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The Bank of Japan left its short-term policy rate unchanged at 1.25% but delivered a distinctly hawkish message on the risk of an inflation overshoot. The decision passed by 8-1, with board member Takata dissenting in favour of an increase to 1.5%, while Governor Kazuo Ueda stressed that the Bank would continue adjusting policy as needed.

The BoJ said underlying inflation had reached levels broadly consistent with its 2% price-stability target, while financial conditions remained accommodative and short-term real rates stayed low. It also raised its fiscal 2027 core CPI forecast to 2.6% from 2.4%, although the projection for fiscal 2028 remained at 2.0%. GDP growth forecasts were revised to 0.7% for fiscal 2026 and 0.7% for fiscal 2027.

The central bank said the balance of risks had shifted. Unlike in the past, when policymakers were primarily concerned about inflation undershooting the target, they must now guard against an overshoot. Risks from the Middle East conflict, stronger AI-related demand and FX volatility require close monitoring, while corporate funding demand is rising and lenders remain willing to extend credit.

Ueda said the BoJ would not wait passively for inflation to move higher but would adjust policy proactively if needed. At the same time, he stressed that the Bank could not yet declare victory because inflation must remain stable and sustainable around 2%. The timing and pace of future hikes will depend on the data, wage developments, financial conditions and the likelihood of the Bank’s economic outlook being realised. He gave no indication that increases would follow a fixed timetable.

Overall assessment

The BoJ delivered a hawkish hold. That said, it paused because it wanted more evidence that inflation and wages can remain sustainably around 2%, not because it has abandoned its tightening cycle. With one dissent for an immediate hike, an explicit warning about overshooting and a commitment to respond proactively, further rate increases remain firmly on the table.

Societe Generale economists Reo Sakida and Jin Kenzaki note that food inflation continued to ease in October's Tokyo CPI data, while oil-related goods inflation edged higher. They highlight that rising upstream food prices and energy costs have yet to fully feed through to consumer prices, leaving risks to goods inflation tilted to the upside in the coming months.

Goods prices and energy-driven pressures

"The contribution from goods prices was broadly unchanged at +1.61pp (vs +1.62pp). Food prices continued to slow, with their contribution falling to +0.74pp (vs +0.86pp). This partly reflects a high base in October 2025, while food prices have yet to reflect higher upstream costs."

"In recent months, leading PPI indicators and food CPI have diverged, with consumer prices yet to follow the rise in producer prices. We expect food CPI to catch up in the coming months."

"Inflation in oil-related goods accelerated slightly to +0.20pp (vs +0.18pp), remaining on an upward trend. The contribution from these items has risen sharply over the past four months, from +0.06pp in June. Consumer prices have yet to fully reflect the latest increase in energy costs due to the ongoing unrest in the Middle East."

"With the latest increase in energy costs not yet fully reflected in consumer prices, risks to goods inflation remain tilted to the upside."

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

• Gold falls to its lowest level since October 2025 as Fed rate hike bets weigh.
• The US Dollar and Treasury yields bounce off intraday lows, adding pressure on bullion.
• XAU/USD remains below its main daily moving averages, with weak momentum leaving room for further losses.

Gold (XAU/USD) plunges more than 2.5% on Friday, hitting fresh year-to-date lows. The metal struggles despite a risk-off mood driven by a technology stock sell-off over AI spending concerns. A hawkish Federal Reserve (Fed) outlook continues to act as a headwind, while investors may also be liquidating Gold positions to cover losses elsewhere. The decline leaves Gold on track to end the month in negative territory.

At the time of writing, XAU/USD trades around $3,911, its lowest level since October 2025.

Traders turn risk-averse as disappointing technology earnings renew concerns about heavy AI spending and whether those investments will generate sufficient returns. Investors move into government bonds, pushing US Treasury yields lower and dragging the US Dollar down. However, both have since recovered some ground, adding to the pressure on Gold.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.90, bouncing off an intraday low of 101.59 and pausing a two-day losing streak.

