Forex News

• Gold trades with a mild positive bias as the US Dollar heads for its first weekly decline in five weeks.
• Hawkish Fed expectations continue to weigh on bullion, limiting further gains.
• XAU/USD consolidates below $4,200 as technical indicators offer mixed signals.

Gold (XAU/USD) holds modest gains on Friday as a softer US Dollar (USD) and lower Treasury yields lend support. However, hawkish Federal Reserve (Fed) expectations keep buyers cautious about chasing prices aggressively higher. At the time of writing, XAU/USD trades around $4,188, up 0.42% on the day.

The metal gained 1.60% on Thursday as concerns over debt-funded AI investments drove investors toward safe-haven assets, including precious metals and government bonds, triggering a sharp decline in US Treasury yields. The benchmark 10-year yield plummeted to a three-week low below 5.10%, while the US Dollar Index (DXY) pulled back from an 18-month high near 103.

The DXY, which tracks the Greenback’s value against a basket of six major currencies, trades around 101.65, its lowest level since October 1, heading for its first weekly decline in five weeks.

Despite the sharp pullback in the US Dollar and yields, Gold struggles to stage a stronger recovery. Hotter-than-expected US inflation data this week show that price pressures remain sticky above the Fed’s 2% target, partly due to higher energy costs stemming from the war in the Middle East.

Inflation risks are likely to persist as Middle East supply concerns remain elevated. US–Iran talks remain deadlocked, while tensions escalate between Saudi Arabia and Yemen’s Houthis. Against this backdrop, traders widely expect the Fed to raise interest rates again before the end of the year.

Recent remarks from Fed officials suggest they remain open to further tightening, although they have not given a strong signal of a hike at the October 27-28 meeting. Speaking in Bangkok on Friday, Fed Chair Kevin Warsh stuck to his stance of avoiding forward guidance, saying, “I don't prejudge meetings.”

Analysts at MUFG/BTMU note that markets interpreted Fed Chair Warsh’s comments as largely status quo on policy. They highlight that “all we got from Warsh on monetary policy was the repeated emphasis that the Fed would remain focused on achieving its inflation goal,” and that his “lack of comment on policy was seen by market participants as an endorsement of current market pricing that implies only a small chance of a hike in October.”

The CME FedWatch Tool shows traders pricing in a 15% probability of a rate hike this month and an 89% chance of an increase in December. For Gold, the outlook hinges on whether the recent relief from lower yields can develop into a sustained recovery or whether the prospect of further Fed rate hikes keeps gains in check.

Technical analysis: Bearish bias persists as XAU/USD struggles below $4,200

On the daily chart, XAU/USD remains under selling pressure after retreating from its late-August peak near $4,700, although prices have been largely confined to the $4,100-$4,200 range since the start of the month. The metal remains below its 50-day, 100-day and 200-day Simple Moving Averages (SMAs), keeping the near-term bias bearish.

Momentum is mixed, with the Relative Strength Index (RSI) hovering in the mid-40s and the Moving Average Convergence Divergence (MACD) turning positive, which hints at improving but still constrained upside while price trades below these key moving averages.

On the topside, initial resistance lies at the $4,200 psychological mark, followed by the 100-day SMA at $4,242 and the 50-day SMA at $4,331. A stronger recovery would face the $4,400 horizontal barrier ahead of the 200-day SMA at $4,522. On the downside, a sustained break below $4,100 could open the door toward the $4,000-$3,950 support zone.

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

• USD/CAD extends its decline as broad US Dollar weakness supports the Canadian Dollar.
• Falling US Treasury yields weigh on the Greenback despite expectations of further Fed tightening.
• Markets expect both the Fed and BoC to leave interest rates unchanged in October.

USD/CAD extends its decline on Friday as broad US Dollar (USD) weakness lifts the Canadian Dollar (CAD) to its highest level in more than two weeks. At the time of writing, the pair trades around 1.4138, after reaching 1.4299 on Wednesday, its highest level since April 2025.

