USD: soft data, sticky yields
The US dollar recorded a third consecutive weekly gain, with the dollar index up around 0.8% and touching its highest level since May of last year, as a renewed sell-off in global bond markets carried the 10-year Treasury yield to its highest since 2002 and kept the greenback in demand even as the domestic data turned decisively softer. Friday's payrolls report briefly reversed the move, but the reaction faded as yields recovered into the close.
In the United States, the week's data made a quieter case than the bond market did. Wednesday's personal consumption expenditures deflator came in well below expectations, with core inflation steady at 3.0% against a forecast of 3.3%, although part of the miss reflected methodological revisions rather than a genuine cooling in prices. Friday's employment report was weaker again: payrolls rose by just 29,000, against expectations of around 90,000, the unemployment rate edged up to 4.2%, and revisions took a further 60,000 off the previous two months. In other words, both halves of the Federal Reserve's mandate softened in the same week.
Officials had already begun to lean that way. New York Fed President John Williams said there was no urgency for a further move after September's increase, Vice Chair Philip Jefferson struck a similar note and Governor Michelle Bowman said she sees no further increases this year, while Dallas Fed President Lorie Logan argued that at least another 50 basis points may be needed. Markets interpreted the balance, alongside the payrolls miss, as removing an October move from the table, with pricing falling to around one in five by Friday, even as one further increase before year end remained broadly priced.
What makes the week unusual is that the dollar rose anyway. The ISM manufacturing survey showed prices paid jumping sharply on higher energy costs, gold fell for a second week and crude finished lower, which leaves the long end of the Treasury market, and the fiscal and supply concerns behind it, as the main source of the dollar's support. That is a different footing from the rate story of previous weeks: cautious rather than confident, and more dependent on what happens in bond markets abroad than on what the Federal Reserve does next.
Attention now turns to Wednesday's minutes of the September meeting, which will be closely scrutinised for how broad the support for further tightening was at the time, although the softer inflation and employment figures that followed may leave the account looking somewhat dated. Monday's ISM services survey, particularly its prices and employment components, and Friday's preliminary University of Michigan sentiment survey, with its measures of inflation expectations, complete a relatively light data week.
The Treasury's long-dated auctions and its buyback operations will matter more than usual given the pressure on the long end of the curve. A smooth week for bond supply would allow the softer data to weigh on the dollar more directly. Conversely, renewed stress at the long end would likely keep the greenback supported regardless of what the minutes say, with the September consumer price index on 14 October the next release capable of resetting the rate debate.
EUR: hotter inflation, cooler reception
The euro lost ground against the US dollar for a fourth consecutive week and fell to its lowest level since May of last year on Wednesday, as the global bond sell-off and concern over the region's exposure to higher energy prices outweighed an inflation report that, in a different week, might have been enough to lift the currency. A modest recovery on Friday after the US payrolls miss recovered some of the losses.
Across the euro area, the flash harmonised index for September rose to 3.8% from 3.2%, above the 3.6% expected, after national figures from the larger economies had already pointed to a hotter print. The detail was more nuanced than the headline: energy inflation climbed to almost 19%, while core inflation edged up only to 2.2%, which suggests the acceleration is still overwhelmingly an energy story rather than evidence of broad second-round effects. Markets interpreted the release as keeping an October move on the table without making it the base case.
That reading explains why the euro gained so little from it. A rise in inflation driven by imported energy is, for an economy that buys most of its oil and gas from abroad, as much a tax on households and businesses as it is a reason to tighten policy, because every euro spent on fuel is a euro not spent elsewhere and every increase in input costs squeezes margins that are already thin. A central bank facing that combination tends to move more cautiously than one facing demand-driven inflation, and currency markets price the currency accordingly.
Elsewhere, French fiscal concerns remained in the background as European government bond yields rose alongside Treasuries, and late in the week the White House said European governments had agreed to release diesel stockpiles, a step that may ease some of the energy pressure at the margin. The European Central Bank's September increase to 2.50% remains the backdrop, with commentary since then leaning hawkish but stopping short of committing to a follow-up.
Attention now turns to Thursday's minutes of the European Central Bank's September meeting, which will be read for how much appetite exists within the Governing Council for a second consecutive increase in October. German factory orders on Tuesday, industrial production on Wednesday and euro area retail sales will offer a read on how much damage the energy shock is doing to activity.
A set of minutes that confirms October as a live meeting would give the euro some support against a dollar that has had most of the rate argument to itself. The Federal Reserve minutes and the course of the bond market are likely to matter more for the pair in absolute terms, and the US-Iran conflict, through its effect on the oil price, remains the variable that matters most for the euro given the region's dependence on imported energy.
GBP: the bond market sets the pace again
The pound lost ground against the US dollar for a third consecutive week and fell to its lowest level since late June on Thursday, as the 30-year gilt yield rose above 6% for the first time since 1998 and the domestic fiscal debate once again became the lens through which markets viewed sterling. A firm recovery on Friday, when the pound led the major currencies after the US payrolls miss, recovered a meaningful part of the losses.
