Forex News
Scotiabank strategists Shaun Osborne and Eric Theoret highlight that USD/CAD around 1.4269 shows signs of consolidation after a sharp Canadian Dollar (CAD) weakening since early September. Price action is closely tracking the 2-year US–Canada spread, with Oil offering some support to CAD. Their fair value estimate for USD/CAD stands below spot at 1.4191, while technicals point to stalled upside and key levels at 1.4400, 1.4100 and 1.4000.
Consolidation with stretched valuation
"Recent price action in the CAD is suggestive of consolidation and a reassessment of the nearterm path following an astonishing run of weakness from early September."
"The CAD’s movement is largely mirroring the 2Y US-Canada spread, suggesting that markets are tightly focused on the outlook for relative central bank policy with oil prices providing an added lift via terms of trade."
"Domestic risk is limited ahead of Friday’s employment release, with BoC risk following next week as we await fresh comments from Gov. Macklem and Sr. Dep Gov. Rogers on the sidelines of the IMF meetings in Bangkok. Our FV estimate for USD/CAD is currently at 1.4191 and continues to trade below spot."
"Bullish/neutral – the USD/CAD rally from early September clearly looks to have stalled in the mid/upper-1.42s. Momentum has seen a notable moderation from extremely overbought levels with the RSI returning to the 70 threshold following its recent peak near 80. We see little in terms of resistance between current spot and 1.4400 and see support at 1.4100 followed by the psychologically important 1.4000 level."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Nordea’s Chief Analyst Jan von Gerich interprets the ECB’s September monetary policy account as supporting further rate hikes, likely in December and March. The Governing Council remains focused on upside inflation risks, especially from persistent energy shocks and resilient growth. At the same time, the ECB avoids pre-commitment, stressing data dependence and neutral communication as it navigates high geopolitical and market uncertainty.
ECB keeps options open on rates
"The monetary policy account from the ECB’s September meeting reinforces the impression that the Governing Council remains primarily concerned about upside inflation risks. While indirect and second-round effects from the energy shock have so far remained limited, policymakers are concerned that a resilient economy could eventually allow broader price pressures to emerge."
"The outlook remained highly uncertain and critically dependent on geopolitical developments. Risks were to the upside for inflation and to the downside for economic growth."
"That said, the ECB was clear that it would not pre-commit or provide clearer forward guidance, keeping its options open amid high uncertainty."
"Overall, the account is consistent with our baseline of further 25bp rate hikes in December and March. While the ECB is not yet seeing broad-based inflation pressures, it is becoming increasingly concerned that persistent energy price shocks and a resilient economy could eventually generate more meaningful indirect and second-round effects. After the recent repricing prompted by concerns about France, current market pricing is once again close to our baseline."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
UOB’s Alvin Liew analyzes the September 2026 FOMC minutes, highlighting unanimous support for a 25bp hike to 3.75–4.00% as inflation stays elevated and growth remains solid. He notes policymakers generally see another hike as likely by year-end and expects two further increases in December 2026 and 1Q 2027, with the US Fed Funds Target Rate upper bound peaking at 4.50% and then held through 2027.
Fed path points to higher rates
"The Sep 2026 FOMC minutes revealed a unanimous shift toward policy tightening, with all 19 participants supporting a 25bp rate hike to 3.75-4.00%, compared with the divided Jul meeting. Policymakers agreed inflation remained elevated, the labour market was near maximum employment and economic activity continued to expand at a solid pace. While participants differed on the rationale for tightening, ranging from inflation-risk insurance to concerns about stronger underlying demand, most judged that another rate increase would likely be appropriate by year-end."
"The Sep FOMC minutes showed Fed policymakers broadly viewed another rate hike to be appropriate by year-end, but it certainly did not commit themselves to any move in the upcoming Oct FOMC. We expect two additional hikes, in Dec 2026 and 1Q 2027, thereafter on hold for rest of 2027 as inflation fades in a more durable fashion in the later part of 2027 as the most likely course. We have ruled out a back-to-back rate hike in the Oct FOMC, which falls less than a week from the midterm elections (3 Nov)."
