Forex News

Rabobank's Senior Economist Maartje Wijffelaars describes widening French spreads and notes 38% of French high-grade corporate debt now yields less than government bonds. She argues most spread widening may be over as France is seen as too big to fail and ECB tools exist. She outlines ECB conditionality for TPI and stresses France’s need for a credible budget.

France spreads and ECB toolkit

"In Europe, the OAT-Bund spread edged up to close to last week’s post GFC-peak and 38% of French high-grade corporate debt is now said to yield less than government bonds owing to lower perceived credit risk. The French government has yet to reassure markets on its budget plans amid growing protests and political uncertainty ahead of next year’s presidential election."

"Still, although risks remain, most of the widening appears to be over for now. The spread seems to have become attractive to buyers of French debt, given the belief that France is too big to fail and the availability, if needed, of instruments and programmes created since the previous debt crisis, including the ESM, OMT and TPI. Against this backdrop, ECB President Lagarde reiterated that the ECB has instruments to counter unwarranted market dynamics, while Governing Council member Moulin and French finance minister Lescure said the conditions for direct intervention are not currently met."

"Lagarde’s comments were expected, as we wrote in Monday’s Credit Compass. For now, ECB action is most likely to take the form of guidance, with policy intervention still unlikely. Other eurozone countries may meet TPI conditionality, but intervention is not yet warranted based on current spreads."

"For France to become eligible, the ECB would probably first require prove of a credible budget. If France were seen as complying with the structural expenditure path under EU budget rules and markets still failed to respond favourably, the ECB might step; but only after exhausting verbal intervention and pausing QT."

"September’s ECB minutes showed policymakers weighing another rate hike against growth risks. They viewed a 2.5% rate as neutral, cited economic resilience, and kept communication deliberately non-committal. Future decisions will consider long-term yields, which could materially affect growth and inflation and have risen since the meeting."

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

• USD/CAD extends its advance as weak employment data pressure the Canadian Dollar.
• The wide US-Canada yield gap outweighs support from higher Oil prices.
• Elevated US Treasury yields and hawkish Federal Reserve signals keep the US Dollar supported.

USD/CAD climbs on Friday as the Canadian Dollar (CAD) weakens sharply following a disappointing domestic employment report. A firm US Dollar (USD) provides additional support to the pair. At the time of writing, USD/CAD trades around 1.4276, at levels last seen in April 2025.

Statistics Canada reported that employment fell by 68.3K in September, while economists had expected a gain of 7K. The latest decline followed a loss of 41.7K jobs in August. The unemployment rate rose to 6.5% from 6.4%, while the labour-force participation rate fell to 64.8%, its lowest level since December 1997 outside the pandemic period.

Growing labour-market slack and underlying inflation near the Bank of Canada’s (BoC) 2% target limit the scope for policymakers to raise interest rates. Canadian government bond yields fell after the release, with the two-year yield dropping more than 8 basis points to around 3.199%.

On the other side, the US Dollar remains firmly bid across the board near an 18-month high as markets expect the Federal Reserve (Fed) to raise interest rates again before the end of the year. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 102.30 after recovering from an intraday low of 101.92.

Elevated US Treasury yields provide additional support to the Greenback. The two-year US Treasury yield holds near 4.797%, roughly 160 basis points above its Canadian counterpart. The wide yield gap remains a major headwind for the Canadian Dollar, outweighing support from higher Oil prices linked to Middle East supply risks.

Recent Fed commentary also remains hawkish. St. Louis Fed President Alberto Musalem said on Thursday, “To bring inflation back to target, more monetary policy firming will be required.” Fed Governor Christopher Waller struck a similar tone, signalling “additional hikes” if economic data develop as expected.

Attention now turns to the preliminary University of Michigan Consumer Sentiment Index for October, alongside 1-year and 5-year inflation expectations.

