FX Daily · Monday, 12 October 2026
Dollar: December's rate rise awaits evidence
By Walid Qairmi, Macro Edge, written by AI · data as of 08:15 CEST
The dollar starts the week two tenths below its high on 7 October: the Macro Edge index ended Friday at 102.19, up 2.7% since late August but only 0.1% over the past five sessions. Waller signalled further Fed increases, but traders already price around a 75% chance of a December rise: the US 2-year yield gained only 1bp over the week. US bond markets are closed for Columbus Day, with Tokyo and Canada also on holiday. The calendar is limited to central-bank speeches, including Cleveland Fed's Beth Hammack at 18:50. Our bias remains bullish on the dollar, but further gains depend on Wednesday's CPI: core inflation of +0.2%, as expected, would leave the greenback in a range; +0.3% would reopen the October meeting.
What moved the market
Waller promises rate rises; the front end has already paid for them
The facts
Governor Christopher Waller said in Istanbul on 8 October that he expects additional rate increases if the data develops as anticipated, specifying that they need not come at consecutive meetings. His case rests on September's rise, which took fed funds to 3.75–4.00%, August core PCE at 3.0% year on year, and oil that could remain expensive until 2027. On Friday, the University of Michigan's preliminary survey showed inflation expectations of 4.7% at one year and 3.5% at five to ten years, the highest since May, with sentiment falling to 46.3. Musalem (St. Louis) reportedly discussed further increases over six to nine months, according to press sources we have not cross-checked against the original text.
The market
Pricing barely moved. According to CME FedWatch aggregators, an increase on 28 October is priced around 18%, and December around 75% (Polymarket); ING judges the December increase well priced in. We have not read these probabilities directly at CME. Over the week, the Treasury 2-year yield gained only 1bp to 4.47%, around 60bp above the midpoint of the fed funds range, while the 10-year fell 4bp to 5.24% after trading around 5.36% on 7 October, its highest since 2002 according to the press. The Macro Edge dollar index fell 0.17% on Friday at the ECB fixing, taken before New York opened.
Our reading
Our reading is that the dollar has absorbed most of the hawkish message: the front end has priced in the Fed's promises, while the index's rise since late August runs out of momentum without further short-rate gains. The 2–10-year spread, down from 82 to 77bp in a week, also suggests that rates investors have stopped adding term premium. The greenback retains the rate-differential advantage, but further upside now requires an inflation release. Hammack, a voter this year, speaks at 18:50: a tone aligned with Waller would confirm pricing without extending it.
% year on year (l.), % year on year (r.)
Sources : BLS (CPIAUCSL, CPILFESL), Macro Edge Terminal (OFFI panel) 01/08/2026.
% year on year (l.), % year on year (r.)
Sources : BEA (PCEPI, PCEPILFE), Macro Edge Terminal (OFFI panel) 01/08/2026.
Headline CPI and Core CPI. Headline CPI at 3.35% and core CPI at 2.45% have diverged since spring's oil shock. The Fed tightens in response to the first curve; September's consensus expects the second at +0.2% m/m.
Headline PCE and Core PCE. The Fed's preferred measure favours the hawks more: core PCE has hovered around 3% since March (3.16% in May, 2.98% in July, 3.01% in August), above core CPI. Waller cites this figure to justify further increases.
The euro pays a French premium, including against sterling
The facts
The 10-year OAT–Bund spread ranged between 134 and 141bp according to sources on 7 and 9 October, levels we could not verify with a primary source. On 1 October, the government presented a €43bn savings plan targeting a deficit of 5.0% of GDP in 2027, against 5.4%. Around 6 October, RN countered with an alternative budget proposing €140bn of savings, against a backdrop of student demonstrations. In Frankfurt, September's meeting account, released on 8 October, describes unanimous support for the increase to 2.50% and places that rate within the institution's estimated neutral range. Traders assign only a low probability, between 10 and 30% depending on the source, to another increase on 29 October.
The market
EUR/USD ended Friday at 1.1206, down 3.4% since 31 August (1.1596), after a closing low of 1.1177 on 7 October. The decline goes beyond the dollar: EUR/GBP fell from 0.8606 on 3 September to 0.8476, and implied EUR/CHF stands around 0.931. Friday's rebound (+0.18%) accompanied the dollar's broad retreat, with EUR/GBP gaining only 0.08% in the same session.
