A lighter week coming up for the buck
The dollar posted its first weekly loss since early September as lower Treasury yields reduced October hike expectations. Despite softer price action, geopolitics and safe-haven demand are seen limiting further downside.
USD
The dollar ended last week on the back foot, with the DXY closing just below 101.8, down around half a percent for its first weekly loss since early September. As we flagged, Chair Warsh’s Bangkok appearance was the real test after Wednesday’s CPI beat. His refusal to pre-judge the October meeting saw 10-year yields slide to around 5.10% and October hike odds fall to roughly 15%, consistent with our call for a hold later this month followed by a 25bp hike in December. The Fed is now in its blackout period, and the US calendar is empty today, so the dollar will take its cue from the crosses and from geopolitics. Oil is lower this morning after the Trump administration paused new Russia sanctions, but Hormuz traffic remains under attack, with Iran claiming two tankers struck mines over the weekend and Tehran still reviewing Washington’s response to its seven-day ceasefire proposal. With the AI-led equity selloff also supporting havens, we continue to think dollar downside is limited.
EUR
EURUSD finished last week back above 1.12, having bounced from near 1.11 mid-week, its weakest level since May 2025. As noted on Friday, that recovery owed more to falling Treasury yields than to any improvement in the euro area, where OAT-Bund spreads sit close to 140bps. On that score, the weekend has brought a fresh domestic headwind. Nationwide cost-of-living protests turned into France’s worst rioting in years, prompting a televised address from President Macron. Perhaps not all that surprisingly, the euro gapped lower on the open in the 1.11s overnight before recovering to the low 1.12s. Tuesday’s Assembly vote on the revenue side of the 2027 budget now looks even harder to call, and Moody’s reviews France’s Aa3 rating on Friday. With the eurozone calendar empty today, we expect French bonds to dictate, with near-term risks skewed lower for the single currency.
GBP
Sterling was among the best-performing majors last week, with cable closing in the mid-1.33s, up more than 1% over Thursday and Friday combined. Even so, we think the rebound owes more to dollar weakness than to renewed confidence in the UK story. That should be the focus this week, albeit with no domestic data today. But tomorrow’s labour market report, where unemployment is expected to hold at 4.9%, Wednesday’s CPI, forecast to rise to 3.4% from 3.1% on energy, followed by Governor Bailey, offers a busy domestic roster of events. Overall, we expect a modestly weaker set of prints than consensus, reducing the pressure on the MPC beyond the November meeting. And with an Autumn Budget coming up before month end, we would be inclined to fade sterling rallies.
CAD
USDCAD extended its slide on Friday, falling a further 0.3%, roughly 1% below the 18-month high just shy of 1.43 earlier in the week. And, despite a further dip lower through early trading this morning, we are inclined to see risks skewed to the upside, with September CPI, due at 13:30 BST, the key domestic test. Consensus sees headline inflation rising to 3.2% from 3.0% on gasoline, but core measures are expected to stay soft near 2.0%. That, we think, would support the BoC holding at 2.25% later in the month, especially after two consecutive employment declines. A pullback in tightening expectations, which currently see a two-in-three chance of a rate hike on the 28th, leaves medium-term USDCAD risks skewed back toward 1.43 in our eyes.