FX Daily · Wednesday, 14 October 2026
Dollar: a peak built on the euro
By Walid Qairmi, Macro Edge, written by AI · data as of 10:04 CEST
The dollar index closed on Tuesday at 102.27, 0.14 point below its recent high, while the US 2-year yield has fallen 13 bp since its 28 September peak. Over the same period, EUR/USD has lost 1.7% and EUR/GBP 1.6% while GBP/USD held steady: the dollar's rise since late September owes most to euro weakness, as the OAT-Bund spread widens over the French budget. September CPI, at 14:30, should settle the other leg of the move: consensus expects +0.6% month on month on the headline, inflated by energy, but only +0.2% on core. Our reading is that a tame core would weaken a front end that prices more hikes than the Fed signals, without giving the euro a lasting rebound until Paris has voted on its revenue measures: neutral bias on the dollar, bearish on the euro.
What moved the market
The 2-year runs ahead of the dot plot, as Williams points out
The facts
John Williams, President of the New York Fed, told Bloomberg on Tuesday that a further hike could be appropriate this year, but that at this stage he saw no reason to do more in 2027. He expects tariff effects and the energy shock to fade, inflation close to 2% next year, and notes that the labour market is not contributing to price pressures. The Fed raised rates to 3.75-4.00% on 16 September; the dot plot puts the median at 4.125% at end-2026 and projects no hike in 2027, even though 8 of 18 members envisage one. CME FedWatch, cited by FXStreet after the remarks, gives roughly a 23% chance of a hike on 28 October and 87.8% at the December meeting.
The market
The 2-year yield ended at 4.79% (-1 bp) and the 10-year at 5.21% (-3 bp), according to the Treasury. The dollar index lost 0.12% to 102.27 and USD/JPY 0.30% to 158.12, while the S&P 500 finished flat and the semiconductor index lost 2.7%. Over two weeks, the two markets diverge: the 2-year yield has fallen 13 bp since 28 September, while the dollar index has risen 1.2%.
Our reading
At 4.79%, the 2-year yield stands 67 bp above the end-2026 median, a gap hard to attribute to the term premium alone. It is consistent with a market pricing a longer cycle than the Fed: ING puts it at three hikes by June 2027, a figure we have not been able to verify against CME data. Williams, a central figure on the FOMC, aligns with the median and contradicts this pricing. Yet the dollar no longer tracks the front end day to day, so an in-line CPI could move rates without shifting FX much. According to ING, it would take core at +0.4% month on month to push the October meeting above 50%.
points (l.), % (r.)
Sources : ECB (Macro Edge calculation), US Treasury (DGS2), Macro Edge Terminal (2A-FF panel) 13/10/2026.
% year on year (l.), % (r.)
Sources : BEA (PCEPILFE), US Treasury (DGS2), Macro Edge Terminal (IMPLIED panel) 01/08/2026.
DXY and US 2-year. The 2-year yield has fallen 13 bp since its 28 September peak, while the dollar index has gained 1.2% over the same period. For two weeks, the dollar has drawn its support from somewhere other than the front end.
Core PCE and US 2-year. Core PCE has been stable around 3.0% since the spring (3.01% in August), while the 2-year yield has moved from 4.34% at the end of August to 4.79%. The repricing of the front end does not match any acceleration in the Fed's reference inflation measure.
The euro alone pays the French bill
The facts
The National Assembly has been examining the 2027 budget since Monday; it plans a €54bn adjustment to bring the deficit down from 5.4% to 5.0% of GDP, with debt expected at 121.7%. The finance committee rejected the revenue section by 31 votes to 3, the Socialists have tabled a motion for preliminary rejection, and Article 1 is put to the vote today; the first major vote on revenue is scheduled for 20 October. The 10-year OAT-Bund spread reached 139.5 bp on 12 October (+7 bp on the session), beyond the 131 bp of 1 October, which was already the highest since 2012. The ECB raised its deposit rate to 2.50% on 10 September, with inflation at 3.8% in September according to Eurostat's flash estimate and core at 2.5%.
The market
EUR/USD fixed at 1.1188 on Tuesday, down 3.4% since 2 September, with a closing low of 1.1177 on 7 October. EUR/GBP moved from 0.8587 to 0.8446 over the same period. Since 28 September, the euro has lost 1.7% against the dollar while GBP/USD has been almost unchanged (-0.1%).