"That said, we continue to keep in mind the risks of further policy tightening if the inflation trajectory becomes more persistent by the combination of higher energy prices, trade tariffs and AI-related factors. We have ruled out a back-to-back rate hike in the Oct FOMC, which falls less than a week from the midterm elections (3 Nov)."
"According to Bloomberg’s WIRP, the probability of a Oct rate hike fell further to 19.4% on 8 Oct (from 21.6% on 5 Oct, and materially lower from 70.3% on 28 Sep)."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Bank of England (BoE) Governor Andrew Bailey said on Thursday that financial markets need to be better prepared for future shocks and monetary policy must stay focused on bringing inflation back to target.
Policymakers should strengthen core financial markets so they can absorb future shocks without amplifying them.
When shocks become more frequent, underlying growth is weaker, and the succession of shocks leads to a higher level of government debt, it's much harder for governments to use balance sheets to cushion a severe downturn.
Greater absorption of government debt has come with greater fragility.
Commitments on fiscal policy are needed more than ever when negative shocks occur
Monetary policy needs an unwavering commitment to returning inflation to target.
Evidence of pass-through of energy costs into broader inflation is currently quite subdued but there are risks.
Inflation risks rise longer high energy prices persist.
Fully committed to returning inflation to target.
We are seeing volatile markets.
Market movements are some way from normal, but we are not seeing illiquidity or stressed conditions.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Chris Turner at ING highlights that EUR/USD remains fragile as French sovereign debt volatility drives the pair. A report suggesting the French Treasury may shorten issuance duration unsettled investors, who fear reduced pressure on politicians to deliver fiscal consolidation. ING continues to favor a dip in EUR/USD towards the 1.1100/1.1120 area, where stronger technical support may emerge, with French fiscal debates only starting mid-October.
French OAT stress drags EUR/USD
"Having enjoyed a modest rebound earlier in the week, French sovereign debt was hit by a report yesterday that the French Treasury could shorten the duration of its issuance to protect the long end."
"While that seems rational, investors did not like the fact that this could alleviate pressure on politicians to act."
"We are hence left with Marine Le Pen's questionable plans for fiscal consolidation next year and the current government's proposal for some modest fiscal consolidation. The debate on the latter may only get started on 13 October, suggesting little stability for French bonds at this stage."
"EUR/USD is very much being dragged around by the performance of those French sovereign bonds, OATs, and we continue to favour a dip to the 1.1100/1120 area, where more support may be found."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
The European Central Bank (ECB) is expected to leave interest rates unchanged in October before delivering another increase in December, according to a Reuters poll conducted October 5-8.
The survey shows that 70 of 73 economists expect the ECB to hold its deposit rate at 2.50% on October 29, while 64 of 73 anticipate a 25-basis-point (bps) hike in December. A 58% majority expect the deposit rate to peak at 2.75%. However, 24 economists see rates reaching 3.00%, up from just two last month.
The ECB has raised rates twice this year as higher Oil prices stemming from the war in the Middle East have pushed inflation above its 2% target.
Economists now expect inflation to average 3.7% in the fourth quarter, up from 3.3% in the third quarter and above the 3.3% forecast in last month’s survey. Annual inflation forecasts have also been revised higher, to 3.0% in 2026 and 2.6% in 2027, compared with previous estimates of 2.9% and 2.3%, respectively.
The Eurozone economy is expected to grow by 1.0% this year, up from 0.8% in the previous survey. Growth is forecast at 1.2% in 2027 and 1.3% in 2028.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
- Initial Jobless Claims went down to 197K vs. the previous week.
- Continuing Jobless Claims went up to 1.716M.
According to a report from the US Department of Labour (DOL) released on Thursday, the number of US citizens submitting new applications for unemployment insurance decreased to 197K for the week ending October 3. The latest print came in below initial estimates (200K) and was lower than the previous week’s 199K (revised from 197K).
Additionally, the 4-week moving average went down by 2.5K to 180K vs. the previous week’s revised prints (200.5K).
The report also indicated that Continuing Jobless Claims rose by 17K to 1.716M for the week ending September 26.
Market reaction
The Greenback builds on Wednesday’s advance, motivating the US Dollar Index (DXY) to trade with modest gains in the 102.30 zone, close to recent 18-month highs, as investors continue to assess the latest data releases.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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