Our reading
A euro decline against sterling and the franc, two European currencies exposed to the same energy shock, is consistent with a euro-area-specific risk premium. We attribute part of it to France's fiscal situation; ING makes the same diagnosis in its FX Daily on 9 October. The ECB offers no counterweight: with a deposit rate judged neutral and core HICP at 2.3%, the Governing Council has no reason to accelerate. The weak correlation between EUR/GBP and EUR/USD nevertheless argues against attributing everything to Paris, since dollar strength remains the main component of the decline.
pounds per euro (l.), dollars per euro (r.)
Sources : ECB, Macro Edge Terminal (FORCE panel) 09/10/2026.
% year on year (l.), % (r.)
Sources : Eurostat (prc_hicp_manr), ECB (ECBDFR), Macro Edge Terminal (OFFI panel) 01/12/2025.
EUR/GBP and EUR/USD. EUR/USD and EUR/GBP have fallen together since early September, so part of the euro's weakness is not due to the dollar. The correlation of 0.36 over 60 sessions remains modest: dollar strength is still the main component of the move.
Euro area HICP and ECB deposit rate. With a 2.50% deposit rate, the ECB stands above headline HICP (2.0%) and core HICP (2.3%) in the latest release. The Governing Council therefore has little reason to accelerate, depriving the euro of rate support.
Gulf strikes restore the oil premium Trump removed
The facts
Donald Trump said on Friday that the United States would not strike Iran before the 3 November midterm elections, mentioning productive discussions with Tehran. Overnight from Sunday to Monday, Houthi strikes targeted Saudi Arabia, including Riyadh airport. Casualties and claimed damage to Aramco facilities rely on a single press source and have not been officially confirmed. A first conversation between Saudi and Iranian foreign ministers since the escalation was also reported. In the Gulf of Mexico, Hurricane Isaias halted around two thirds of offshore production according to the press.
The market
Brent futures, at $104 on Friday (-0.4%), briefly exceeded $105 overnight before returning towards $103. Physical Dated Brent published by the EIA traded at $120.03 on 2 October. In its October STEO, the agency reported September spot prices far above futures, signalling a tight physical market. The yen did not benefit from the episode: USD/JPY stayed between 158.10 and 158.16 in Asia, in a session without Tokyo.
Our reading
Oil affects FX through two channels. It fuels US household inflation expectations, on which Waller's forward guidance rests, and weighs on energy importers, led by Japan and the euro area. Our reading is that traders treat Trump's promise as a ceiling on the geopolitical premium until 3 November, while Gulf attacks prevent Brent from falling towards $100. This corridor maintains indirect dollar support through the Fed without triggering a risk-off move.
The FX Daily signature
Pricing gap
The justification for an increase rests on energy and household expectations (4.7% at one year in Michigan); domestic demand and wages do not contribute. A Fed tightening to defend the credibility of its target against a supply shock could stop quickly if oil retreats or employment deteriorates further. Yet December pricing, around 75%, leaves little room for that reversibility.
The narrative
The market appears to believe in a Fed committed to a tightening cycle: around a 75% chance of a December increase according to aggregators, a 2-year yield at 4.47%, and 16 of 18 participants in September expecting at least one further increase by the end of 2026.
The data
The labour market and core inflation do not describe overheating. Job creation reached 29,000 in September and averaged 51,000 over three months; unemployment rose to 4.2% and average hourly earnings slowed to 3.02% year on year. Core CPI stood at 2.45% in August, while consensus expects +0.2% m/m in September. Headline inflation, at 3.35%, is expected at 3.6% under energy's influence. Core PCE, at 3.01%, remains the hawks' strongest argument.
What closes it
Wednesday's CPI is the first test: core inflation at +0.2% would support our reading of imported inflation; +0.3% would vindicate pricing and reopen October. Warsh, on Friday, will indicate whether the Fed chair endorses Waller's forward guidance. Brent futures sustainably below $100 would also remove part of the argument.
% of the labour force (l.), thousands of jobs per month (r.)
Sources : BLS (UNRATE, PAYEMS), Macro Edge Terminal (CLAIMS panel) 01/09/2026.
% year on year (l.), % year on year (r.)
Sources : BLS (CES0500000003, CPILFESL), Macro Edge Terminal (CLAIMS panel) 01/09/2026.
Unemployment rate and Job creation (NFP). Job creation averaged 51,000 over July–September and unemployment rose to 4.2%. This labour market alone does not justify a Fed raising rates.
Average hourly earnings and Core CPI. Average hourly earnings slowed to 3.02% year on year in September, their lowest level in the past thirty months, as core CPI returned towards 2.5%. No wage–price spiral appears in these series.