Our reading
The euro's weakness is its own: it is falling against sterling at the same pace as against the dollar, and the long-rate spread between gilts and Bunds has not moved. Our reading is that the French risk premium passes through to FX via two channels: the strain on the debt itself, and the doubt it casts on the ECB's ability to hike again. The latest pricing we found, as of 24 September, gave roughly a 60% chance of a hike on 29 October; we do not have an updated measure. ING considers the euro cheap on its models; we share this valuation view, without seeing a catalyst for a rebound before 20 October.
pounds per euro (l.), dollars per euro (r.)
Sources : ECB, Macro Edge Terminal (FORCE panel) 13/10/2026.
% (l.), % (r.)
Sources : OECD (IRLTLT01DEM156N, IRLTLT01GBM156N), Macro Edge Terminal (SPRDS panel) 01/09/2026.
EUR/GBP and EUR/USD. EUR/USD and EUR/GBP have fallen together since 23 September, from 1.1411 to 1.1188 and from 0.8595 to 0.8446. The euro is falling as much against sterling as against the dollar, which points to a factor specific to the euro.
10-year Bund and 10-year gilt. The 10-year gilt-Bund spread stayed around 177-180 bp in August and September, on a monthly average basis. The fall in EUR/GBP is therefore not explained by the long-rate differential, which strengthens the case for a euro-specific risk premium.
Oil eases, Hormuz stays shut
The facts
Brent was quoted at $120.03 on 2 October according to the EIA, the latest value in our data; it closed below $106 on Tuesday and was trading around $106.30 this morning, with WTI around $95, according to press reports. The physical situation has not improved: The National counts at least 12 attacks on tankers between 28 September and 5 October, Tehran declares the strait closed, and only 4 transits were counted on 4 October against 85 a day before the crisis.
The market
Press reports attribute the dollar's slight weakness this morning to the simultaneous easing of oil and rates. USD/JPY fell 0.30% on Tuesday and USD/CAD 0.14%. The Canadian dollar did not benefit from the earlier surge: USD/CAD has risen 2.3% since 2 September while Brent went from $99 to $120 between 4 September and 2 October, according to weekly EIA data.
Our reading
A pullback of around $14 with no improvement in physical flows suggests that the oil market is pricing a normalisation that has not begun. The risk is therefore asymmetric for energy importers, led by the yen and the euro, if a new attack drives prices back up. For the Canadian dollar, the 0.04 correlation with Brent over 60 sessions confirms that the rate differential with the Fed matters more than the barrel.
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Pricing gap
The pricing anticipates a second-round effect from the energy shock that wages and core do not yet show. The rise in long rates is coming through the real yield, with market-based inflation expectations having barely moved. Williams and the dot plot describe the same picture, which leaves the front end room to fall if the data stay tame.
The narrative
The market is pricing a Fed that hikes for longer than it says: the 2-year yield at 4.79% stands 67 bp above the end-2026 median, the probability of a hike by December exceeds 87%, and ING puts the pricing at three hikes by June 2027, a figure not verified against CME.
The data
Core CPI fell to 2.45% year on year in August and core PCE is stable around 3.0%. Job creation slowed to +29,000 in September, unemployment has risen to 4.2%, and hourly earnings are growing 3.02% year on year, more slowly than prices (3.35%). The 10-year real yield has gained 44 bp since August, to 2.88%, while the breakeven remains around 2.33%.
What closes it
Two consecutive core CPI prints at +0.4% month on month or a re-acceleration in wages would justify the pricing. Conversely, core at +0.2% today, moderate retail sales on Thursday and a speech by Warsh in line with Williams on Friday would bring the 2-year yield closer to the dot plot.
% year on year (l.), % year on year (r.)
Sources : BLS (CPIAUCSL, CPILFESL), Macro Edge Terminal (OFFI panel) 01/08/2026.
% of the labour force (l.), thousands of jobs per month (r.)
Sources : BLS (UNRATE, PAYEMS), Macro Edge Terminal (CLAIMS panel) 01/09/2026.
Headline CPI and Core CPI. Core CPI fell to 2.45% year on year in August, the lowest in the series shown, while the headline rose back to 3.35% on energy. Today's debate centres on this gap: the energy price shock is not, for now, spreading to the rest of the basket.
