Major currency markets opened the week with the U.S. dollar edging higher as investors reconciled easing crude prices with unresolved geopolitical risks and braced for a sequence of central bank decisions.
Dollar and major pairs
The U.S. dollar index, which tracks the greenback against six major currencies, climbed 0.19% to 102.01, reversing an earlier dip as traders recalibrated rate expectations and monitored developments in the Middle East. The euro fell 0.16% to $1.1185, giving back an earlier gain, while sterling had earlier been quoted up 0.1% at $1.3385.
Earlier in the session the euro had risen 0.16% to $1.122, supported by relief that France avoided an immediate downgrade by Moody’s despite ongoing social unrest. That reprieve, however, was partial: Moody’s retained a negative outlook on France, and S&P is scheduled to review the country’s rating on Nov. 27.
Oil and geopolitical backdrop
Brent crude moved lower, down roughly 2% to $114.51 a barrel after Qatari mediators travelled to Tehran on Sunday to pursue de-escalation efforts in coordination with Washington. Market participants remained wary, though, after Yemen’s Houthis reported striking an airport and oil facilities in Saudi Arabia on Saturday. Brent had gained about 6% in the previous week.
Central banks in focus
The spotlight this week is on several central banks. The Federal Reserve begins a two-day meeting on Tuesday and is widely expected to leave its target range at 3.75%-4.00% when it announces policy on Wednesday. That decision would follow September’s first rate hike in more than three years. Market-implied odds show less than a 10% chance of a Fed hike on Wednesday, while bets indicate about an 80% probability of a move in December, so traders will be parsing Chair Kevin Warsh’s press conference for any clues on the forward path.
A packed U.S. data calendar could add further texture. October consumer confidence is due on Tuesday. On Thursday, markets will receive third-quarter GDP, where growth is expected to be about 3.2%, as well as the September PCE price index, with headline inflation forecast at 3.6% versus 3.4% previously, and weekly jobless claims. Initial claims fell to 194,000 last week, the lowest level since July.
The European Central Bank meets on Thursday and is expected to keep its deposit rate at 2.50%. Energy-driven inflation, which stood at 3.7% in September, keeps policymakers cautious, and some market commentary anticipates the next ECB hike could come in December.
Asia: yen, BOJ and China
The yen strengthened, with USD/JPY down as the yen jumped 0.45% to 157.53 per dollar. The pair saw significant swings last week, touching 158.68 on Oct. 20 before sliding to 156.06 on Friday as investors sought havens. Comments from a Japanese minister interpreted as cautionary on further tightening also supported the rebound.
The Bank of Japan is due to announce on Friday and is widely expected to hold its policy rate at 1.25% after two hikes earlier this year, though the outlook from the BOJ is expected to sound hawkish. Japanese core inflation returned above the central bank’s 2% target in September for the first time in nine months, and the scheduled end of fuel subsidies poses a risk of higher prices. Markets still anticipate a possible rate increase in December.
In China, the onshore yuan strengthened to 6.6682 per dollar, its strongest level since June 2022, though the People’s Bank of China has been using weaker-than-expected daily fixings to slow the pace of gains. China’s fifth plenum opened on Monday and runs through Thursday.
Smaller central bank moves
Beyond the global heavyweights, the week also features first-rate hikes from smaller central banks. Swaps price roughly an 85% chance that the Bank of Canada will raise its policy rate to 2.50% from 2.25%, and the Reserve Bank of New Zealand is seen moving its cash rate to 3%. Both decisions are due on Wednesday.
Market snapshot
- USD/JPY - yen at 157.53 per dollar, up 0.45%
- EUR/USD - $1.1185, down 0.16% from earlier session levels
- Brent crude - $114.51 per barrel, down about 2%
Traders enter the week sensitive to central bank signals and any further escalation in the Middle East that could reverse the recent retreat in oil. With a dense schedule of policy decisions and U.S. economic releases, market participants will be parsing both data and central bank commentary for guidance on the path of rates and the implications for currency valuations.