Adding to the cautious mood, reports of a major security breach at cryptocurrency exchange Binance weigh on digital assets and further unsettle investors. Gold has so far failed to benefit from the risk-averse mood, as traders focus on rising Oil prices amid Middle East tensions and their impact on inflation and interest rates.

West Texas Intermediate (WTI) trades above $103 a barrel, climbing to its highest level since May amid concerns that the US could resume military strikes against Iran after next week’s US midterm elections.

Higher energy costs risk keeping inflation above the Fed’s 2% target for longer. Data released on Thursday showed that September headline Personal Consumption Expenditures (PCE) inflation rose 0.5% MoM and 3.6% YoY, while the core measure increased 0.3% MoM and 3.1% YoY.

Traders price in around a 75% chance of a December rate hike, according to the CME FedWatch Tool, after the Fed left rates unchanged in October. Higher borrowing costs tend to weigh on Gold, as it offers no interest income.

Fed speakers return as Dollar faces AI jitters and midterm risks

Analysts at ING highlight that today’s end of the FOMC’s blackout period will bring comments from Thomas Barkin, Mary Daly and Alberto Musalem, but they “don’t feel there is much members can add at this stage, as markets are already pricing in a December hike and dovish comments look unwarranted given the latest energy price developments.” Against that backdrop, ING argues that “resurgent AI-related jitters and the upcoming US midterms are increasing downside risks for the Dollar,” even as a “still-hawkish Fed argues against major corrections.”

Technical analysis: XAU/USD eyes deeper losses below $4000

On the daily chart, XAU/USD has been making lower highs and lower lows since peaking near $4,700 in late August. The metal trades below the 50-day, 100-day and 200-day Simple Moving Averages (SMAs), keeping sellers in control. The Relative Strength Index (RSI) near 31 signals subdued buying interest, while the Moving Average Convergence Divergence (MACD) remains in negative territory, suggesting that downside pressure persists.

Initial resistance stands at $4,000, followed by $4,100, the 100-day SMA near $4,214 and the nearby 50-day SMA at $4,255. A stronger recovery could bring horizontal resistance at $4,400 into focus, followed by the 200-day SMA around $4,491.

On the downside, $3,900 offers immediate support. A break below this level could open the door to deeper losses toward $3,800.

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

• EUR/USD retreats from intraday highs as the Greenback regains ground.
• AI spending concerns unsettle investors, while persistent inflation keeps the Fed hawkish.
• Upbeat Eurozone GDP and hawkish ECB comments fail to provide lasting support to the Euro.

EUR/USD turns lower on Friday, giving up earlier gains as the US Dollar (USD) rebounds amid heightened volatility across financial markets. At the time of writing, the pair trades around 1.1140 after reaching an intraday high of 1.1214.

The US Dollar came under pressure earlier on Friday as technology shares fell for a second day, with investors still digesting disappointing earnings reports and questioning the returns on heavy AI investment. The sell-off drove demand for government bonds, pushing US Treasury yields lower and weighing on the Greenback.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, fell to 101.53 before recovering above 102.00. The US Dollar’s downside remains cushioned as higher energy prices linked to developments in the Middle East keep inflation risks elevated and the Federal Reserve (Fed) on a hawkish path.

The latest US PCE data showed that inflation remains stubbornly above the Fed’s 2% target, while stronger-than-expected third-quarter GDP growth gives policymakers more room to raise interest rates without immediately threatening the expansion.

However, traders fear that a slowdown in AI spending could weaken growth, even as the current investment boom adds to inflation pressures. Richmond Fed President Thomas Barkin said on Friday that “the AI investment surge has pressured supply chains, and that is inflationary.” He added that AI investment is creating demand-driven inflation, which the Fed can lean against.

Against this backdrop, traders continue to favour a December rate hike, with the CME FedWatch Tool putting the probability at around 75%. The US central bank held rates at 3.75%-4.00% on Wednesday, reaffirming its commitment to deliver price stability. Barkin also said that “the Fed has signaled a gradual approach.”

On the Euro side, upbeat growth data and hawkish European Central Bank (ECB) comments fail to provide lasting support. Preliminary figures released on Friday showed that the Eurozone economy expanded 0.4% QoQ in the third quarter, beating expectations of 0.2%, although slowing from 0.6% in the previous quarter. Annual growth rose to 1.3% from 1.2%.

