weaken, but based on the prevailing momentum, it should stay within a 1.3315/1.3365 range."

"1-3 WEEKS VIEW: We turned positive on GBP in the middle of the month. In our most recent narrative from last Wednesday (21 Oct, spot at 1.3375), we highlighted that “there is scope for GBP to rise to 1.3440 next.” Yesterday, GBP fell and broke below our ‘strong support’ level at 1.3340 (low has been 1.3326). Upward momentum has faded, and GBP has likely entered a range-trading phase. For the time being, we expect GBP to trade between 1.3290 and 1.3390."

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

National Bank of Canada (NBC) economists Taylor Schleich and Ethan Currie argue that economic slack and contained core inflation have allowed the Bank of Canada to be patient, but sustained high Oil prices and a firmer growth backdrop now point to a rate hike. They expect a first increase since July 2023, with December odds near 50%.

BoC patience challenged by Oil

"Economic slack and contained core inflation has allowed the BoC to take a patient approach this year. But as officials have repeatedly stressed, the longer energy prices remain elevated, the greater the risk that inflation broadens. The Governor was clearly uncomfortable with WTI at ~$90/bbl in early September, so another 10-20% increase in the interim has likely exhausted their patience. "

"While trade uncertainty may be weighing on the growth outlook, the BoC has faded these risks lately. Macklem has stressed that the economy is on better footing, firms are adapting, and more recently, he’s drawn attention to the positive economic benefits that higher oil prices are providing. A reportedly imminent trade deal should also assuage some lingering concern. "

"This all leans toward the BoC delivering its first increase since July 2023."

"Assuming the Bank does opt to tighten, the focus will shift to the timing of the next one. Supporting a consecutive move in December will be upgraded inflation and growth projections in a new MPR and an empirical record that sees the Bank typically begin its cycles with back-to-back hikes."

"However, other central banks have opted (the ECB) or are likely to opt (the Fed) for a more gradual approach. We don’t see this being a ‘dovish hike’ whereby the Bank sets up a December hold. However, they also won’t explicitly ‘tee up’ a follow-on move. Instead, they’ll frame the outcome of future decisions around incoming data and the evolving balance of risks."

"That’s likely to see markets place the odds of a December hike around 50% following the decision"

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

• The US Dollar Index rallies 0.6% in three days and hits fresh two-week highs above 102.00.
• Investors return to the US Dollar as markets brace for a hawkish hold by the Fed on Wednesday.
• Waning hopes of any immediate US-Iran peace deal have provided additional support to the safe-haven USD.

The US Dollar has been one of the strongest performers among major currencies in the last few sessions. The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against a basket of six peers, has rallied more than 0.6% over the last three trading days to hit two-week highs above 102.00, with investors awaiting the outcome of the Federal Open Market Committee (FOMC) meeting, due next Wednesday.

Traders have turned long on the US Dollar this week, with markets bracing for a hawkish hold by the Federal Reserve (Fed) to confirm expectations of a quarter-point rate hike in December. Beyond that, the latest attempt to de-escalate tensions in the Middle East has ended like the previous ones, in nothing, while the ongoing skirmishes between regional powers and the attacks in the Strait of Hormuz provide additional support to the USD amid its safe-haven status.

Dollar support seen building ahead of key Fed decision

According to ING’s Chris Turner, with “energy prices firm and expectations growing that the US and Israel will launch another attack on Iran (...) we expect central banks to stay hawkish. This should keep the dollar supported on dips.”

In a similar vein, Analysts at HSBC "expect the USD to consolidate near its recent highs over the coming weeks, with risks tilted towards further gains rather than material weakness."

HSBC defends a more neutral USD outlook, with the bank's experts arguing that "US economic resilience, a hawkish Federal Reserve and potential challenges for other currencies should limit the USD’s downside, without necessarily providing the momentum for another leg higher."

TD Securities points in the same direction, highlighting persistent inflation risks and forecasting a cautious FOMC stance after Wednesday's meeting. "A hold in October will make a December hike all the more likely,” according to the TD Securities expert.