TD Securities’ US economics team led by Oscar Munoz, with Eli Nir, Gennadiy Goldberg and Molly Brooks, expects September Core CPI to slow to 0.20% month-on-month, driven by softer core services and supercore. Core goods and shelter are seen rebounding slightly, leaving year-on-year Core CPI broadly sideways at 2.4%, with upside risks from discretionary services and AI-related goods.

Core inflation profile and risks

"We expect September core CPI to moderate to 0.20% m/m. The moderation should be led by supercore at 0.24% after August inflation was pushed up by the segment. Core goods will likely pick up slightly due to vehicle prices, and shelter inflation should rebound slightly higher after a weak August."

"Our forecast would result in y/y core CPI going sideways at 2.4%. We see risks to the upside, with the potential for more strength from discretionary services or AI-related goods."

"We expect core services inflation to edge lower to 0.22% m/m due to a weaker supercore. Weakness will be slightly offset by a subtle rebound in shelter. Discretionary services will also provide a pocket of strength, with a 1.4% and 2.1% increase in lodging and airfares, respectively."

"All in, our forecast would translate to 0.23% m/m core PCE, which is only slightly lower than the 0.25% increase in August. With the Fed having already established a more gradual hiking cycle, we do not expect the September reading to impact the outlook significantly. Core services would still be elevated, despite the moderation from August, which on the margin would maintain the Committee's level of concern around inflation risks."

"We expect the core segment to end 2026 at 2.7% y/y after bottoming at 2.4%. Headline will likely move gradually higher as well to end 2026 at 3.9% after peaking in May at 4.2%, but its evolution will remain entirely dependent on the resolution of the Middle East conflict. We expect inflation progress to resume by the middle of 2027."

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

Brown Brothers Harriman notes that the Norwegian Krone (NOK) is softer against most peers following a modest pullback in Oil prices, but September CPI data keep further Norges Bank rate hikes in play, offering support to NOK. Sticky underlying inflation above the central bank’s forecasts means the option to raise rates further remains open, with markets pricing roughly 50% odds of another hike by year-end.

Inflation keeps Norges Bank on alert

"NOK is weaker against most peers on a modest pullback in crude oil prices. Norway’s mixed September CPI keeps further Norges Bank rate hikes in play, supporting NOK."

"Headline CPI rose less than expected to 3.4% y/y vs. 3.3% in August, below consensus of 3.6% and the Norges Bank’s 3.5% projection. Underlying CPI remained at 3.0% y/y for a second straight month, below consensus of 3.1% but above the Norges Bank’s 2.9% projection."

"At its last September meeting, the Norges Bank increased the policy rate 25bps to 4.50% and signaled preparedness to “raise the policy rate further if warranted by the inflation outlook.”"

"Sticky underlying inflation above its forecasts keeps that option on the table. The swaps curve still price-in roughly 50% odds of another 25bps hike to 4.75% by year-end."

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

The Unemployment Rate in Canada edged higher to 6.5% in September from 6.4% in August, Statistics Canada reported on Friday. This reading came in line with analysts' estimate. The Net Change in Employment fell 68.3K following the 41.7K decrease recorded in August and missed the market expectation for an increase of 7K by a wide margin.

In this period, annual wage inflation, as measured by the change in the Average Hourly Wage, rose to 2.3% from 2%.

"The layoff rate—representing the proportion of people who were employed in August but had become unemployed in September as a result of a layoff—was 0.7%, similar to the rate observed a year earlier (0.6%) and the average during the period from 2017 to 2019 (0.6%," Statistics Canada noted in its press release.

"The job-finding rate was 30.6% in September, down from 32.8% 12 months earlier and below the average of 36.5% during the period from 2017 to 2019."

Market reaction to Canada employment data

USD/CAD rose sharply with the immediate reaction to the disappointing labor market data and was last seen trading at its highest level since early April at 1.4295, rising 0.5% on the day.

This section below was published as a preview of the Canada employment report at 08:00 GMT.