Currency by currency
The biases taking shape
USD · A dollar perched high, awaiting evidence
The Macro Edge dollar index has gained 2.7% since 31 August (99.55 to 102.19), with a high of 102.41 on 7 October. This advance follows September's Fed increase and the promise of further tightening while the US economy slows: 29,000 jobs created in September and unemployment at 4.2%. The driver lost strength last week, with the 2-year yield gaining only 1bp and the index 0.1%.
Today, the absence of a Treasury cash session deprives the market of its main signal, while reduced liquidity can amplify moves of little significance. Hammack at 18:50, followed by Wednesday's CPI, will show whether traders extend December's pricing to October. Our bias remains bullish, with medium confidence: the dollar retains the rate advantage, but another advance requires core inflation at least in line.
- Bias
- Haussier · confidence average
- Invalidation
- Core CPI of +0.1% m/m or less on Wednesday, or a Macro Edge dollar index close below 101.80 (the level on 6 October).
EUR · The French premium caps rebounds
EUR/USD closed at 1.1206 after five weeks of declines, between a low of 1.1177 on 7 October and a high of 1.1269 on 6 October. The euro also falls against sterling and the franc, pointing to a euro-area-specific factor: an OAT–Bund spread between 134 and 141bp and a disputed French budget. The ECB, judging its 2.50% deposit rate neutral, provides no rate support.
A small option expiry at 1.1225 falls at 16:00, with little significance on a low-liquidity day. ING targets 1.110–1.112. Our reading agrees with the direction, with the caveat that weak US CPI could trigger a euro rebound through the dollar channel without resolving France's issues.
- Bias
- Baissier · confidence average
- Invalidation
- An EUR/USD close above 1.1270 (the 6 October high), accompanied by an OAT–Bund spread narrowing below 130bp.
CAD · Employment prices out October; oil no longer compensates
Statistics Canada reported on Friday a loss of 68,000 jobs in September, against an expected +10,000, following -42,000 in August. Unemployment rose to 6.5% and participation fell to 64.8%. USD/CAD moved in five minutes from below 1.4250 to 1.4299, its highest since early April 2025, before opening Monday at 1.4266. The ECB fixing of 1.4226, taken before the release, does not reflect that move.
According to the press, the market now prices only around a 27% chance of a BoC increase on 28 October, against 88% for December; we have not verified these figures on OIS. Oil above $100 no longer supports the loonie, while Canada's holiday limits market depth today.
Canadian dollars per US dollar (l.), $ per barrel (r.)
Sources : ECB, EIA (spot Brent), Macro Edge Terminal (OILFX panel) 09/10/2026.
USD/CAD has risen from 1.3886 in late August to 1.4226 while Dated Brent climbed from $89.73 to $120.03 (28 August–2 October). With a correlation of 0.03 over 60 sessions, the loonie mainly follows domestic factors, employment foremost.
- Bias
- Baissier · confidence average
- Invalidation
- A lasting return of USD/CAD below 1.4200, a threshold also used by ING, or October BoC pricing returning above 50%.
The scenarios
September US CPI, Wednesday 14 October at 14:30 (consensus: +0.6% m/m and 3.6% year on year; core +0.2% m/m and 2.5%), the last CPI before the Fed on 28 October
| If | Then |
|---|---|
| Core at +0.3% or higher | October's increase priced back in → US short-term yields ↑ → USD supported; dollar index towards its 7 October high (102.41) → Sensitive pairs: EUR/USD, USD/JPY (near 160) |
| In line (+0.2%, headline 3.6%) | December confirmed, October unchanged → US short-term yields stable → USD in a range → Sensitive pairs: EUR/GBP, USD/CAD (specific factors) |
| Core at +0.1% or lower | December's increase called into question → US short-term yields ↓, 2–10-year spread ↑ → USD likely disadvantaged → Sensitive pairs: EUR/USD, AUD/USD, NZD/USD |
Paris time
Today's agenda
| Time | Event | Consensus | Précédent | FX sensitivity |
|---|---|---|---|---|
| 11:30 | BoE: Sarah Breeden, discussion on digital assets and tokenisation, Bangkok (time to be confirmed) | n/a | n/a | |
| 16:00 | EUR/USD option expiry at 1.1225 (small size) | n/a | n/a | |
| 18:50 | Fed: Beth Hammack (Cleveland, voter), outlook and monetary policy, NABE | n/a | n/a | |
| 19:50 | BoE: Catherine Mann, NABE panel on inflation, energy, tariffs and exchange rates (time to be confirmed) | n/a | n/a |
Invalidation
What would change ourmind
Our bullish USD reading would be challenged by:
- September core CPI of +0.1% m/m or less on Wednesday, taking the probability of a December increase below 50%.
