Last Updated on 30/09/2026
US Dollar and Fed Outlook
The US dollar continues to maintain a firm tone. Technical momentum remains notably overbought, potentially reflecting the market’s aggressive expectations for the future path of Federal Reserve policy. Fed funds futures are even assigning some probability to an October rate hike, which would come just six days before the US midterm elections. There is some historical precedent for rate moves shortly before national elections, including in 2008, 2018, and 2022.
Markets are currently pricing in nearly 100 basis points of additional Fed tightening over the next 12 months. With expectations already elevated, the dollar’s recent strength could be vulnerable if upcoming economic data disappoints.
Six Fed officials are scheduled to speak during today’s North American session. Most have commented recently, and the latest communications, together with the dot plot, suggest that several policymakers remain open to another rate increase this year. The key question is the timing. At the same time, the latest dot plot, released less than two weeks ago, showed the median projection calling for no rate hikes next year. Under new leadership, however, it remains possible that the Summary of Economic Projections could be discontinued next year.
Prices
G10 Currencies
Euro:
The euro fell below $1.1355 yesterday, matching its late-July low, and remained under pressure today after breaking below $1.1335. The year’s low was recorded in late June near $1.1325. A sustained move below $1.1300 could open the door to another decline of roughly two cents.
Japanese Yen:
Additional verbal intervention from Japanese officials aimed at supporting the yen pushed the dollar down from around JPY157.50 to JPY156.50 yesterday. The dollar subsequently recovered toward JPY157.60 near the end of the European session before spending most of the North American afternoon moving between JPY157.00 and JPY157.50. Today, trading has been relatively subdued between approximately JPY157.20 and JPY157.70. Options worth nearly $500 million at JPY157.50 expire today.
British Pound:
Sterling performed relatively well yesterday. Its low near $1.3220 remained above the lows recorded during the previous two sessions. The pound reached a three-day high around $1.3280 around midday in New York, although it finished below last Friday’s high near $1.3265. Today, sterling is trading with a softer bias within yesterday’s range. A break below $1.3200 would bring the late-June lows around $1.3140 into focus.
Canadian Dollar:
The Canadian dollar remains under pressure, declining for a sixth consecutive session yesterday and in 13 of the past 14 sessions. It is slightly weaker again today. Meanwhile, the US two-year yield premium over Canada has continued to expand, marking its tenth consecutive increase. At roughly 154 basis points, the spread is at its widest since February 2025, when it approached 160 basis points.
The US dollar climbed to nearly CAD1.4180 yesterday and closed above last week’s highs. It is testing the CAD1.4200 area late in the European morning. The year’s high was established in late June near CAD1.4250.
Australian Dollar:
The Australian dollar remained within Friday’s $0.7005-$0.7045 range yesterday. Although the Reserve Bank of Australia raised rates, its accompanying communication was interpreted as less hawkish than expected. The Aussie subsequently came under renewed selling pressure today, slipping slightly below $0.6980. The next notable technical area is around $0.6950.
Emerging Markets
Mexican Peso:
After losing more than 4% over the past two weeks, the Mexican peso remained under pressure yesterday as higher US interest rates and broad dollar strength weighed on the currency. The dollar moved above MXN18.00 for the first time since the end of March.
It also closed above its upper Bollinger Band for a fourth consecutive session, with that band around MXN17.9350 today. The dollar briefly moved above MXN18.02 today. The MXN18.04 region represents the 61.8% retracement of the dollar’s decline from last November’s peak near MXN18.77 to the two-year low around MXN16.8575 recorded earlier this month. Above MXN18.04, the next significant resistance area is around the late-March and early-April highs near MXN18.1650.
The unwinding of the yen carry trade may initially have been less disruptive because some positions shifted toward dollar-funded trades. However, the sharp increase in US rates and renewed dollar strength now appear to be generating a broader unwind. The JP Morgan Emerging Market Currency Index has fallen roughly 1.5% over the past month and more than 1.8% so far this year.
Chinese Yuan:
The dollar produced a potential key reversal against the offshore yuan yesterday. It initially pushed above recent highs to almost CNH6.7265 before reversing and closing slightly below the pre-weekend low near CNH6.7135. Today, the dollar declined to around CNH6.7045, its lowest level in four sessions. The recent cyclical low was established on September 21 near CNH6.6910.
After previously appearing to caution markets against viewing the yuan as a one-way trade, the People’s Bank of China unexpectedly lowered its dollar fixing yesterday by the largest amount since April. Today’s fixing was set at CNY6.7411, compared with CNY6.7399 yesterday.
Indian Rupee:
The Indian rupee fell to a two-month low today despite reports that the Reserve Bank of India intervened by selling dollars in the domestic market. The dollar climbed to almost INR96.1540 before retreating to just below INR96.00.
