USD: yields at a 2002 high, then a pause
The US dollar recorded a small gain over the week, its fourth consecutive weekly advance, although it gave back part of that progress in the final two sessions as Treasury yields retreated from their highest levels since 2002 and an improvement in risk appetite reduced demand for the greenback. The week's shape matters more than its net move: a dollar that rose with yields early in the week and eased with them late in the week is a dollar that is trading on the bond market rather than on the Federal Reserve.
In the United States, Wednesday's minutes of the September meeting confirmed that support for the increase was unanimous, but showed a Committee divided over whether it was a precautionary move or the first step in a renewed tightening cycle, with most participants seeing a further increase as appropriate before year end. Governor Christopher Waller added on Thursday that more increases are likely to be needed but that the Committee can be flexible about the pace, and that further moves need not come at consecutive meetings. Markets interpreted the remarks as a modest softening at the margin, with an October hold now heavily priced and a December increase still seen as more likely than not.
The bond market did the rest. The 10-year Treasury yield reached its highest level since 2002 on Wednesday before a strong reception for Thursday's 30-year auction eased concerns about demand for long-dated debt, and the subsequent rally in Treasuries took the edge off the dollar's gains. Geopolitics added to the shift in tone: President Trump said there would be no attack on Iran before the November midterm elections, even as reports suggested that options for renewed military action were being drawn up, and oil eased as a result.
Friday's preliminary University of Michigan survey offered a less comfortable reading. Consumer sentiment slipped further and missed expectations, while both short and longer-term inflation expectations edged higher, which is the combination a central bank least wants to see: households that feel worse off and expect prices to keep rising. Taken together, the week left the dollar supported rather than strengthening, with US equities pushing to fresh highs and the rate story cautious rather than confident.
Attention now turns to Wednesday's September consumer price index, the most important release before the Federal Reserve's 27 to 28 October meeting, followed by producer prices and retail sales on Thursday and import prices on Friday. Monday's Columbus Day holiday leaves a shortened week, with the IMF and World Bank meetings in Bangkok also bringing a steady flow of official commentary.
A firm inflation print would reinforce the case for a December increase and would likely give the dollar a fresh lift, particularly if yields resume their climb. Conversely, a softer reading alongside the weak September payrolls figures would strengthen the argument that the Committee can afford to wait, and would leave the greenback more exposed to the bond market's swings and to any shift in the tone around Iran.
EUR: French debt, a Spanish election and a patient ECB
The euro lost ground against the US dollar for a fifth consecutive week and fell to its lowest level in 17 months on Monday, as concerns over France's public finances and a call for a snap election in Spain kept pressure on European government bonds and on the single currency. The pace of the decline slowed later in the week, and a modest recovery on Thursday and Friday came largely from the dollar's side as US yields eased, rather than from any improvement in sentiment towards the euro itself.
Across the euro area, the story was told in the bond market. French government yields jumped on Wednesday as the Spanish election call added to existing concerns over France's record debt load and the political path to budget savings, and the gap between French and German borrowing costs widened to its highest in some time. Markets interpreted the move as a reminder that the region's fiscal questions have not been settled by higher interest rates, and the euro weakened alongside French bonds rather than benefiting from the higher yields.
That pattern deserves a word of explanation. Ordinarily, higher yields attract capital and support a currency, but when yields rise because investors are demanding more compensation to hold a government's debt, the signal is one of risk rather than reward, and the currency tends to fall alongside its bonds. The euro is particularly exposed to this dynamic because a widening spread between member states raises questions about the cohesion of the whole, not only about the finances of one country.
The European Central Bank offered little support. Thursday's account of the September meeting showed chief economist Philip Lane describing the increase to 2.50% as a robust decision across a wide range of scenarios while arguing for a meeting-by-meeting approach without commitment to any particular path, and several policymakers played down the prospect of a near-term follow-up. Markets interpreted the combination as confirming a hold on 29 October, with economists polled by Reuters almost unanimous in expecting no change.
Attention now turns to a lighter euro area data calendar, which leaves the euro trading largely on the French budget debate, the Spanish election campaign and the US inflation figures on Wednesday. The IMF and World Bank meetings in Bangkok will bring a series of appearances from European officials, and any comment on the energy outlook or fiscal discipline will be closely watched.
The European Central Bank's meeting on 28 and 29 October is the next event capable of resetting the rate story, although on present guidance it looks set to confirm a pause. For now, the euro's direction depends less on what the central bank does than on whether European bond markets stabilise, and on whether the US dollar's momentum continues to fade as it did late last week.
GBP: steady on the week, uneasy underneath
The pound ended the week broadly unchanged against the US dollar, trading within a relatively narrow range, although that stability masked a sharp sell-off on Wednesday, when the 30-year gilt yield rose back above 6% and US Treasury yields reached their highest levels since 2002. The currency recovered those losses on Thursday and Friday as global yields eased, leaving it measured rather than sharply risk-off in its response to another unsettled week in bond markets.
