Forex News

Brown Brothers Harriman’s (BBH) Elias Haddad notes the US Dollar (USD) is stronger against major currencies, with the Euro (EUR) lagging as French and Italian bonds lead a renewed global bond sell-off. Persistently high energy prices, highlighted by IMF commentary, are seen skewing risks for inflation, policy rates and bond yields higher, supporting USD and energy exporters’ currencies over energy importers’ currencies.

High energy costs bolster USD outlook

"USD is up against all major currencies. EUR is underperforming as French and Italian bonds lead the renewed sell-off in global bonds."

"The September 15-16 FOMC meeting minutes (7:00pm London, 2:00pm New York) are likely to look somewhat dated after recent calls for patience from key Fed officials (Williams, Jefferson, and Bowman). Recall, the FOMC’s September hike came with a clear hawkish tilt and unanimous backing."

"Bottom line, persistently high energy prices keep risks to inflation, policy rates, and benchmark bond yields skewed to the upside, while favoring energy exporters’ currencies and USD over energy importer’s currencies. US growth outperformance and strong foreign appetite for US securities give USD an added boost."

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

Scotiabank strategists Shaun Osborne and Eric Theoret note USD/CAD around 1.4227 with the Canadian Dollar (CAD) flat versus the US Dollar (USD) but outperforming most G10 peers. CAD retains much of Tuesday’s 0.4% gain, helped by a stronger August trade balance. Domestic political risk around Alberta’s October 19 referendum keeps CAD vulnerable, while fair value for USDCAD is estimated near 1.4169 and key levels cap upside.

CAD steady but sentiment-sensitive

"The CAD is steady, trading flat vs. the USD while outperforming most of the G10 currencies and gaining on the crosses in an environment of renewed and broad-based USD strength."

"Domestic political risk is elevated into the Alberta referendum vote on October 19, leaving the CAD vulnerable to swings in sentiment. In terms of fundamentals, Tuesday’s trade data offered a solid upside surprise in the trade balance for August – suggesting no material hit from the initial trade policy uncertainty brought about by the deterioration in the US/Canada relationship."

"Bullish/neutral – Tuesday’s large bear candle followed a series of ‘shooting stars’ that are typically associated with bearish reversals. The RSI is still overbought but has returned to the 70 threshold and adds to the risk of a shift in the recent trend. We continue to see resistance in the 1.4250/1.4280 range and see minor support around 1.4100 with material support at the psychologically important 1.40 level."

"Our FV estimate for USD/CAD is currently at 1.4169."

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• USD/CAD rebounds on Wednesday, supported by broad US Dollar strength.
• Higher Oil prices provide limited support to the commodity-linked Canadian Dollar.
• FOMC Minutes take centre stage as markets reassess the outlook for further Fed tightening.

USD/CAD rebounds sharply on Wednesday, rising nearly 0.45% as the US Dollar (USD) remains firmly bid across the board, supported by surging US Treasury yields. Attention now turns to the minutes of the Federal Reserve’s (Fed) September monetary policy meeting, due at 18:00 GMT. At the time of writing, the pair trades around 1.4257, hovering near an 18-month high.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 102.36, holding near levels last seen in April 2025. Meanwhile, the benchmark 10-year US Treasury yield rises to around 5.330%, approaching Monday’s peak of 5.349%, its highest level since 2002.

Against this backdrop, the Canadian Dollar (CAD) remains under selling pressure, with the widening yield differential between US and Canadian government bonds emerging as a key driver of the decline. Canada’s 10-year bond yield stands near 3.979%, leaving a gap of roughly 135 basis points with its US counterpart.

The wider differential increases the relative appeal of US Dollar-denominated assets, offsetting support for the commodity-linked Loonie from rising Oil prices. Elevated energy prices also keep inflation risks high on both sides of the border, reinforcing expectations that monetary policy may need to remain tight.

Traders will closely examine the Federal Open Market Committee (FOMC) meeting minutes for fresh guidance on the likelihood of additional tightening after the US central bank delivered a 25-basis-point rate hike in September. However, softer-than-expected US employment and Personal Consumption Expenditures (PCE) inflation data have reduced expectations of another increase at the October 27-28 meeting.