Other Markets
Equities:
US equity markets opened lower yesterday and extended their decline. However, stocks stabilized as bond yields pulled back, although the major US indices still ended below their opening levels. US equity futures are currently mixed but within a relatively narrow range. Most Asia-Pacific markets were weaker today, with China and Australia among the notable exceptions. The Stoxx 600 was little changed yesterday but is up approximately 0.45% today.
Bonds:
Benchmark 10-year yields have stabilized today following yesterday’s sharp increase in the US and Europe. The 10-year Japanese government bond yield edged lower, while most European benchmark yields are around one basis point lower.
The US 10-year yield reached 5.27% yesterday before ending near 5.23% and is slightly higher today. The two-year yield climbed to 4.95% and finished around 4.92%; it is now close to 4.94%.
Considering the Atlanta Fed’s GDPNow estimate of around 5% growth, US CPI at 3.4%, Fed funds futures implying an overnight rate near 4.80% at the end of 2027, and the lack of meaningful progress in reducing the fiscal deficit and associated Treasury supply, a 5.25% 10-year yield does not appear particularly extreme in this environment.
Gold and Silver:
Gold ended yesterday almost 3.8% below its pre-weekend level, marking its largest one-day decline since June 10. After trading near $4,510 earlier this month, gold fell to around $4,111 yesterday. It closed well below its lower Bollinger Band and has yet to reclaim that level, which stands near $4,157 today, although the metal is showing a somewhat firmer tone.
Silver was also hit by the sell-off, falling to around $60.75 yesterday. It too finished below its lower Bollinger Band near $61 and is struggling to move back above it. A break below $60 would bring the year’s low near $54.80 into focus.
Oil:
Conflicting developments surrounding the war outlook, US-Iran negotiations, and the degree to which oil flows are recovering from the Middle East caused the November WTI contract to trade within Thursday’s broad range of approximately $91.25-$96.80. Crude is little changed during the European morning and remains within yesterday’s trading range.
Economic Data
With the US PCE deflator due tomorrow and employment data scheduled for Friday, July house prices and the Conference Board consumer confidence report are unlikely to generate a major market reaction today. Although consumer confidence remains weak, household spending continues to demonstrate resilience. The August JOLTS report is expected to indicate that labor-market conditions remain broadly stable.
Canada is expected to report unchanged GDP for July following June’s 0.3% expansion. Statistics Canada is also due to publish an advance estimate for August GDP. The Canadian economy expanded at an annualized 3.3% pace during Q2 and is expected to have slowed to roughly half that rate in Q3. Even so, swaps markets continue to assign slightly better than a 50% probability to a Bank of Canada rate increase at next month’s meeting.
The European Commission released its September confidence surveys today. Results were mixed, although the market reaction was limited. Spain separately reported stronger September inflation. Its harmonized inflation measure increased 0.6%, lifting the annual rate to 5.0% from 4.6% in August. Spain also reported that retail sales fell 1.1% year over year in August, compared with a 0.3% decline in July.
Germany will release September CPI data tomorrow. The EU-harmonized measure is expected to rise by around 0.5%, which would push the annual inflation rate to 3.2% from 2.9%. Meanwhile, French civil servants are staging strikes ahead of the government’s budget bill later this week.
The UK reported August consumer credit data. Consumer borrowing was somewhat stronger than expected and increased 9.6% year over year, compared with 9.3% in July. Mortgage approvals eased slightly, although net mortgage lending increased.
The Reserve Bank of Australia raised its cash rate target for the fourth time this year, taking the benchmark rate to 4.60%. This remains the highest policy rate among G10 central banks and is the highest Australian rate in roughly 15 years.
Australia also reported flat household spending in August, contrary to expectations for modest growth. August CPI is due tomorrow. Bloomberg’s median forecast points to a 0.5% monthly increase, which would lift annual inflation to 4.1% from 3.5%.
Before the RBA decision, futures markets had priced in nearly a 65% probability of another rate increase before year-end. Following Governor Bullock’s less hawkish remarks, that probability has fallen to just under 60%.
China slightly revised down its Q2 current-account surplus estimate to $193.7 billion from $195.1 billion. That followed a $184.3 billion surplus in Q1, while the Q2 2025 surplus stood at $128.7 billion.
China’s overall trade surplus is larger, but the country recorded a $37.6 billion primary-income deficit. This category includes interest earned on bonds and loans, dividends from equities, profits from overseas businesses, and compensation earned by workers who live in one country while working for employers based in another.
Separately, Beijing indicated that it intends to move “with greater urgency” to support economic activity and promised additional “practical and effective” policy measures. In its latest statement, the State Council acknowledged that emerging economic problems require stronger counter-cyclical adjustments. China’s September PMI figures are scheduled for release tomorrow morning.
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