Forex News
Commerzbank’s Norman Liebke notes that the Canadian Dollar has underperformed G10 peers but sees support from rising Bank of Canada rate expectations and high Oil prices. He argues that BoC communication has opened the door to rate hikes, while inflation expectations, fragile labour markets and US trade tensions will shape CAD performance and forecast paths for EUR/CAD and USD/CAD.
BoC tightening supports Canadian Dollar
"Nevertheless, Macklem’s latest comments have significantly increased the risk of an imminent rate hike, and we therefore expect an initial move before the end of this year. Although market participants assign an 85% probability to a rate hike this week, and we also expect a hike given the recent more hawkish comments, we nevertheless consider such a move due to the subdued core inflation premature. A total of four rate hikes are priced in by September 2027."
"While further moves next year are certainly possible, this expectation appears somewhat ambitious to us. The interest rate outlook nevertheless remains supportive for the CAD, particularly as our economists expect less tightening from the Fed and ECB by the end of 2027 than currently priced in. However, a substantial part of the expected BoC tightening is also likely already priced in, meaning that additional CAD strength will increasingly depend on the BoC adopting an even more restrictive stance than the market currently expects."
"This leaves the BoC facing an increasingly difficult balancing act. The signs of weakness seen so far are unlikely to be sufficient to rule out rate hikes, particularly because the Canadian real economy has been sending mixed signals for some time. But stronger labour market and economic data would reinforce the case for further rate increases."
"Conversely, a more pronounced deterioration in economic activity could limit the BoC’s scope for additional tightening. Moreover, changes in interest rates affect the real economy only with a lag, meaning the BoC would probably proceed more cautiously if the economy weakened further. The trade conflict therefore remains a key risk factor for the CAD: even if the effective tariff burden ultimately rises by less than feared, persistent uncertainty could weigh on Canada’s growth outlook and thereby limit the Canadian dollar’s appreciation potential."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Gold reclaims $4,000 as Middle East diplomatic efforts prompt a pullback in Oil prices.
- Traders await the Fed's monetary policy announcement scheduled for Wednesday.
- Technical indicators remain bearish, with RSI near oversold territory and MACD in negative territory.
Gold (XAU/USD) attracts dip-buying interest on Monday after last week’s sharp decline pushed the metal to $3,975, its lowest level since July. A pullback in Oil prices also offers some support as traders react to diplomatic efforts to ease tensions in the Middle East. However, a recovery in the US Dollar (USD) keeps the metal’s gains in check ahead of the Federal Reserve’s (Fed) monetary policy decision on Wednesday.
At the time of writing, XAU/USD trades around $4,025, up 0.73% on the day. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.99 after falling to 101.45 last week, its lowest level since October 1.
Reuters reported that officials from Saudi Arabia, Pakistan and Turkey, the three Mecca Pact members, are holding talks with Iranian leaders in Tehran on Monday. Iranian Foreign Ministry spokesman Esmaeil Baghaei said the discussions would cover Israel’s expansionist policies, developments in the Palestinian territories and Lebanon, and the repercussions of US and Israeli military action against Iran.
The meeting follows talks between Qatari mediators and Iranian officials in Tehran on Sunday as part of efforts to ease regional tensions. West Texas Intermediate (WTI) Oil eases to around $100.30 per barrel after reaching $103.28 on Friday, its highest level since May.
The metal lost around 4% last week as rising Oil prices reinforced expectations of further Federal Reserve (Fed) tightening, outweighing support from falling US Treasury yields and a softer US Dollar (USD). Treasury yields came under pressure as concerns over AI-related investments drove demand for government bonds. The broader equity sell-off may also have prompted some traders to sell Gold to cover losses elsewhere.
The Fed's monetary policy announcement could determine whether Gold holds above the $4,000 psychological mark or faces another round of selling. The Fed is widely expected to leave interest rates unchanged at 3.75%-4.00% after raising them by 25 basis points (bps) in September. However, a pause may offer little reassurance to Gold buyers if policymakers keep the door open to another increase in December, with traders pricing in around a 79% probability of a hike, according to the CME FedWatch Tool.