Eurozone credit tensions increase demand for the USD

Strategists at Brown Brothers Harriman point out that October's ECB survey “showed a further net tightening of credit standards and weaker loan demand in Q3,” a combination that “is a headwind to Eurozone economic activity and challenges the nearly 75bps of ECB hikes priced by markets over the next twelve months.”

In the US, “September durable goods orders and ADP weekly employment change will likely underscore the resilience of the economy,” says BBH, adding that “rising gasoline prices point to worsening near-term inflation expectations in October’s consumer confidence survey.” All in all, reinforcing the case for a firm Fed monetary policy stance.

BNY Markets’ John Velis previews the October FOMC, expecting no rate hike this week but a possible move in December. He notes market-implied probabilities show the Fed funds rate peaking just above 4.5% with around three more hikes by next year. Velis highlights potential hawkish dissents, Fed credibility, and doubts that the full 100bp tightening priced by markets will be delivered.

FOMC path, dissent and credibility

"In line with the market, we don’t foresee a rate hike at the October FOMC tomorrow and prefer to place our expectations for further tightening on the December meeting. Based on Fed commentary and a steady, if sticky, inflation outlook, we don’t think the weight of the Committee will fall on the hawkish side."

"Rates aren’t expected to rise at a steady, meeting-by-meeting pace and are actually expected to top out at just above 4.5%, indicating around three more hikes by this time next year."

"That said, we do expect at least one dissent, if not more, in favor of raising rates. If we’re right, and there is an objection (or two), we would expect the market to interpret Wednesday’s decision hawkishly, solidifying the expectation of a hike at the end of the year."

"At the press conference, we don’t see any preview of what we expect to be a December hike, given Chair Kevin Warsh’s disinclination to provide guidance on future policy moves. Nevertheless, we think that market expectations for a December hike will be solidified."

"Yet we’re not convinced the Fed can deliver the 100bp that’s been priced in since the beginning of the tightening cycle, and we’re not sure it would be needed if inflation doesn’t broaden out to cyclical items."

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

Societe Generale strategists highlight severe pressure on the Brazilian Real, which will resume trading at 5.4155 after an 8.5% drop driven by unwinding of long positions. They note the pair has retested the July 2025 high near 5.60/5.63 as an interim hurdle, with March supports at 5.34 and 5.24, and stress that the next finance minister and fiscal stance will be crucial.

BRL reopens after sharp selloff

"In EM, it was all about Brazil yesterday after the ambush of the currency, bonds, soft commodities and stocks."

"The BRL will resume trading at 5.4155 after nosediving 8.5% following the unwinding of long positions."

"Where the currency goes from here will be partly decided by the appointment of the next finance minister and the direction of fiscal policy."

"Inflation data for October is due on Thursday. The BCB meets next week."

"Technically, the pair has retested the July 2025 high near 5.60/5.63, which could act as an interim hurdle; March high at 5.34 and 5.24 are short-term supports."

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

OCBC’s Sim Moh Siong and Christopher Wong highlight that the Japanese Yen (JPY) is regaining relevance as a portfolio hedge amid shifting AI-related market risks. While AI concerns have eased, US-centric risk-off is seen as less reliably Dollar-supportive, making the JPY increasingly attractive as a hedge. They expect the Fed, BoJ and ECB to hold rates, while a hawkish Fed hold could keep a December hike in play.

Yen regains portfolio hedge status

"AI concerns have eased, but the JPY’s return as a portfolio hedge is worth watching. It is too early to call an AI bust. Investors will increasingly demand stronger revenues and cash flow to justify higher capex, but for now the jitters look more like noise than a sustained reversal."

"We expect the Fed, BoJ and ECB to hold this week. For the Fed, the key question is whether the AI-led sell-off materially tightened financial conditions. We doubt it changes the policy path."

"A hawkish October hold should keep a December hike in play, particularly with energy prices adding to upside inflation risks."

"USD support remains intact, but US-centric risk-off is becoming less reliably USD-positive. That makes the JPY increasingly attractive as the cleaner hedge."

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