Unemployment rate and Job creation (NFP). Job creation slowed to +29,000 in September after +133,000 in August, and unemployment has risen to 4.2%. A slowing labour market makes less likely the second-round effect that would justify hikes in 2027.
Currency by currency
The biases taking shape
USD · A dollar high by default, which CPI could shake
The dollar index has gained 2.5% since 2 September, from 99.75 to 102.27. The first half of the move tracked the 2-year yield, which rose from 4.39% to 4.92% with the Fed hike; the second half reflects the euro's slide, as the front end has fallen 13 bp since 28 September. The dollar's support has therefore narrowed: against sterling, it has gained nothing in two weeks.
For September CPI, the expected headline of +0.6% month on month is already priced in, as it reflects energy; the reaction will depend on core, expected at +0.2%. A print of +0.4% or more would validate the pricing of hikes in 2027 and could take the index back above 102.41, its 7 October high. Core at +0.2% or less would prove Williams right and leave the dollar exposed against the yen and sterling, less so against a euro held back by France.
- Bias
- Neutral · confidence average
- Invalidation
- Core CPI at +0.4% month on month or more, with the 2-year yield above 4.92%, would turn the bias bullish.
EUR · French risk sets the ceiling
EUR/USD has traded between 1.1177 and 1.1269 on a closing basis since 5 October, at a 17-month low according to press reports. The OAT-Bund spread at 139.5 bp and the committee's rejection of the revenue section put the French risk premium at the centre of price formation. Positioning is already short: Tickmill cites a net short position of 99,332 contracts on the euro as of 9 October, a figure not verified against the CFTC.
This positioning may limit the extent of a further fall, but we see no catalyst for a rebound before the 20 October revenue vote and then the ECB meeting on the 29th. Lagarde, at 10:30, could support the euro by signalling that a hike remains possible on 29 October, with inflation at 3.8%. A weak US CPI would benefit the euro less than sterling or the yen.
- Bias
- Baissier · confidence average
- Invalidation
- A return of the OAT-Bund spread below 131 bp and an EUR/USD close above 1.1269 would call the bias into question.
GBP · Sterling banks the contrast with the ECB
EUR/GBP has fallen from 0.8587 to 0.8446 since 2 September, and GBP/USD has held around 1.3247 since late September. The market expects the BoE to raise Bank Rate from 3.75% as early as November, with a probability ranging from 80% to near-certainty according to secondary sources whose date has not been established. CPI at 3.1% in August and a BoE projecting more than 4% make this pricing consistent.
The main risk is fiscal: the 10-year gilt yield touched 5.5%, the highest since July 2007 according to Trading Economics, on a date we have not been able to establish, and the 28 October budget could reopen the issue. The content of Bailey's speech at 07:30 was not known to us at the cut-off. August GDP, on Thursday at 08:00, is expected at -0.1% month on month after +0.4%.
% year on year (l.), % year on year (r.)
Sources : ONS (D7G7, DKO8), Macro Edge Terminal (OFFI panel) 01/08/2026.
UK CPI rose from 2.6% in June to 3.1% in August, with core holding at 2.6%. The BoE projects inflation above 4%, which explains why traders expect it to raise rates before the ECB.
- Bias
- Haussier · confidence faible
- Invalidation
- A rise in EUR/GBP above 0.8505, its 2 October close, or renewed pressure on gilts ahead of the budget.
The scenarios
US September CPI, 14:30
| If | Then |
|---|---|
| Core stronger than expected (+0.4% or more) | US short rates ↑, October hike towards 50% or more → USD supported, dollar index above 102.41 possible → Sensitive pairs: USD/JPY, EUR/USD towards 1.1177 |
| In line (headline +0.6%, core +0.2 to +0.3%) | Energy effect already priced in, US short rates stable → USD within its recent range, 102.0-102.4 on the index → The euro remains driven by Paris and Lagarde |
| Core weaker than expected (+0.1% or less) | US short rates ↓, pricing of 2027 hikes reduced → USD probably under pressure → Sensitive pairs: USD/JPY, GBP/USD; EUR/USD held back by French risk |
Paris time
Today's agenda
| Time | Event | Consensus | Précédent | FX sensitivity |
|---|---|---|---|---|
| 10:30 | Speech by Christine Lagarde (ECB) | n/a | n/a | |
| 11:40 | Speech by Michelle Bowman (Fed) | n/a | n/a | |
| 14:30 | US CPI, September, headline (m/m; y/y) | +0.6%; 3.6% | +0.4% or +0.6% depending on the source, not verified against BLS; 3.4% | |
| 14:30 | US CPI, September, core (m/m; y/y) | +0.2%; 2.5% | +0.3%; 2.4% | |
| 20:00 | Fed Beige Book | n/a | n/a | |
| 02:30 | Australian employment, September (overnight into Thursday) | +20,000; unemployment 4.6% | +39,500; unemployment 4.6% |
Invalidation
What would change ourmind
Our neutral view on the dollar and bearish view on the euro would be called into question by:
- Core CPI at +0.4% month on month or more, which would restore the front end as the driver of the dollar and justify a bullish bias.