In the United Kingdom, the gilt market did most of the talking. The rise in long-dated yields was part of a global move, but sterling has a particular sensitivity to it, given the country's large external financing needs and the memory of past episodes in which falling gilt prices and a falling currency reinforced one another. Markets interpreted Thursday's move in exactly those terms, and the pound weakened alongside gilts rather than strengthening on the higher yields, which is the pattern that signals a fiscal concern rather than a rate story.
Monetary policy offered a partial counterweight. External Monetary Policy Committee member Catherine Mann, one of three members who voted for an increase at the September meeting, said that UK financial conditions are not yet tight enough, and suggested the Bank's wait-and-see response to the energy shock had added to uncertainty. Her view keeps the case for tightening alive, although with the Bank Rate held at 3.75% and the majority still on hold, the market has yet to treat that case as more than a minority position.
The political calendar adds to the picture. Labour's annual conference passed without a fresh market rout, but the government's next hurdles, including Thursday's by-election in Holborn and St Pancras and the Autumn Budget on 28 October, leave the pound trading on fiscal credibility as much as on interest rate differentials.
Attention now turns to a light domestic data calendar, with Thursday's by-election and Friday's scheduled S&P review of the UK's sovereign credit rating the main local events. Neither is likely to change the macroeconomic picture, but both will be closely watched given the sensitivity of gilts to anything that bears on the fiscal outlook, and the long-dated gilt auction during the week will be a test of demand at current yields.
The Federal Reserve minutes and the US data will set the tone for the pound against the dollar, while any further commentary from Monetary Policy Committee members will be read in the light of Mann's remarks and the November meeting. For now, the pound's direction depends more on whether the global bond sell-off stabilises than on any single domestic release, and Friday's rebound showed how quickly it can recover when it does.
JPY: hot Tokyo prices, firm US yields
The yen lost ground against the US dollar for a third consecutive week, although the pair spent most of the period in a range close to 158 rather than pushing towards the levels that had alarmed officials earlier in the month, as warnings from Tokyo and a strong domestic inflation print offset some of the pressure from rising US yields. The yen strengthened on Friday after the US payrolls miss, finishing the week well off its weakest levels.
In Japan, officials set the tone early. Atsushi Mimura, the Ministry of Finance's top currency official, said on Monday that authorities were watching whether markets took their message at face value and were not satisfied with recent moves in the yen, and markets interpreted the remarks as a reminder that intervention remains a live option. That threat has done more to cap the pair in recent weeks than anything the Bank of Japan has said, which is the part worth noting: verbal resistance can slow a move, but it cannot change the interest rate gap that drives it.
The data was more supportive than usual. Friday's Tokyo consumer price index showed core inflation accelerating sharply to 2.7% from 1.8%, with a measure that also excludes energy rising faster still, as government subsidies unwound and services prices firmed. Earlier, the Bank of Japan's quarterly Tankan survey showed large manufacturers' sentiment improving on chip and AI-related demand, although non-manufacturers slipped as input costs and labour shortages weighed. Taken together, the releases strengthen the case for a further increase before year end, with December still seen as more likely than October.
The difficulty for the yen is that this kind of evidence moves the Bank's eventual path rather than its immediate one. With the policy rate at 1.25% after September's increase, and some board members still questioning whether underlying inflation is firmly at 2%, the gap with US yields remains wide enough that the currency continues to trade more on offshore developments than on its own.
Attention now turns to August wage data on Wednesday and household spending on Friday, both of which will be closely watched as tests of whether the domestic economy can absorb higher prices without a sharp slowdown in consumption. A weak set of numbers would reinforce the doubts some board members have expressed and could revive pressure on the yen.
Offshore, the Federal Reserve minutes and the long-dated auctions in both the United States and Japan will matter for the rate gap, while any further official commentary will be scrutinised given how close the pair remains to the levels that prompted intervention in August. The Bank of Japan's 30 October meeting, with new quarterly forecasts, is the next domestic event capable of changing the story.
CAD: flat growth and falling crude
The Canadian dollar lost ground against the US dollar and ended the week close to its weakest level of the year, as a flat reading on July growth confirmed the soft patch in activity and a lower oil price removed the support the currency sometimes draws from higher energy prices. The Canadian dollar was the weakest of the major currencies on Friday, missing out on the broad dollar sell-off that followed the US payrolls report.
Domestically, Tuesday's gross domestic product figures showed the economy unchanged in July, in line with expectations but down from growth of 0.4% in June, while Statistics Canada's preliminary estimate pointed to a modest recovery in August led by mining and retail. Markets interpreted the release as consistent with an economy that is stalling under the weight of US tariffs rather than contracting, which is enough to keep the Bank of Canada cautious without forcing its hand.
The interest rate picture is more complicated than that suggests. With inflation at 3.0% and energy prices unlikely to normalise soon, markets have built up expectations of an increase from the Bank of Canada before year end, and treat October as a meaningful possibility. The implication is that the Canadian dollar is not short of a rate argument; it is that the Federal Reserve's argument has been stronger, and that the trade dispute with Washington, where negotiations remain stalled, adds a growth risk that the market is unwilling to ignore.