Fed seen on hold now but December hike risk builds as inflation stays above target
According to TD Securities, analysts don't expect "much new communication from the FOMC or Chair Warsh." In their view, "a hold in October will make a December hike all the more likely," particularly after the "upside surprise in September CPI," which underscores that "inflation risks are still pertinent."
TD Securities therefore "expect the Fed to hike two more times (December and March)," noting that "inflation remains above target while risks are growing." They add that "the evolution of inflation data will determine the extent and pace of hikes later in the cycle," suggesting that incoming price figures will be crucial in shaping the policy path beyond early next year.
Technical analysis: Lower Bollinger Band caps upside
On the daily chart, XAU/USD is attempting to move back above the lower Bollinger Band at $4,023. The Relative Strength Index (RSI) at 36 sits just above oversold territory, while the Moving Average Convergence Divergence (MACD) histogram remains negative; both indicators hint at persistent downside pressure rather than a decisive exhaustion of the recent slide.
On the upside, initial resistance emerges at the lower Bollinger Band near $4,020, followed by the middle band around $4,130 and the upper band near $4,241. A sustained break above these levels could open the door for a recovery toward the $4,400-$4,500 zone, followed by $4,700.
On the downside, immediate support lies in the $3,975-$3,950 region. A decisive break below this zone could trigger a deeper decline toward the $3,900 psychological mark, followed by $3,800.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
(This story was corrected at 14:15 GMT on Monday to clarify in the first paragraph that Gold fell to its lowest level since July, not August.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
TD Securities’ Macro Research team, led by Robert Both and Emma Lawrence, expects the Bank of Canada to keep its policy rate at 2.25% at the October 28 meeting, despite markets pricing around 20bps of tightening. They argue recent inflation data and growth uncertainty do not justify an immediate hike, but now anticipate rate increases in December and January, with a terminal rate near 2.75%.
October pause before further tightening
"All eyes will be on Wednesday's Bank of Canada decision and whether the Bank follows on Governor Macklem's hawkish comments with the first hike since 2023. We think they hold at 2.25%."
"We look for the Bank of Canada to hold rates at 2.25% in October, despite the recent comments from Governor Macklem after the IMF meetings in Thailand. While we can't rule out a 25bp move after Macklem's roundtable and the subsequent shift in market expectations, we do not think the Bank should be hiking without more evidence of high oil prices broadening into core inflation."
"With ongoing uncertainty over the impact of new trade tensions and threats of further escalation going forward, we think the right move would be to wait for another six weeks for more clarity. If the Bank does hold in October, we also expect to see more hawkish messaging to signal that hikes will be coming soon."
"However, the Bank's recent messaging does indicate more of a forward-looking approach to manage inflation risks, and for that reason we are pulling forward rate hikes to December and January from our previous view for January/March. We still look for the Bank to stop at 2.75%."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- EUR/USD edges lower as a firmer US Dollar and France's fiscal concerns weigh on the Euro.
- Traders await this week's Fed and ECB policy decisions, with both central banks expected to hold interest rates steady.
- Upcoming US inflation and Eurozone growth figures could influence expectations for December policy moves.
EUR/USD edges lower on Monday as a rebound in the US Dollar (USD) weighs on the Euro (EUR) ahead of this week’s Federal Reserve (Fed) and European Central Bank (ECB) monetary policy decisions. Meanwhile, France’s worsening fiscal outlook and bond-market pressures remain additional headwinds for the Euro.
At the time of writing, the pair trades around 1.1183, down 0.17% on the day. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.99 after falling to 101.45 last week, its lowest level since October 1.
The Fed announces its decision on Wednesday, followed by the ECB on Thursday, with both central banks widely expected to leave interest rates unchanged. Inflation remains above their respective 2% targets, while higher energy costs linked to Middle East tensions keep risks tilted to the upside. With traders anticipating rate hikes from both in December, guidance on the policy outlook could drive a stronger market reaction than the decisions themselves.
Euro faces headwinds as higher oil and inflation expectations outpace ECB response
According to Commerzbank, the recent rise in oil prices should be particularly problematic for the Euro, as “higher oil prices in particular should put greater pressure on the euro, as their impact on both inflation and economic activity in the euro area is more pronounced and, on balance, negative for the currency.” The bank notes that “short-term inflation expectations have risen more strongly in the euro area than in the US,” and that “higher inflation expectations are currently not being offset by a corresponding shift in relative interest-rate expectations.” Taken together, Commerzbank argues, “this is, in principle, a negative signal for the euro.”