The Greenback comes under pressure as concerns over AI-related investments weigh on equities and encourage investors to move into government bonds, pushing US Treasury yields lower and reducing the appeal of Dollar-denominated assets.

The benchmark 10-year US Treasury yield trades near 5.08%, close to three-week lows. Meanwhile, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, hovers around 101.65 after climbing to an 18-month high of 102.94 earlier this week.

The risk-off sentiment overshadows a hawkish Federal Reserve (Fed) outlook following this week’s stronger-than-expected US inflation reports. The Consumer Price Index (CPI) rose 0.6% month-on-month in September, accelerating from 0.4% in August and marking its largest monthly increase since April. The Producer Price Index (PPI) increased 1.3% in September after rising 0.5% the previous month, recording its biggest monthly advance since March 2022.

Higher Oil prices remain a key source of inflation pressure since the Middle East war began in late February. With US-Iran negotiations showing little progress and Saudi-Houthi tensions escalating, inflation could remain above the Fed’s 2% target for longer.

Fed officials have shown little urgency to raise interest rates again this month following September’s 25-basis-point increase. Speaking in Bangkok on Friday, Fed Chair Kevin Warsh avoided committing to a policy decision, saying, “I don't prejudge meetings.”

The CME FedWatch Tool shows traders pricing in a 15% probability of a rate hike at the October 27-28 meeting and a 90% chance of an increase in December.

On the Canadian Dollar side, traders anticipate a rate hike in December but expect the Bank of Canada (BoC) to leave rates unchanged in October, as it has throughout this year. With underlying inflation near the central bank’s 2% target and growing slack in the labour market, there is little reason for the BoC to raise interest rates in the near term.

BoC seen staying on hold as Canada inflation and survey data test energy shock

Economists at Royal Bank of Canada say upcoming Canadian inflation figures and the BoC’s Q3 Business Outlook Survey “will be watched closely for signs on whether inflation pressures from persistently elevated energy prices are broadening and permeating across the economy.” RBC argues these releases “will serve as key inputs for the BoC’s next interest rate decision on Oct. 28,” with policymakers “wary that high oil prices could spill beyond gasoline prices into non-energy components and/or feed into rising business and consumer inflation expectations.” Against that backdrop, the bank notes that “for now, we continue to expect a somewhat contentious trade-off between inflation and growth risks to keep the BoC uncomfortably on hold through the rest of 2026.”

Scotiabank’s Global FX Strategy team notes EUR/USD is supported by modest narrowing in front-end Eurozone–US spreads following dovish-leaning comments from Fed Chair Warsh. French OAT/Bund spreads remain wide but are seen as a limited driver for the Euro. The bank estimates fair value at 1.1285 and highlights a potential bullish weekly reversal if late-week gains are sustained.

Euro lifts on spread dynamics and charts

"The French government bond rout has steadied over the past week, holding the 10Y OAT/Bund spread around 135-140bps – wide and wider than other, similarly-rated EZ sovereign credits but still well below the peaks seen during the 2011 Eurozone bond crisis."

"The EUR’s relationship with Eurozone sovereign spreads tends to be episodic and other factors appear to be a more significant influence on FX currently. Warsh’s dovish by omission comments on the policy outlook earlier have allowed for a minor narrowing in front-end EZ/US spreads and lifted the EUR."

"At the margin, OAT tensions help tilt ECB risks away from hiking at the end of the month but are unlikely to influence the December decision (a 25bps hike is all but fully priced in). We estimate EUR/USD fair value at 1.1285."

"Bullish – A solid rebound from long-term retracement support in the low 1.11s (50% retracement of the EUR’s 2025/26 rally from the 1.01 area) earlier this week and gains through noted resistance at 1.1240/50 are setting the EUR up for a potentially bullish weekly reversal."

"This will be contingent the EUR sustaining late week gains through the close of business today. Intraday support is 1.1245/50"

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

• The Euro gains 0.32% on Friday, extending its recovery from a 16-month low reached earlier this week.
• A sell-off linked to artificial intelligence concerns weighs on the US Dollar, supporting the currency pair.
• Persistent US inflation and expectations of further Federal Reserve tightening could limit the Euro's gains.