Strategists at OCBC Bank note that recent Fed communication has signalled "a more patient and data-dependent approach to further tightening, even as policymakers remain focused on inflation." They point out that "markets are still pricing slightly more than three Fed rate hikes over the next 12 months," a path they argue "appears aggressive given the emerging signs of labour market moderation."

OCBC adds that "higher long-term Treasury yields have already tightened financial conditions significantly, reducing the need for the Fed to do all the heavy lifting through policy rates." With "financial conditions doing more of the tightening work," the bank believes "the hurdle for further significant Fed hikes remains high," suggesting scope for markets to reassess the current degree of Fed tightening priced into the Dollar.

On the Canadian side, the Bank of Canada (BoC) kept its policy rate unchanged at 2.25% in September. Markets still expect at least one hike by year-end, although uncertainty surrounding economic growth and US trade policy could keep the central bank cautious.

BNY’s Geoff Yu argues that the Eurozone recovery remains intact even as the Euro (EUR) weakens. Manufacturing PMIs and business surveys in Germany and across Europe point to strengthening demand, while fiscal stress and a softer European Central Bank (ECB) stance weigh on the currency. The bank maintains its view that the Euro will decline despite stronger economic performance.

Growth resilient as Euro slides

"Last month, we argued that the Eurozone economy was recovering, led by broad-based gains in manufacturing. The Eurozone manufacturing PMI held at a four-year high in September, while factory output is expanding at its fastest pace in nearly five years. New orders and backlogs continue to rise, pointing to a clear strengthening in demand."

"Stronger data and another ECB rate hike haven’t prevented a 1.4% decline in the EUR’s nominal effective exchange rate since the beginning of September. The decline began well before concerns about France’s fiscal position became a central source of weakness and volatility. At the time, the euro was overvalued and interest-rate expectations appeared stretched, while limited short positioning and hedging left room for adjustment."

"Lagarde has already acknowledged that current front-end interest-rate levels would “slow growth.” Recent moves in global bond markets are tightening financial conditions further through the fiscal channel, a point echoed by ECB Chief Economist Philip Lane. The French government has announced fiscal consolidation measures, with legislation expected to pass in Q4."

"Consequently, expectations for year-end ECB rates have fallen below pre-decision levels, adding to EUR weakness."

"Unlike in 2011–2012, we see no spillover from OAT volatility into FX markets. Ten-day realized EURUSD volatility remains within its range since May, even as realized volatility in OAT futures has spiked. The ECB’s retreat from firm rate guidance has already helped dampen volatility."

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Rabobank’s Senior FX Strategist Jane Foley reviews the sharp USD/JPY declines in July and September, initially driven by joint Ministry of Finance (MoF)–US Treasury intervention and later without official action. The report notes that the Bank of Japan’s gradual rate hikes are eroding the Japanese Yen’s appeal as a funding currency for carry trades, even though recent price action has reduced urgency around finding alternatives.

Yen intervention and carry trade dynamics

"When the value of USD/JPY plunged in late July on the back of concerted intervention between the MoF and the US Treasury in support of the JPY, it raised questions about alternative funding currencies for carry trades."

"After USD/JPY dropped again in early September, this time without intervention, those questions appeared to become even more pertinent."

"Since then the JPY has lost momentum, at least against the USD, and this has dulled the urgency of this debate."

"Despite announcing an as expected rate hike at its September policy meeting, the BoJ’s guidance was not as hawkish as the market had hoped for."

"That said, the BoJ’s policy of gradually raising interest rates is still eroding the JPY’s funding currency appeal."

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

Societe Generale notes EUR/HUF rebounded from its 50-day moving average after a downside surprise in Hungarian CPI. Inflation remains below the MNB target, with the stronger Forint helping to curb price pressures and keep underlying trends subdued. The bank highlights comments from Finance Minister Karman and MNB Deputy Governor Kurali on potential HUFGB rallies and Euro adoption timing.

Forint support and euro plans

"Inflation in Hungary rose from 1.3% in August to 1.6% in September, 1.4pp below the target of the MNB."

"The stronger forint curbed price pressures and underlying price trends remained subdued."