• Canada's Unemployment Rate is expected to rise to 6.5% in September from 6.4% in August.
• The labour market faces its first full test since new US tariffs took effect in August.
• The Canadian Dollar remains under pressure ahead of the jobs report and the Bank of Canada's October meeting.

Statistics Canada will release its September Labour Force Survey on Friday, with markets anticipating a modest recovery in employment following August's sharp decline. The report takes on particular importance as it will be the first to fully reflect the impact of new United States (US) tariffs that took effect on August 22. These additional trade barriers could weigh on hiring, particularly in export-oriented industries, raising concerns about the resilience of the Canadian labour market.

According to Royal Bank of Canada (RBC), the new tariffs could have stalled the labour market's recovery without necessarily reversing it. The bank expects employment to increase by a modest 5K in September, while forecasting the Unemployment Rate to remain unchanged at 6.4%. Similarly, Canadian Imperial Bank of Commerce (CIBC) anticipates a modest increase of 5K jobs, warning that trade tensions could continue to weigh on manufacturing employment. The bank expects the Unemployment Rate to rise to 6.5%, in line with market consensus.

The employment figures could also influence expectations surrounding the Bank of Canada (BoC), which has maintained its policy rate at 2.25% since October 2025. The central bank is expected to remain cautious at its October 28 meeting, balancing signs of economic weakness against persistent inflationary pressures.

Indeed, Canada's headline Consumer Price Index (CPI) steadied at 3% YoY in August, remaining well above the BoC’s 2% target amid elevated energy prices. Against this backdrop, a stronger-than-expected employment report could revive speculation about a potential BoC interest rate hike, while another disappointing reading could reinforce expectations of a prolonged monetary policy pause.

What can we expect from the next Canadian jobs report?

Consensus among analysts sees Canada's Unemployment Rate rising to 6.5% in September, from 6.4% in August. Additionally, investors expect the economy to add around 7K jobs, partially reversing the substantial 41.7K decline recorded in the previous month.

It is worth recalling that Average Hourly Wages increased by 2% YoY in August, slowing from 3% in July and 3.7% in June, suggesting that wage inflation is gradually losing momentum.

Beyond the headline figures, market participants will pay particular attention to full-time employment, wage growth and the participation rate to assess whether the Canadian labour market is showing further signs of weakness.

When is the Canadian unemployment rate released, and how could it affect USD/CAD?

Statistics Canada will publish its September employment report on Friday at 12:30 GMT. A stronger-than-expected reading could provide some support to the Canadian Dollar (CAD), particularly if accompanied by resilient wage growth and a decline in unemployment.

Conversely, another disappointing employment report could weigh on the Loonie by reducing expectations of monetary tightening from the BoC.

USD/CAD remains in a consolidative phase near 1.4200 ahead of the release, with the pair's next directional move potentially influenced by the strength of Friday's labour market figures.

In the four-hour chart, USD/CAD maintains a constructive bullish bias while holding above the 100-period Simple Moving Average (SMA) at 1.4151 and the 200-period SMA at 1.4003. The clustering of horizontal supports between 1.4175 and 1.4200 reinforces a rising structure, even as the Relative Strength Index (RSI) near 45 hints at easing momentum after the recent advance.

On the topside, immediate resistance appears at 1.4232, ahead of 1.4270 and the recent cap near 1.4293. On the downside, initial support is seen at 1.4200, followed by 1.4175, with the 100-period SMA around 1.4151 and nearby horizontal levels at 1.4150 and 1.4133 forming a broader demand zone; deeper pullbacks would expose 1.4100 and then 1.4025 before the longer-term 200-period SMA at 1.4003.

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

• GBP/JPY edges higher as falling Japanese bond yields weigh on the Yen.
• The wide UK-Japan yield gap supports the British Pound, although intervention and UK fiscal risks cap gains.
• The cross remains below all major daily SMAs, keeping the broader bias bearish.