At the same time, the bank observes that the recent widening in French spreads has not yet translated into broader Eurozone stress, commenting that “this suggests that the market currently views the fiscal concerns largely as a French problem.” Commerzbank sees “one possible explanation” in “the expectation that the ECB would intervene if contagion became more pronounced, thereby limiting the risk of broader fragmentation in the euro-area bond market.”
Beyond the central bank decisions, a busy economic calendar could also influence EUR/USD this week. Tuesday’s US releases include the ADP employment update, September Durable Goods Orders, October Consumer Confidence and September New Home Sales. Thursday brings September Personal Consumption Expenditures (PCE) inflation, the advance estimate of third-quarter Gross Domestic Product (GDP) and weekly Initial Jobless Claims.
In the Eurozone, October business climate, consumer confidence and economic sentiment figures are due on Thursday. Friday’s releases include preliminary third-quarter GDP and the unemployment rate for the bloc, alongside Germany’s preliminary October Consumer Price Index (CPI).
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.
Commerzbank’s Dr. Vincent Stamer analyzes Spain’s strong economic performance, with GDP expected to grow 2.6% in 2026, far ahead of other Euro area economies. He attributes this to higher potential growth driven by immigration and labor market reforms, but warns that these tailwinds are peaking, with political and bond-market risks likely to slow growth below 2% next year.
Economic momentum seen peaking
"Spain’s economy has been growing at an average rate of just under 3% per year since 2023 and is on track for 2.6% growth this year as well. This means that economic output in Spain has risen nearly three times as fast as in the euro area excluding Spain. What are the reasons for this, and what does the future hold?"
"It is highly likely that Spain’s GDP will, from now on, grow at no more than its potential rate and will not exceed it any further. Potential growth, in turn, is likely currently at its peak and will now begin to decline. The virtuous cycle of growth, falling structural unemployment, and rising productivity could slow down."
"Furthermore, the net migration is also declining relative to Spain’s steadily growing population. This dampens potential growth as measured in percentage terms, so that by 2030 it is likely to be a good one percentage point below the current level."
"Growth in Spain is expected to remain strong for the time being, but may already be weaker now than it was in the first half of this year. After strong growth of 2.6% this year, the growth rate could slip below 2% next year. Spain thus remains the star performer among the major economies of the eurozone."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
ING’s Carsten Brzeski highlights German economic resilience as the Ifo index rises for the sixth straight month to 90.2, its highest level in over three years. While the current assessment shows initial strain from higher energy prices and interest rates, expectations have improved. Brzeski notes that ongoing fiscal stimulus and Germany’s relative advantage from recent global disruptions underpin the near-term GDP outlook.
Ifo gains underscore resilient momentum
"German economic resilience continues as the country’s leading indicator, the Ifo index, has increased for the sixth consecutive month. In October, the Ifo index stood at 90.2, up from 89.9 in September, and is now at its highest level in more than three years."
"Looking ahead, today’s Ifo index suggests that for the German economic outlook, all hopes are still pinned on ongoing fiscal stimulus to increasingly feed through to the entire economy. This hope could prove a reality, even if the government is struggling to meet its spending and investment targets."
"The more the economy defies short-term risks, the higher the chances of a surprise growth story are. Let’s see what Friday’s first estimate for third-quarter GDP growth brings; so far, the German economy is clearly on track for its best annual growth performance since 2022."
"All in all, today's Ifo index confirms that the German economy is enjoying unexpected resilience and even a small cyclical rebound. We know a cyclical rebound does not automatically make for a structural recovery, but with the never-ending flow of bad macro news over the last few years, every positive development should be cherished."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Societe Generale’s research team expects Euro area Gross Domestic Product (GDP) for 3Q26 to grow modestly, highlighting resilience despite high energy prices and adverse summer weather. Country-level forecasts show Spain leading, followed by France and Italy, with Germany flat. The bank also anticipates divergent national inflation paths driven by fuel support measures and differing exposure to natural gas prices.