"EUR/HUF rebounded from its 50dma at 364.55 after downside surprise in CPI."

"Finance Minister Karman claimed HUFGBs could rally when the government presents its budget and euro-adoption plans in mid-October."

"MNB Deputy Governor Kurali expects euro adoption two years after Hungary meets the common criteria."

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Brown Brothers Harriman’s (BBH) Elias Haddad notes USD/SEK is firmer on broad US Dollar (USD) strength, while Sweden’s September Consumer Price Index (CPI) data were mixed. Adjusted inflation near 2% keeps a Riksbank rate hike in play, and the bank’s guidance plus market pricing for 75–100 bps of tightening over the next year are seen limiting policy divergence with the Federal Reserve, posing a headwind for USD/SEK.

Swedish inflation keeps hikes in play

"USD/SEK is firmer on broad USD strength. Sweden September CPI was mixed. CPIF matched consensus and Riksbank projection at 1.5% y/y vs. 0.7% in August. CPIF ex-energy was cooler than anticipated at 0.5% y/y (consensus and Riksbank projection: 0.7% y/y) vs. 0.5% in August."

"Adjusted for temporary fiscal policy measures, inflation is closer to 2% and keeps a policy rate hike in play."

"The Riksbank noted in September that “the policy rate should be raised more going forward than projected in the June forecast” and signaled again it expects “the increases to the policy rate will begin this year.”"

"In the next twelve months, the Riksbank’s policy rate forecast implies over 75bps of tightening to 2.50% while the swaps curve price in over 100bps of hikes to 2.75%. That limits policy divergence with the Fed and is a headwind for USD/SEK."

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ING’s Deepali Bhargava notes that the Reserve Bank of India delivered its first rate hike in four years, raising the policy Repo rate to 5.50% and shifting to calibrated tightening. The report highlights upside risks from Oil and a stronger US Dollar for the Indian Rupee, but expects only gradual tightening, with a further 50bp of hikes taking the Repo rate to 6%.

RBI hike and INR policy outlook

"The MPC unanimously voted to raise the policy repo rate by 25bp to 5.50%, marking its first rate hike in four years. It also shifted its policy stance to calibrated tightening, signalling that rate cuts are off the table in the near term. The MPC emphasised that future policy choices would be limited to either a rate hike or a pause, depending on evolving economic conditions and the inflation outlook."

"Much of that assessment will depend on external inflation drivers. Key risks stem from international oil prices, exchange rate dynamics, and global monetary conditions. While we expect Brent crude prices to decline towards US$80/bbl in the fourth quarter, upside risks remain."

"At the same time, further Fed tightening could keep the US dollar stronger for longer, maintaining depreciation pressure on the INR and increasing the risk of imported inflation."

"As a result, barring a significant inflation surprise from persistently elevated oil prices, a stronger-than-expected El Niño impact on food prices, or a sharper INR depreciation, we expect the RBI to continue tightening gradually. Our base case is for a further 50bp of rate hikes, taking the Repo rate to a terminal rate of 6% over the next six months, with policymakers closely monitoring the pass-through of food and energy shocks into core inflation and the emergence of second-round effects."

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United Overseas Bank (UOB) strategists Quek Ser Leang and Lee Sue Ann note that USD/CHF remains in a tight range in the short term, with intraday levels clustered around 0.8300. Their 1–3 week view maintains a broader consolidation band, while the 1–3 month outlook suggests the pair could continue rebounding but lacks momentum to revisit its July peak.

UOB keeps consolidation bias for USD/CHF

"24-HOUR VIEW: When USD was at 0.8310 yesterday, we stated that “the current price movements are likely part of a range-trading phase,” and we expected USD “to trade between 0.8290 and 0.8335.” Our view of range-trading was not wrong, though USD traded within a narrower range of 0.8296/0.8326. The price action provides no fresh clues. Today, we expect USD to trade between 0.8305 and 0.8340."

"1-3 WEEKS VIEW: In our most recent narrative from last Friday (02 Oct, spot at 0.8310), we highlighted that USD “has likely entered a range-trading phase between 0.8245 and 0.8365.” There is no change in our view. "

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