- A dollar index close above 102.41 accompanied by a 2-year yield above 4.92%, a sign that the regime of rising short rates is resuming.
- A return of the OAT-Bund spread below 131 bp after the adoption of Article 1, which would remove the euro's risk premium.
- Brent back above $120 on an escalation in Hormuz, which would weigh on the euro and the yen regardless of the Fed.
In short
What you need pick
The dollar is trading near its highs on two supports, a front end that prices more Fed tightening than the dot plot and a euro weighed down by France, but the first has been eroding for two weeks. Today's CPI combines a headline inflated by energy and a core expected to be tame; whether the 2027 hikes stay priced will depend on core. The main risk is energy feeding through to core, which would revive the dollar across all pairs. After 14:30, attention turns to the French revenue vote on 20 October and the three central bank meetings at the end of the month.
Taken at 10:40, Paris time
The markets in numbers
| Price | 1 session | 1 month | Since 31/12 | |
|---|---|---|---|---|
| Currencies | ||||
| EUR/USD | 1.1188 | +0.06% | −3.49% | −4.78% |
| USD/JPY | 158.12 | −0.30% | +2.65% | +0.93% |
| GBP/USD | 1.3247 | +0.08% | −1.94% | −1.63% |
| USD/CHF | 0.8323 | −0.06% | +2.09% | +5.00% |
| USD/CAD | 1.4241 | −0.14% | +2.77% | +4.01% |
| AUD/USD | 0.6978 | +0.06% | −2.71% | +4.41% |
| NZD/USD | 0.5613 | +0.25% | −3.57% | −2.64% |
| EUR/GBP | 0.8446 | −0.02% | −1.58% | −3.21% |
| Dollar index (Macro Edge calculation) | 102.27 | −0.12% | +3.13% | +4.10% |
| Rate | ||||
| US 2-year | 4.79 % | −1 bp | +16 bp | +132 bp |
| US 10-year | 5.21 % | −3 bp | +25 bp | +103 bp |
| 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, FOMC statement, 16/09/2026.
- 2. Eurostat, Flash estimate euro area inflation, September 2026, 02/10/2026.
- 3. ONS, Consumer price inflation, UK: August 2026, 2026.
- 4. Reserve Bank of Australia, Minutes of the Monetary Policy Meeting, 29 September 2026, 29/09/2026.
- 5. Bank of Canada, Bank of Canada maintains policy rate, 02/09/2026.
- 6. Bloomberg, Fed's Williams Currently Sees No Need for Rate Hike in 2027, 13/10/2026.
- 7. CNBC, Williams says Fed may not have to hike rates in 2027, at odds with traders, 13/10/2026.
- 8. CNBC, Stock market news for Oct. 13, 2026, 13/10/2026.
- 9. The National, Strait of Hormuz attacks surge as Iran steps up campaign against US-backed oil shipping, 13/10/2026.
- 10. FXStreet, French risk spreads from OATs into the Euro as Assembly takes up the Budget, 13/10/2026.
- 11. Idéal Investisseur, OAT-Bund spread, 12/10/2026.
- 12. FXStreet, Forex Today: US Dollar weakens ahead of US CPI inflation data, 14/10/2026.
- 13. investingLive, Week ahead: US inflation and retail sales lead a busy economic calendar, octobre 2026.
- 14. ING THINK, FX Daily: Hot inflation to strengthen dollar floor, 14/10/2026 (date présumée).
- 15. Tickmill, Daily Market Outlook, October 14, 2026, 14/10/2026.
- 16. NordFX, Market Pulse, October 14, 2026, 14/10/2026.
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.