GBP/JPY trades with a mild positive bias on Friday as the Japanese Yen (JPY) underperforms across the board. A pause in the global bond sell-off has pushed government bond yields lower, with Japanese yields falling more sharply than their UK counterparts. Japan’s relatively low interest rates and broader fiscal concerns also remain persistent headwinds for the Yen. At the time of writing, the cross trades around 209.16, up 0.14% on the day.

Japan’s benchmark 10-year government bond yield falls toward 3.00% after reaching 3.153% earlier this week, its highest level in around 30 years. Meanwhile, the UK 10-year gilt yield stands near 5.432%, below Thursday’s peak of 5.527%, its highest level since 2007. This leaves UK yields roughly 243 basis points above Japanese yields, helping the Pound hold firm against the Yen.

Expectations that the Bank of England (BoE) could raise interest rates before the end of the year also favour the British Pound (GBP), even as the Bank of Japan (BoJ) remains on a gradual tightening path.

BoE Governor Andrew Bailey said on Thursday, “Monetary policy needs an unwavering commitment to returning inflation to target.” Bailey added, “Evidence of pass-through of energy costs into broader inflation is currently quite subdued, but there are risks. Inflation risks rise the longer high energy prices persist.”

On the Japanese side, BoJ Governor Kazuo Ueda said on Tuesday, “We’re to keep raising rates in response to the economy and inflation.” However, Ueda added that the “pace and timing of future policy adjustment will be decided based on the likelihood of our baseline projections materialising, as well as risks.”

Meanwhile, traders remain cautious about building aggressive bullish positions. Intervention risks keep traders wary as USD/JPY holds around 158.00, not far from the 160.00 level. Concerns over the UK’s fiscal outlook ahead of the October 28 budget also limit demand for the British Pound, keeping GBP/JPY within the narrow range that has been in place since early September.

Technical analysis

On the daily chart, GBP/JPY remains trapped within the 207-210range. The cross trades below the 50-day, 100-day and 200-day Simple Moving Averages (SMAs), which collectively cap the topside and keep the near-term bias bearish.

Momentum indicators offer mixed signals. The Relative Strength Index (RSI) stands near 46, slightly below the neutral 50 level, while the Moving Average Convergence Divergence (MACD) has turned positive, pointing to an attempt to stabilise rather than a clear bullish reversal.

On the downside, initial support is seen at 207, ahead of a deeper floor at 205 that would come into view on a renewed slide. On the topside, a daily close above 210 would be the first step to easing bearish pressure, though bulls would still need to reclaim the 50-day SMA at 211.92, followed by the 200-day SMA at 213.05 and the 100-day SMA at 213.77, before the broader picture turns more constructive, with the distant horizontal barrier at 217 marking a stronger resistance zone.

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

United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann note that USD/JPY has been volatile around 157.86, with swings between 157.51 and 158.36 failing to establish a clear trend. For the coming sessions, the pair is expected to trade within 157.50–158.50 intraday, while the 1–3 week view favours consolidation in a narrower 157.00–158.70 band against a backdrop of longer-term downside momentum.

Dollar-Yen volatility but no clear direction

"24-HOUR VIEW: When USD was at 157.90 yesterday, we highlighted that “the bias is on the downside toward 157.40.” However, we pointed out that “it is unclear whether downward momentum can strengthen sufficiently for USD to break clearly below this level.” The subsequent price action did not unfold as expected. USD declined to 157.58, rebounded to 158.36, then fell back to 157.51 before recovering again to close at 157.86 (-0.13%). The outlook for today is unclear after the choppy price action. Today, USD could trade in a range of 157.50/158.50."

"1-3 WEEKS VIEW: In our most recent narrative from Monday (05 Oct, spot at 157.65), we highlighted that rather than continuing to pull back within the previously expected 156.00/158.70 range, USD “is likely to trade in a range between 156.35 and 158.70.” We continue to expect USD to trade in a range, but a narrower 157.00/158.70 range is likely to contain price movements for now."

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