In the United Kingdom, fiscal concerns ahead of the Autumn Budget on 28 October continued to frame sterling's moves. The pattern on Wednesday was the familiar one: gilts sold off, the pound weakened alongside them, and markets interpreted the move as a question about the government's finances rather than a reflection of a more hawkish central bank. The Budget will be the first from Chancellor John Healey, and the market's sensitivity to anything that bears on borrowing will remain high until it is delivered.
The Bank of England provided a partial counterweight. Governor Andrew Bailey said on Thursday that interest rates cannot produce more oil or gas, but that the risk of second-round effects from the energy shock calls for firm resolve, remarks that the market interpreted as keeping a November increase firmly on the table. With three members already having voted for an increase in September and Bank Rate held at 3.75%, pricing has moved towards a November move being the more likely outcome, which has helped limit the pound's losses on days when gilts have come under pressure.
Taken together, the pound is caught between two competing forces: a central bank edging towards tightening, which would ordinarily support the currency, and a fiscal backdrop that makes investors wary of holding UK assets when yields are rising for the wrong reasons.
Attention now turns to Thursday's monthly GDP estimate for August, which will be closely watched after July's growth, along with a busy schedule of Monetary Policy Committee speakers through the week. The labour market figures follow on Tuesday 20 October, and the US inflation data on Wednesday will set the tone for the pound against the dollar.
For now, the pound's direction depends more on the gilt market than on any single domestic release. A calmer week for long-dated yields would allow the rate story to support sterling, whereas a renewed sell-off ahead of the Budget would likely see the currency weaken alongside its bonds again, as it did on Wednesday.
JPY: pinned near 158 as Tokyo talks fiscal discipline
The yen ended the week broadly unchanged against the US dollar, with the pair confined to a range close to 158 for most of the period, as rising US yields early in the week and their retreat late in the week largely cancelled out, and as official attention in Tokyo shifted from the currency itself towards the government's finances. The yen remains under pressure on a monthly basis, but the week offered neither the sharp weakness that would prompt intervention nor the domestic news that would justify a recovery.
In Japan, Bank of Japan Governor Kazuo Ueda used his first major speech since September's increase to keep further tightening tied to the data, without signalling that the next move is imminent. Markets interpreted the remarks as consistent with a December increase rather than one at the 29 to 30 October meeting, with pricing for an October move remaining a minority view. That leaves the policy rate at 1.25% and the gap with US yields wide enough to keep the yen on the back foot, even as Japanese government bond yields sit close to multi-decade highs.
The more interesting development was on the fiscal side. Prime Minister Sanae Takaichi said spending and revenue plans could be reviewed if bond yields moved unexpectedly, and Finance Minister Satsuki Katayama announced a review of spending and subsidies to fund the government's policy pledges. The implication is that Tokyo is paying close attention to the bond market, and that it recognises the yen's weakness is partly a vote on fiscal credibility rather than only a reflection of the interest rate gap.
Elsewhere, household spending fell again, extending a long run of declines and underlining how much higher prices are weighing on consumption. That is the tension at the heart of the yen's position: inflation is high enough to justify further tightening, but the domestic economy is fragile enough that the Bank is likely to move cautiously, and the currency continues to trade more on developments abroad than on its own.
Attention now turns to a quiet domestic calendar, with the Bank of Japan's corporate goods price index on Tuesday and a speech by board member Junko Koeda on Thursday the main local events. Koeda's remarks will be read for any sign that the board is warming to an October move.
Offshore, the US consumer price index on Wednesday will matter most for the rate gap, while the IMF and World Bank meetings in Bangkok will be closely watched as a possible venue for joint messaging from Japanese and US officials on the currency. With the pair still close to the levels that prompted intervention in August, any sharp move higher after the US data would likely bring a swift response from the Ministry of Finance.
CAD: a jobs shock and an 18-month low
The Canadian dollar lost ground against the US dollar for a fifth consecutive week and fell to its weakest level since April 2025 on Friday, as a sharply weaker employment report undercut expectations of a near-term increase from the Bank of Canada. The currency had recovered some of the losses midweek, when the US dollar eased with Treasury yields, but the jobs report removed that support in a matter of minutes.
Domestically, Friday's labour force survey showed employment falling by 68,000 in September, against expectations of a small gain, taking the losses over two months to around 110,000. The unemployment rate rose to 6.5% from 6.4%, participation fell, and the declines were concentrated in the public sector and among younger workers, with education, health care and manufacturing all shedding jobs. Markets interpreted the report as evidence that the drag from US tariffs is now visible in the labour market, and the chance of an October increase fell to around one in four.