Resilient growth with mixed inflation
"The focus will be on the flash release of euro area GDP for 3Q26. We expect it to show growth of 0.2% qoq and 1.1% yoy, underscoring the theme of resilience in the face of persistently high energy prices across the bloc, but also reflecting adverse weather effects during the summer months."
"At the country level, we expect Spain to continue to outperform (+0.6% qoq), followed by France (+0.2%) and Italy (+0.1%), while activity should be flat in Germany."
"On the inflation front, all four major euro area countries will publish their flash inflation estimates."
"On the downside, both Germany (3.3% yoy to 3.0% yoy in October) and Spain (5.0% yoy to 4.7% yoy in October) should benefit from fuel support measures coming into effect."
"Conversely, Italy's high exposure to rising natural gas prices means we expect inflation to increase by 0.5pp to 4.7% yoy."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Deutsche Bank economists Sanjay Raja and Maui Brennan assess UK Autumn Budget leaks suggesting Chancellor Healey will deploy Public Financial Institutions (PuFins) more aggressively than assumed. FT and Times reporting point to GBP 20.4bn of additional investment via the National Wealth Fund and British Business Bank, backloaded from 2028/29, lifting cash borrowing and reducing perceived negative tail risks around the Budget.
PuFins expansion and borrowing impact
"For context, our baseline assumption was that the Chancellor would tap into the fiscal rule flexibilities, using financial transactions via public financial institutions (the so-called PuFins), to boost investment spending via a two-stage approach: a GBP 8bn expansion in the coming Autumn Budget, followed by an equal increase in the Spending Review due next year."
"Headlines from the FT over the weekend, however, suggest that Chancellor Healey will do more in the Autumn Budget, adding around GBP 20bn in investment over the next five years."
"Taking into account the slightly higher savings from HMRC, we project a near GBP 10bn increase per annum over the back half of the OBR’s forecast horizon, leaving the government’s gross financing requirement at just over GBP 250bn at the end of the forecast horizon (2030/31)."
"Using the OBR’s multipliers, we estimate that projected financial transactions could result in a 0.5% boost to GDP by 2031/32."
"With investment spending now primed to be bigger than expected, one large tail risk for Budget Day has been removed with markets likely to adjust to the news ahead of the 28th of October."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Brown Brothers Harriman’s (BBH) Elias Haddad notes the European Central Bank (ECB) is expected to hold rates at 2.50%, with markets still pricing a strong chance of a December hike to 2.75%. While contained core inflation and tighter financial conditions justify waiting, France’s fiscal and bond market strains are highlighted as a key risk that could leave EUR/USD vulnerable to further downside.
ECB hold overshadowed by French turmoil
"The ECB is widely expected to keep rates on hold at 2.50% after September’s 25bps hike. Contained Eurozone underlying inflation and tighter financial conditions give policymakers scope to wait."
"Nevertheless, resilient economic activity and inflation projected to remain above target for an extended period keep a December rate hike to 2.75% firmly in play (75% priced in)."
"France’s bond market turmoil is likely to dominate ECB President Christine Lagarde’s press conference."
"Reassurance that the ECB stands ready to contain unwarranted contagion can cushion EUR, but France’s fiscal troubles leave EUR/USD vulnerable to a decline toward 1.1000."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
TD Securities’ Ryan McKay and Bart Melek note that Gold’s long-term bull thesis is being challenged as prices oscillate around the key $4,000/oz level. CTA's (Commodity Trading Advisors) are short across all signals, with systematic funds heavy sellers and ETF outflows, especially from China, adding pressure. However, resilient price action and ongoing central bank demand keep the broader supportive narrative intact, with short-covering likely above $4,092/oz.
CTA shorts versus resilient demand
"The long-term gold bull thesis faces a test near the $4,000/oz level, with CTAs now short across all signals."
"CTAs have already been heavy sellers in gold, with systematic funds firing short across all momentum indicators."
"At the same time, early-stage ETF liquidations, particularly in China, have further weighed on the weakening market."
"Against this backdrop, spot and futures pricing has traded below the key $4,000/oz level, however the market has again shown signs of being extremely resilient with prices recovering in fairly short order."
"Despite the near-term easing of ETF flows, the trend remains supportive, while central bank demand has been a key upside driver, particularly when prices are within this territory."
"CTAs would start to cover shorts north of $4,092/oz."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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