Forex Major Currencies Outlook (Oct 13 – Oct 17)
Inflation data from the China as well as employment data from the UK and Australia will highlight the economic news in the week ahead of us. It is still not confirmed whether US retail sales report will be published as we enter the third week of government shutdown. Q3 earnings will pick up in the coming week and be mindful that Monday is Columbus Day, US bond market will be closed, but stock market will be open.
USD
Minutes from the September FOMC meeting showed majority of members agreeing that it would be likely appropriate to cut rates further by the end of the year. Most participants saw increase in downside risks to employment. Minutes have been interpreted as hawkish by markets due to the fact that few participants saw merit in keeping rates unchanged and that majority of participants emphasized upside risks to inflation in their outlook.
New York Fed president Williams stated that although tariffs raised import prices there is no evidence of second-round effects that could push inflation higher. He thinks that underlying inflation is gradually moving towards 2% target and that it is appropriate to move rates towards neutral stance to support labor market, thus endorsing further rate cuts.
After 2 years of war in Gaza both Israel and Hamas have signed off on the first phase of US peace plan. According to Trump statement on social media, this will lead to Hamas releasing all hostages and Israel withdrawing troops. Hostages could be released as soon as Monday. Treasury will directly buy Argentinian Pesos, but Bessent stating it is not a bailout.
President Trump commented on Friday that China is not playing fair and has no reason to impose export controls on rare earths. This has brought markets down and then just before Friday close he stated that he will impose additional 100% tariffs on China which plunged markets even deeper. BTCUSD lost around 10% on the day. Trump cancelled the meeting with Xi that was to happen in two weeks in South Korea. Additional tariffs will be implemented on November 1 which gives plenty of room for further negotiations between countries. US plans to impose export controls on any and all critical software. China’s Commerce Ministry retorted that they do not see anything unfair with their export controls and stated that they opted for such move in order to prevent further escalation of multiple conflicts running around the world. They have also accused US of constantly introducing new restrictions on China since their meeting in Madrid. Over the weekend Trump posted a new message stating that we should not worry on China and that president Xi did not really mean what he said, he just had a “bad moment”. Markets rejoiced at the first sign of TACO (Trump Always Chicken Out) and BTCUSD recovered almost half of its loses.
The yield on a 10y Treasury started the week at 4.12%, rose to 4.17% and finished the week at around 4.05%. The yield on 2y Treasury started the week at 3.57%, rose to 3.61% and finished the week at around 3.52%. Spread between 2y and 10y Treasuries started the week at 55bp and finished the week at 53bp. FedWatchTool sees the probability of a 25bp rate cut at October meeting around 95%, while probability of a no cut is around 5%. Gold has reached new all time high as it crossed the $4000 level, while silver blew the $50 level and even briefly crossed $51 for a new all time high.
This week’s inflation data will be published on October 24. Retail sales report is not guaranteed.
Important news for USD:
Thursday:
- Retail Sales
EUR
French Prime Minister Sebastian Lecourne has handed his resignation to president Macron who has accepted it. The choice in front of Macron is to either appoint new PM or dissolve the National Assembly and call new elections. EUR has been hit hard and tumbled after the news while French bond yields jumped.
ECB Chief Economist Lane reiterated the need for data-dependent approach and clarified that shifts in the distribution of risks will be taken into account when deciding on future rate path. ECB members reiterated that rate is appropriate at 2% and that inflation remains contained. Minutes from the latest ECB meeting showed unanimous decision to keep rates unchanged but warned about inflation risks as “several members viewed inflation risks as tilted to the downside”, while “a few members viewed inflation risks as tilted to the upside.” Minutes give away more dovish leaning sound as environment was characterized as more uncertain than usual and the bar for moving on rates is not as high as previously thought.
GBP
BoE chief economist Pill stated in his speech that monetary policymakers should make a clear and credible commitment to achieve their price stability objective. BoE Mann, most hawkish member, stated that inflation remains persistent and that outlook for growth remains modest. She sees it appropriate to keep restrictive monetary policy for longer as a way to create an environment suitable to spur growth.
This week we will have employment data.
Important news for GBP:
Tuesday:
- Payrolls Change
- Unemployment Rate
AUD
RBA governor Bullock testified in front of the senate stating that services inflation remains sticky and that Q2 inflation came in hotter than expected, but is generally moving in the right direction. She acknowledged that monthly CPI data is volatile but advised caution. Additionally, she stated that labor market remains in a good place and reiterated that RBA remains data-dependent.
World bank has lifted its projection for Chinese GDP to 4.8% in 2025 and 4.2% in 2026. Previously GDP was seen at 4% for both years. They do not see trade war and tariffs as detrimental to growth as previously thought and that is the main reason for upward revision.
This week we will have employment data from Australia and inflation data from China.
Important news for AUD:
Wednesday:
- CPI (China)
*Thursday:*
- Employment Change
- Unemployment Rate
NZD
RBNZ has surprised the markets and cut Official Cash Rate (OCR) by 50bp instead of 25bp as was widely expected. OCR now sits at 2.5%. Weaker than expected growth in the first half of the year was stated as the main culprit for a 50bp cut as Q2 GDP came in at -0.9% q/q. Inflation is seen at the upper bound of their 1-3% targeted range and is expected to come down to mid-point during H1 of 2026. Members warn that inflation may prove to be more persistent in the near-term. RBNZ is shifting towards supporting growth and states that is open to further cuts in OCR. They have already cut 300bps since August of 2024. November seems to be lock for another 25bp cut.
CAD
September employment report saw economy add 60.4k jobs vs 5k jobs as expected. After two months of job loses Canadian labor market is giving signs of improvement. The unemployment rate stayed at 7.1% while markets were expecting tick up to 7.2% while participation rate ticked up to 65.2%. Wage growth stayed unchanged at 3.6% indicating no new inflation pressures. Composition of jobs was the highlight of the report as it showed that economy added 106.1k full-time jobs while losing 45.6k part-time jobs. CAD was gaining strength throughout the week, besides against USD, and this print put more fuel to CAD strength.
JPY
Sanae Takaichi is the new leader of LDP and, most likely, Japan’s new, first female, Prime Minister. She was a close ally of former PM Shinzo Abe and is in favor of large-scale fiscal stimulus. Her first decision when she becomes new PM will be to issue order to compile new stimulus package and cut taxes on gasoline in order to help citizens of Japan with cost of living crisis. This will delay BoJ’s rate hikes and possibly push them into early 2026. JPY has plunged when markets open, losing more than 150 pips against EUR and USD with those loses mounting as trading continued on Monday while bond yields soared. Household spending increased for the fourth consecutive month in August and printed 2.3% y/y vs 1.2% y/y as expected and up from 1.4% y/y in July. Yield on a 30y JGB reached new all time high of 3.32% adding further complications to BoJ decision.
CHF
SNB total sight deposits for the week ending October 3 came in at CHF476.9bn vs CHF474.7bn the previous week. Another small increase in the deposits as they move to the upper band of the year’s range. September unemployment rate ticked up to 3% making it highest since July of 2021.