EUR/USD extends its recovery on Friday, trading around 1.1255 at the time of writing, up 0.32% on the day. The Euro (EUR) continues to strengthen against the US Dollar (USD), rebounding from a 16-month low of 1.1113 reached on Wednesday. The recovery is mainly supported by renewed weakness in the Greenback amid concerns surrounding the Artificial Intelligence (AI) sector and a broader reassessment of risk in global financial markets.

The US Dollar Index (DXY), which measures the Greenback's performance against a basket of six major currencies, trades around 101.65 after reaching an intraday low of 101.58. The index retreats significantly from its yearly high of 102.94 recorded earlier this week, providing additional support to EUR/USD.

The US Dollar's decline comes as investors reassess valuations and growth expectations in the AI sector, triggering selling pressure across financial markets. This shift in sentiment appears to be weighing on the US currency, despite a macroeconomic environment that remains broadly supportive of higher US interest rates.

Indeed, the latest US inflation figures, released earlier this week, exceeded market expectations, highlighting persistent price pressures above the Federal Reserve's (Fed) 2% target. Rising energy costs, partly driven by the ongoing conflict in the Middle East, continue to complicate the inflation outlook and reinforce expectations of further monetary tightening.

Geopolitical tensions remain an important source of uncertainty. Negotiations between the United States (US) and Iran remain deadlocked, while tensions between Saudi Arabia and Yemen's Houthi movement continue to escalate. These developments raise concerns about potential disruptions to energy supplies, which could sustain inflationary pressures in the coming months.

Against this backdrop, investors increasingly anticipate another interest rate increase by the Fed before the end of the year. Speaking in Bangkok on Friday, Fed Chair Kevin Warsh maintained a cautious approach to monetary policy communication, avoiding any commitment regarding upcoming decisions. "I don't prejudge meetings," Warsh said, emphasizing the central bank's reluctance to provide explicit forward guidance.

According to the CME FedWatch tool, markets currently assign a 15% chance to an interest rate increase in October, compared with an 89% chance of a hike in December.

This divergence between the US Dollar's short-term weakness and expectations of tighter monetary policy could limit the EUR/USD recovery. While concerns surrounding the AI sector currently favor the Euro, persistent inflation and the prospect of higher US interest rates remain potential sources of support for the Greenback.

EUR/USD technical analysis

In the one-hour chart, EUR/USD trades at 1.1253, holding above both the 100-period and 200-period simple moving averages (SMAs) at 1.1194 and 1.1204, which reinforces a bullish near-term bias. The pair is also comfortably above nearby horizontal support at 1.1215, while the Relative Strength Index (14) at 63.8 stays in positive territory, suggesting sustained upward momentum rather than overbought exhaustion at this stage.

On the topside, immediate resistance emerges at 1.1270, with a subsequent hurdle at 1.1312, where a break would open the way for a more extended advance. On the downside, initial support is seen at 1.1215, followed by the 200-period SMA at 1.1204 and the 100-period SMA at 1.1194, ahead of deeper structural floors at 1.1150, 1.1100 and 1.1050, which should limit any corrective pullbacks while the broader bullish tone persists.

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

Societe Generale highlights that the Chinese Yuan (CNY) is trading at its strongest level since 2022, despite IMF estimates suggesting it remains significantly undervalued. The bank links this to domestic imbalances and a K-shaped recovery, noting mixed inflation dynamics and strong export performance. Their economists see China comfortably meeting its 2026 growth target with incremental easing, with key data and policy speeches due soon.

CNY strength versus undervaluation signals

"The CNY is now trading at the strongest level since 2022. According to IMF estimates, the undervaluation of the yuan is in the range of 17.3% to 25.3%, with a midpoint of 21.3%. This reflects underlying domestic imbalances."

"Headline inflation inched up to 0.9% in September, but core was unchanged at 1.0%. Factory gauge PPI inflation accelerated to 5.5% in September from 3.8% in August, indicating the struggle of producers to pass on higher costs. Exports jumped 29.6% yoy, boosting the trade surplus to $133.53bn in September."

