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FX Weekly - US dollar slips on election surprise
- Macro economy
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US election surprises weakened the dollar, pushing EUR/USD above 1.1250 because of concerns over political deadlock. The Riksbank raised its policy rate by 25 basis points. Strong fundamentals support the Swedish krona, but slower rate hikes compared to ECB and global risks limit near-term gains.
FX Weekly - Currencies on the move
- Macro economy
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Brazil’s unexpected election result triggered a sharp fall in the real: it dropped 12% before recovering to 8% below Friday’s 23 October close. We see scope for the real to recover, supported by high real rates and less political instability. Investors favour the US dollar ahead and mid-term US elections. Speculative community has their highest net short positions in the euro since November 2016. RBNZ, Fed, ECB and BoJ kept rates unchanged; BoC hiked.
FX Weekly - Euro under pressure
- Macro economy
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The euro has weakened since September, especially against the yen, US dollar and Norwegian krone. Wider interest rate spreads favour US dollar and sterling over the euro. Fiscal and political concerns in France, together with high energy prices, have added pressure on the euro. We expect the euro to recover against the US dollar and sterling as current market expectations adjust.
FX Weekly - Recovery of the Swiss franc
- Macro economy
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Interest rate spreads continue to drive EUR/USD. The focus has shifted from the US to eurozone. The Swiss franc is a useful indicator of shifts in market risk sentiment. Eurozone political and fiscal risks are supporting the franc.
Energy Strategist - Energy markets remain tight
- Macro economy
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Energy markets remain under pressure despite recent policy interventions and efforts to boost supply. While coordinated releases of strategic reserves and the rerouting of energy flows have provided some relief, low inventories, ongoing geopolitical uncertainty, and constrained infrastructure continue to leave oil, gas, and refined product markets vulnerable to further disruptions. The following highlights the key developments across these markets.
FX Weekly - Rate spreads drive the euro
- Macro economy
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More negative German–US yield spreads continue to weigh on the euro versus the dollar. Markets are pricing in more Fed and ECB rate increases than we expect. Fiscal and political uncertainty in France is adding pressure on the euro. We expect limited further EUR/USD weakness and maintain our end-2026 forecast at 1.15.
FX Weekly - Higher rates support the dollar
- Macro economy
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US dollar gained 1.0–2.4% since 17 September against major currencies. Wider US interest-rate differentials have driven the dollar rally. EUR/USD fell by more than 3% from 1.17. The next key downside level is 1.10. Downside in EUR/USD is protected but the upside is constrained. We maintain our EUR/USD forecast of 1.15 for end 2026
Japan - The BoJ carries on
- Macro economy
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Q2 GDP and monthly data point to strengthening growth momentum, …although risks stem from larger and longer energy shocks, rising interest rates, frictions with China and a potential slowing of the AI boom. Inflation driven up by energy shock, AI boom, and stronger wage growth. Regime shift 1: Rate hike path BoJ (we expect another hike tomorrow) and QT (although moderated) a key factor pushing up bond yields… Regime shift 2: … and so is PM Takaichi’s more expansive fiscal stance. JGB yields continued to increase, as the curve bear flattened in recent months. Lower hedging costs will only provide a small relief for OATs. Joint FX intervention countered yen weakness… but a structural shift in rate spreads and investor behaviour crucial for further yen recovery.. We expect sideways movement in the yen in the coming months and a further recovery towards the end of 2027.
FX Weekly - New macro view, new FX outlook
- Macro economy
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Following significant changes to our macro base case we have changed our currency forecasts, We expect the euro to be range-bound against the dollar over the next few months. Towards the end of 2027 we expect that USD will decline. Energy currencies NOK, CAD and BRL should remain supported, but trade tensions may limit Canadian dollar gains. Currencies with hawkish central banks (NOK, AUD, NZD) should do well. CHF and SEK may replace JPY in carry trades. Our next FX weekly will be published in the first week of October.
Updating our scenario: Higher for longer
- Macro economy
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The recent escalation in the Middle East likely means higher for longer energy prices, inflation and interest rates. Energy supply through both Hormuz and the Saudi East-West pipeline is likely to remain constrained in the coming months. The higher profile for energy prices leads to an upward revision to our inflation forecasts, with a longer period of above-target rates. Economic growth remains resilient near term; will be dampened next year on higher energy prices, interest rates and slower AI capex growth. Faced with a longer period of above-target inflation, central banks are likely to move monetary policy into moderately restrictive territory. We expect 50bp of rate hikes from both the Fed and the ECB before year end, while the door could open for rate cuts by the end of next year. Bond yields are seen heading lower over our horizon as there are more hikes priced in than we expect in our new base case. Rising term premia should drive curve steepening.