Crude's decline over the week, as headlines from the Middle East swung between escalation and diplomacy and the White House announced the release of European diesel stocks, removed a source of support that might otherwise have cushioned the currency. That combination of weaker energy prices and a soft domestic growth picture left the Canadian dollar unusually exposed to a firm US dollar.
Attention now turns to Friday's September labour force survey, which carries more weight than usual after August's sharp fall in employment and a rise in unemployment to 6.4%. A rebound in hiring would strengthen the case for an October move and would give the Canadian dollar some footing against the greenback.
Conversely, a second weak report would reinforce the view that the tariff drag is now visible in the labour market, and would likely push market pricing for the Bank of Canada back towards December. Beyond the domestic release, Sunday's OPEC+ meeting, the course of the US-Iran conflict and the Federal Reserve minutes on Wednesday frame the week, with US-Canada trade developments the variable capable of overwriting all of it.
CHF: a sixth week lower, and an SNB in no hurry
The Swiss franc lost ground against the US dollar for a sixth consecutive week, its longest such run since late 2024, and fell to a 16-month low against the greenback early in the week, as rising US yields and a benign domestic inflation print reinforced the market's view that the Swiss National Bank is in no hurry to follow its peers. The franc recovered some of the losses later in the week, first on the softer US inflation data and then on Friday after the payrolls miss, when it was among the stronger major currencies.
In Switzerland, Thursday's consumer price index was in line with expectations. Annual inflation held at 1.0%, monthly prices were flat and core inflation edged up only to 0.5%, which suggests that the rise in oil prices is still being offset elsewhere in the basket and that second-round effects remain limited. Markets interpreted the release as confirming that the Bank can keep its policy rate at zero for the foreseeable future, with any discussion of an increase pushed out to 2027.
That leaves the franc in an unusual position. Its traditional role as a safe-haven currency would ordinarily give it support during a conflict in the Middle East and a sell-off in global bond markets, yet the interest rate gap with the United States has widened enough that the safe-haven bid has been overwhelmed for most of the past six weeks. The Bank's softer language on intervention at its September meeting, when it dropped the word "increased" from its stated willingness to act in currency markets, has removed one of the obstacles to further weakness.
Friday's recovery was a reminder of what the franc can still do. When global yields dip and risk appetite wobbles, defensive demand for the franc returns quickly, and the currency's moves late in the week were measured rather than sharply risk-off, which suggests the market has not abandoned its safe-haven role so much as set it aside.
Attention now turns to a quiet domestic calendar, which leaves the franc trading largely on the US dollar's momentum and on global bond markets. The Federal Reserve minutes on Wednesday and the course of long-dated yields will set the direction for the pair, while the European Central Bank minutes on Thursday will matter for the franc against the euro.
The US-Iran conflict remains the variable most capable of changing the picture, since any sharp escalation would bring safe-haven demand back into play far more forcefully than anything on the domestic calendar.
NZD: six weeks lower and an election in view
The New Zealand dollar lost ground against the US dollar for a sixth consecutive week, its longest run of weekly declines since early last year, as the firm greenback, a high oil price and growing political uncertainty at home weighed on the currency. A rebound on Friday, after the weak US payrolls report sent the dollar lower, recovered some of the losses but was not enough to break the run.
Domestically, the election on 7 November is becoming a more significant factor. Polling has tightened, and markets interpreted the closer race as a source of policy uncertainty that limits the currency's ability to recover, particularly with the economy still fragile and the terms-of-trade picture complicated by a higher bill for imported fuel. A currency that is already under pressure from the rate gap tends to find that political uncertainty matters more than it otherwise would, because it gives investors one more reason to wait.
The Reserve Bank offers the main counterweight. Traders have built up expectations of a third increase at the 28 October decision, and the inflationary impact of the oil price makes it difficult for the Bank to stand aside. That expectation has done little for the currency so far, however, which suggests that the market sees the Bank's tightening as a response to an energy shock rather than a sign of domestic strength, and prices the New Zealand dollar accordingly.
Across the Tasman, the Reserve Bank of Australia's increase and its softer guidance offered little directional lead for the cross, while China's return to expansion in its official manufacturing survey provided modest support given the importance of Chinese demand for New Zealand's exports.
Attention now turns to the offshore calendar, which again looks likely to settle the New Zealand dollar's direction given the absence of major domestic releases. The Federal Reserve minutes on Wednesday and the US data will matter most for the pair, while China's return from the Golden Week holiday will be closely watched for any sign that demand is firming.
Election polling will continue to be read for what it implies about fiscal and policy direction, and any commentary from Reserve Bank officials will be scrutinised in the light of the 28 October decision. For now the currency enters the week with momentum against it, a central bank that is likely to tighten for reasons that offer it little comfort, and an election that gives the market one more reason for caution.