- A US 2-year yield below 4.40%, beneath last week's low (4.42% on 7 October).
- A Macro Edge dollar index close below 101.80 (6 October) or EUR/USD above 1.1270.
- A message from Warsh on Friday distancing himself from the increases signalled by Waller.
In short
What you need pick
The dollar remains supported by a Fed raising rates against an oil shock, but December is already heavily priced and short-term yields are no longer rising. Against this hawkish promise, the US labour market slows and wages grow 3% year on year. Weak core CPI on Wednesday would threaten our bias by challenging December's increase. Today, liquidity is reduced and Hammack speaks at 18:50; CPI arrives on Wednesday at 14:30.
Taken at 08:26, Paris time
The markets in numbers
| Price | 1 session | 1 month | Since 31/12 | |
|---|---|---|---|---|
| Currencies | ||||
| EUR/USD | 1.1206 | +0.18% | −3.83% | −4.63% |
| USD/JPY | 158.25 | −0.01% | +3.25% | +1.01% |
| GBP/USD | 1.3220 | +0.10% | −2.54% | −1.82% |
| USD/CHF | 0.8311 | −0.32% | +2.97% | +4.84% |
| USD/CAD | 1.4226 | −0.25% | +3.33% | +3.90% |
| AUD/USD | 0.6981 | +0.54% | −3.37% | +4.45% |
| NZD/USD | 0.5614 | +0.44% | −4.11% | −2.63% |
| EUR/GBP | 0.8476 | +0.08% | −1.32% | −2.86% |
| Dollar index (Macro Edge calculation) | 102.19 | −0.17% | +3.63% | +4.01% |
| Commodities | ||||
| Brent | 120.03 | +2.52% | +33.77% | +89.89% |
| WTI | 98.07 | +4.81% | +15.89% | +69.06% |
| Gold (monthly average) | 4,335 | n/a | −1.92% | +0.48% |
Changes in % for prices, in basis points for rates. Each line carries the date of its latest official release: ECB reference rates (around 4 pm the day before), US Treasury, EIA (spot prices, a few days' lag), IMF for metals (monthly averages). The dollar index is calculated by Macro Edge from ECB rates, using the historical index weights. Official sources, via the Macro Edge Terminal.
Sources
- 1. Federal Reserve Board, Speech by Governor Waller on the economic outlook, 2026-10-08.
- 2. U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates, October 2026, 2026-10-09.
- 3. U.S. Bureau of Labor Statistics, The Employment Situation, September 2026, 2026-10-02.
- 4. Statistics Canada, The Daily: Labour Force Survey, September 2026, 2026-10-09.
- 5. U.S. Energy Information Administration, Short-Term Energy Outlook, octobre 2026 : Global oil markets, 2026-10.
- 6. ING THINK, FX Daily: High bar for a dollar correction, 2026-10-09.
- 7. ING THINK, US consumers remain under pressure as sentiment slides, 2026-10-09.
- 8. ING THINK, ECB's September minutes, 2026-10-08.
- 9. investingLive, Asia-Pacific market news: Gulf strikes, truce doubts, 2026-10-12.
- 10. MUFG (via investingLive), Preview of September US CPI, 2026-10-12.
- 11. investingLive, FX option expiries for 12 October, 10am New York cut, 2026-10-12.
- 12. Newsquawk, Weekly Economic Calendar 12th-16th October 2026, n/a.
- 13. NBC News, Oil prices, stocks: Trump on Iran, 2026-10-09.
- 14. Yahoo Finance / Investopedia, Markets News, Oct. 9, 2026, 2026-10-09.
- 15. CNBC, France student protests over budget, 2026-10-06.
- 16. CNBC, Bank of England defies Fed's rate-hike lead, 2026-09-17.
- 17. FXStreet, Japanese Yen holds range amid Japanese holiday, dovish BoJ signals, 2026-10-12.
- 18. aussie.com.au, Expert predictions: RBA rates, n/a.
This publication is provided for information purposes only and is neither investment advice nor a recommendation to buy or sell any financial instrument. Written with the help of artificial intelligence (Claude, Anthropic) and published under the editorial responsibility of Walid Qairmi, publication director of Macro Edge. Figures are facts, sourced and dated; biases and scenarios are the author's opinions as of the publication date and may change without notice. The author is a student and keeps learning every day. Conflicts of interest: the author may personally take positions on some of the ideas presented; Macro Edge receives no compensation from any broker, issuer or third party for this publication.