"Our economists believe China can comfortably achieve its 2026 growth ambition of 4.5-5.0% with some incremental easing."

"3Q GDP and September activity data is due next week. PBoC governor Pan Gongsheng and NFRA head Ding Xiangqun will deliver keynote speeches at the Financial Street Forum starting 19 October."

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

Nordea strategists note EUR/GBP has traded between 0.84 and 0.87 since late February, with recent British Pound (GBP) gains helped by external factors. They highlights diminished carry appeal as the Bank of England (BoE) holds rates at 3.75%, resilient UK growth, and a crucial Autumn Budget Bill. A November hike may support GBP, but fiscal missteps could push yields higher and weaken the Pound.

Autumn Budget seen as key risk

"EUR/GBP has traded in the range 0.84-0.87 since late February when the conflict in the Middle East escalated."

"The GBP has gradually lost its carry attractiveness with the Bank of England maintaining its policy rate at 3.75% this year."

"Economic performancehas been resilient amidst the geopolitical turbulence with GDP growth averaging +0.6% quarter-on-quarter this year."

"The Autumn Budget Bill, due to be presented on October 28th, will be the biggest challenge to date for Premier Minister Burnham and Finance Minister Healey."

"There is a looming risk that markets could be dissatisfied with the fiscal measures aimed at reducing the budget deficit, which could push yields higher and weaken the pound."

(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 report the Canadian Dollar (CAD) modestly stronger versus the US Dollar, helped by firmer Bank of Canada rate expectations and narrowing US–Canada yield spreads. Fair value for USD/CAD is estimated close to spot around 1.4140. Technically, the pair has reversed sharply from recent highs, with support seen down toward 1.40 and resistance now above 1.42.

Loonie benefits from spread narrowing

"Rate expectations have firmed modestly on the week, delivering a welcome narrowing in US-Canada yield spreads in a manner that has pressured our USD/CAD FV estimate over the past week or so. FV is currently estimated at 1.4140, largely closing the gap to spot."

"The CAD is entering Friday’s NA session with a modest gain, up 0.2% vs. the USD while showing losses on the crosses against most of the G10 currencies in an environment of broad-based USD weakness and a market tone that is suggestive of risk appetite."

"Neutral/bearish – the recent bearish turn in USD/CAD is notable, with a sharp reversal from local peaks around 1.4300."

"The extension below 1.4200 is important, with a move that has seen a sharp moderation in bullish momentum dragging the RSI back to the neutral threshold at 50. We see limited support between current spot and 1.40. Resistance is now expected above 1.4200."

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

Royal Bank of Canada’s (RBC) Nathan Janzen analyzes how higher Oil prices are boosting Canada’s real gross domestic income much faster than GDP, largely via export revenues. He highlights that Oil producers and resource-rich provinces capture a disproportionate share of the windfall, while most households, especially in net Oil-importing regions, face higher fuel costs without matching income gains.

Oil windfall and uneven gains

"Higher oil prices boost Canada's purchasing power, but the gains are concentrated. Real gross domestic income grew 3.1% year-over-year in Q2-nearly triple the pace of real GDP growth-as a 46% surge in oil prices added roughly $12 billion per quarter to export revenues."

"Oil producers and resource-rich provinces capture disproportionate share of the initial windfall. Corporate profits drove the latest increase in national income, with oil and gas extraction accounting for nearly 30% of the gain in non-financial industry net income, while provincial royalties and taxes funnel revenues primarily to energy-producing regions."

"Most households face higher costs without offsetting income gains. Canadians spent an estimated $2.6 billion more on motor fuel in Q2 than a year ago-about $150 per household-to buy 3% less fuel, with the burden falling hardest on net oil-importing provinces."

"The uneven regional impact complicates monetary policy. The BoC controls only one interest rate for the entire country, and while higher oil prices are likely neutral to slightly positive for overall growth, sustained elevation risks feeding into broader inflation pressures as global supply chains tighten."

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