After the ECB left interest rates unchanged on Thursday, policymaker Fabio Panetta said on Friday that “further increases in policy rates could prove necessary.” He added that the “outlook for prices is worsening,” with inflation seen above 2% for several quarters, and warned that the “increase in core inflation could become more pronounced early next year.”

UOB economist Lee Sue Ann notes that the European Central Bank (ECB) kept key rates unchanged in October but delivered a hawkish message. Ann highlights rising inflation risks from the energy shock, tighter financial conditions and French political uncertainty, yet still expects a 25 bps rate increase in December, taking the Deposit Facility Rate to 2.75% before a period of policy stability.

Hawkish pause points to December move

"Notably, Lagarde's comments strongly suggest that the ECB has not abandoned its tightening bias. While reiterating the ECB's meeting-by-meeting approach, she stated that unless incoming information materially alters the current picture, "the direction of travel is quite clear". The message is consistent with our longstanding view that Dec rather than Oct was always the more likely timing for any final adjustment."

"We therefore maintain our forecast for a 25 bps rate hike at the 17 Dec meeting, which would lift the Deposit Facility Rate to 2.75%. By then, policymakers will have access to updated staff projections, additional inflation data, wage developments and growth indicators. Unless there is a material easing in energy prices or a sharp deterioration in activity, the balance of risks still points toward one last tightening step before the ECB moves to an extended period of policy stability."

"A key reason for the ECB's decision to pause is the substantial tightening in financial conditions since Sep. Long-term government bond yields have risen sharply across advanced economies, with Lagarde noting that average 10-year sovereign yields have increased by around 35 bps relative to the assumptions underlying the September projections. Equity prices have also fallen while borrowing costs for households and businesses have moved higher."

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

Nordea’s Kjetil Olsen expects Norges Bank to keep its key policy rate at 4.5% next Thursday, in line with the September rate path. He notes mixed data: slightly higher core inflation and energy prices versus a stronger NOK and softer retail sales. Olsen argues communication will stay broadly unchanged and that rate cuts are unlikely before inflation clearly converges to the 2% target, which he does not foresee before 2028.

Policy rate and inflation outlook

"Norges Bank will keep its key rate unchanged at 4.5% next Thursday, in line with the rate path presented at the September meeting."

"In addition, oil and gas prices have risen, as have electricity futures."

"On the other hand, the stronger NOK points in the opposite direction."

"Overall, if Norges Bank were to publish a new rate path today, we believe it would be very close to the September path at the front end, perhaps marginally lower, but somewhat lower further out."

"We believe Norges Bank needs to see clear evidence that inflation is converging towards the 2% target before signalling rate cuts."

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

Rabobank strategist Stefan Koopman expects the Bank of England’s (BoE) Monetary Policy Committee (MPC) to raise Bank Rate to 4.00% in November 2026 in a 7-2 split, followed by another 25bp hike to 4.25% in February 2027. The report stresses that higher market rates have already tightened conditions, but argues policymakers must now validate pricing. Fiscal policy is seen as a minor offset to the energy-driven inflation shock.

MPC seen validating market tightening

"We expect the Bank of England to raise Bank Rate by 25bp to 4.00% next week. We think the vote will be split 7-2, with doves Dhingra and Taylor preferring to keep rates unchanged."

"We therefore add another 25bp hike to our forecasts, taking Bank Rate to 4.25%. That more or less would align Bank rate with spot inflation."

"Financial conditions are already doing some of the MPC’s work, giving it room to move gradually without looking complacent. By February, fresh forecasts will also give policymakers more information to go on."

"The overall fiscal stance is still slightly restrictive over the coming years. We continue to think that this will exert some downward pressure on Bank Rate over the longer run."

"More hikes could still be needed. But by late Q1, the calculus may shift again: even if oil prices remain elevated, as we forecast, a credible prospect of de-escalation in the US-Iran conflict could be enough for the MPC to look through current inflation, essentially betting that the worst is behind it."