Earlier in the week, August's trade figures showed a larger surplus than expected, although much of the improvement reflected exporters bringing shipments forward ahead of new US tariffs rather than a genuine strengthening in demand. In other words, the trade data flattered the picture in a way that Friday's employment report did not, and the market gave the latter far more weight.
Oil offered little help. Crude swung on headlines from the Middle East before easing late in the week after President Trump said there would be no attack on Iran before the midterm elections, which removed some of the risk premium that has supported the currency at times. That combination of a weaker labour market, softer energy prices and a wide gap with US yields left the Canadian dollar among the more exposed of the major currencies.
Attention now turns to a shortened week, with Monday's Thanksgiving holiday closing domestic markets. Governor Tiff Macklem appears at events in Bangkok on Wednesday and Friday alongside the IMF and World Bank meetings, and Senior Deputy Governor Carolyn Rogers on Thursday, and their remarks will be closely scrutinised after the jobs report.
The Bank of Canada's Business Outlook Survey on 19 October and its decision and Monetary Policy Report on 28 October are the next major domestic events. A firm US inflation print on Wednesday would add to the pressure on the Canadian dollar by widening the rate gap further. Conversely, a softer US reading would offer some relief, although the currency would still need a better domestic story to recover meaningfully.
CHF: a seventh week lower, and an SNB comfortable at zero
The Swiss franc lost ground against the US dollar for a seventh consecutive week, although by a smaller margin than in recent weeks, after weakening for four consecutive sessions to Thursday, close to its lowest level against the greenback in 17 months, as rising US yields and dovish remarks from the Swiss National Bank reinforced the gap in policy between the two central banks. The franc recovered on Friday as Treasury yields retreated and risk appetite improved, finishing the week well off its lows.
In Switzerland, the most important words of the week came from Vice Chairman Antoine Martin, who said the economic outlook remains highly uncertain but ruled out near-term increases in interest rates. "We remain comfortably within the price stability range of 0% to 2%," he said, and markets interpreted the remarks as confirming that the Bank's policy rate will stay at zero for the foreseeable future, at a time when the Federal Reserve is still debating how many more increases it needs.
That divergence explains why the franc has struggled to play its traditional role. A safe-haven currency ordinarily draws support when bond markets are under stress and geopolitical risk is high, as it has been for much of the past two months, but when the interest rate gap with the United States widens far enough, the cost of holding the franc rather than the dollar becomes material and the defensive bid is overwhelmed. In other words, investors still value the franc's safety, but they have been unwilling to pay the price in forgone yield.
Friday's recovery showed the other side of that relationship. Once US yields stopped rising and the tone around Iran calmed, the franc firmed against the dollar, which suggests the currency's weakness reflects the rate gap far more than any loss of confidence in the Swiss economy.
Attention now turns to another quiet domestic calendar, which leaves the franc trading largely on the US dollar's momentum and on global bond markets. The US consumer price index on Wednesday will set the direction for the pair, while the IMF and World Bank meetings in Bangkok may bring further commentary from Swiss officials.
A softer US inflation print, and a further easing in Treasury yields, would give the franc the chance to break its run of weekly losses. The course of the US-Iran conflict remains the variable most capable of changing the picture, since any renewed escalation would bring safe-haven demand back into play far more forcefully than anything on the domestic calendar.
NZD: confidence improves, the currency waits
The New Zealand dollar ended the week broadly unchanged against the US dollar, close to its lowest level since November last year, and lost ground against the Australian dollar, as the firm greenback and fading expectations for an October increase from the Reserve Bank kept the currency on the back foot until a late recovery on Friday. That rebound, driven by the easing in US yields and a calmer tone around Iran, steadied the currency without materially changing its position.
Domestically, NZIER's quarterly survey of business opinion showed a sharp improvement in confidence, with firms considerably more optimistic about the general economic outlook than in the previous quarter. The detail was less encouraging, since firms' own trading activity remained soft and lack of demand was still the main constraint on business. Markets interpreted the survey as a story about expectations rather than activity, and it did little for the currency.
The more important shift was in rate expectations. Pricing for a third increase at the Reserve Bank's 28 October decision has fallen to a little better than even, from considerably higher in late September, although a move by December remains fully priced. The implication is that the market is less certain the Bank will act quickly, and a weaker currency adds a complication of its own, since a falling New Zealand dollar raises the price of imported goods and fuel and adds to the inflation pressure the Bank is trying to contain.
Across the Tasman, the Australian dollar's stronger performance over the week widened the gap between the two currencies, while the approach of the 7 November election continued to give investors one more reason for caution.
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 US consumer price index on Wednesday will matter most for the pair, while Australia's labour force figures on Thursday will be closely watched for their effect on the cross.
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 ahead of the 28 October decision. For now, the currency has stabilised near its lows rather than turned, and a sustained recovery will likely need both a softer US dollar and a clearer signal from the Reserve Bank.