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

• USD/CHF hits session highs at 0.8230 after bouncing from 0.8193 lows earlier this month.
• The US Dollar trims losses but remains on track for its third consecutive weekly decline.
• Higher Oil prices are weighing on the Swissie, which shone this week in risk-off markets.

The Swiss Franc (CHF) is giving away gains against the US Dollar (USD) on Friday, weighed by concerns about the Swiss economy's exposure to the higher Oil prices. The USD/CHF pair has returned to levels above 0.8220, retracing Thursday's losses but remains on track for a 0.3% weekly loss and a nearly 1% decline over the last three weeks.

Oil prices are posing a significant weight on the Swiss Franc on Friday. Brent crude has appreciated to nearly six-month highs at $113.50 per barrel, nearly 20% up in October.

News reporting of more attacks on vessels attempting to cross the Strait of Hormuz, and ongoing attacks from Iran-backed Houthis on Saudi Arabian airports and Oil infrastructure have resurfaced fears about supply distortions, pushing prices near their highest levels since the Middle East conflict started.

Swiss Franc regains its safe-haven status

The Swissie, however, has emerged as a safe haven amid concerns of an AI bubble and turmoil in bond markets over the last few weeks, which is keeping a floor on CHF dips so far. The US Dollar has been struggling this week as concerns about the AI sector's profitability, following a string of downbeat results from tech companies, spooked investors away from equity markets, pushing them to seek refuge in the safety of US Government bonds.

The yield of the US 10-year Treasury note has lost more than 30 basis points in October, posing a significant headwind to US Dollar rallies.

Looking ahead, analysts at ING warn that “resurgent AI-related jitters and the upcoming US midterms are increasing downside risks for the Dollar,” even as they stress that a “still-hawkish Fed” is likely to provide an important counterbalance to any deeper Dollar sell-off.

• Annual inflation in Germany softened to 2.8% in October.
• EUR/USD trades marginally lower on the day, below 1.1200.

Inflation in Germany, as measured by the change in the Consumer Price Index, declined to 2.8% (preliminary) in October from 3.3% in September, Germany's Destatis reported on Friday.

On a monthly basis, the CPI declined by 0.2% following the 0.6% increase recorded in September and came in below the market expectation for an increase of 0.1%.

Finally, the Harmonized Index of Consumer Prices (HICP), the European Central Bank's (ECB) preferred gauge of inflation, rose by 2.8% on a yearly basis, below the September's increase and the market expectation of 3.3% and 3.1%, respectively.

Market reaction

EUR/USD edged lower with the immediate reaction to softer-than-expected inflation data from Germany. At the time of press, the pair was trading marginally lower on the day at 1.1170.

TD Securities economists Oscar Munoz and Eli Nir argue that strong US domestic demand, led by AI-related capital expenditure and resilient consumer spending, is inconsistent with a smooth return to the Federal Reserve’s 2% inflation objective. They expect consumer strength to ease in Q4, but still see domestic demand as robust and inflation remaining above target.

Domestic demand complicates Fed outlook

"Booming domestic demand continued to lift US economic activity during the third quarter, with AI capex and a buoying consumer acting as the main growth engines. While this bodes well for the economy's momentum near term, it does not do the Fed any favors regarding the inflation outlook."

"Excess demand in services is a notable culprit. Real spending on goods has normalized, but the same can't be said for services, which is most likely helping to keep supercore inflation uncomfortably elevated. Outside of energy and tariffs, sticky services prices remain a nagging issue for the Fed."

"Looking forward, we expect the US consumer to give back some strength in Q4: the carryover is low (soft Sep), and spending appears to be normalizing in Oct after a hot summer. We are penciling in that spending will cool to 1.8%, with GDP growth slowing back to trend-like speed at 2.3% q/q AR in Q4."

"The upshot is that as long as financial conditions remain broadly supportive, domestic demand will likely stay robust and inflation sticky above target. Put differently, the Fed will likely find itself having more work to do on the policy front. This supports our view that the Fed will have to further tighten the policy screws in the near future: we look for an additional 50 bps worth of tightening between now and Q1 2027."

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