FX Daily · Wednesday, 21 October 2026
The dollar loses its monopoly on tightening
By Walid Qairmi, Macro Edge, written by AI · data as of 08:11 CEST
The dollar has stopped advancing since 7 October: our index has fallen from 102.41 to 101.84, even though the US September CPI surprised on the upside and the Fed remains in a hiking cycle. The US 2-year yield has been moving between 4.74% and 4.84% since 1 October, while the BoE, the RBNZ and now the RBA have been repriced towards near-term hikes: the front-end spread has stopped widening in the dollar's favour. Released at 08:00, UK September CPI came in at 3.5% against 3.4% expected, which supports a BoE hike on 5 November, but core (2.8%) and services (3.7%) were in line and the surprise came from motor fuels. We remain neutral on the dollar, cautious on a pound whose pricing already anticipates a long cycle, and bearish on the euro ahead of Moody's review of France on Friday; Bailey at 15:00 and New Zealand CPI at 23:45 are the day's two tests.
What moved the market
The US front end peaks as other central banks catch up
The facts
The Fed raised rates by 25 bp to 3.75-4.00% on 16 September, and the minutes released on 7 October indicate that most members expect another hike, without a timetable. After a September jobs report of +29,000 positions, followed by CPI at 3.7% (consensus 3.6%) and core at 2.6% (consensus 2.5%), futures now assign only about a 14 to 17% chance to a hike on 28 October, against about 76% for the 9 December meeting (CME probabilities cited by the press; FedWatch page not consulted directly). Outside the United States, the repricings all point the same way: on Tuesday, before the CPI, sterling OIS gave about a 90% chance of a BoE hike on 5 November, New Zealand swaps about 80% for the RBNZ on 28 October, and RBA Deputy Governor Andrew Hauser overnight opened the door to a fifth hike on 3 November.
The market
The US 2-year yield closed on Tuesday at 4.79% (+2 bp), in the middle of its October range and 13 bp below its 28 September peak. Over the same period our dollar index fell from 102.41 (7 October) to 101.84. The currencies that advanced are those whose central bank has been repriced: GBP/USD climbed from 1.3201 (2 October) to 1.3347, NZD/USD from 0.5589 (8 October) to 0.5679, and USD/CAD fell from 1.4262 to 1.4051 with four declines in five sessions.
Our reading
Our reading is that the oil shock has become a global inflation shock, which other central banks are starting to treat as the Fed does. In September, the dollar benefited from a Fed that was alone in hiking; that monopoly is fading, and with it the main source of short-rate spread widening. The composition of US CPI points the same way: headline at 3.72% is driven by energy (+20.4% year on year), core remains at 2.57% and hourly earnings growth slows to 3.02%, the lowest in the series. Inflation of this kind justifies a Fed pause in October, which leaves the US front end without upward momentum. In mid-October ING THINK described a solid floor under the dollar; we share that view on the level, much less on the momentum.
points (l.), % (r.)
Sources : ECB (Macro Edge calculation), US Treasury (DGS2), Macro Edge Terminal (2A-FF panel) 20/10/2026.
% year on year (l.), % year on year (r.)
Sources : BLS (CPIAUCSL, CPILFESL), Macro Edge Terminal (OFFI panel) 01/09/2026.
DXY and US 2-year. Since 1 October, the US 2-year yield has oscillated between 4.74% and 4.84% while our dollar index has fallen from 102.41 to 101.84. The dollar stopped rising when the front end peaked, with a daily correlation of only 0.14 over 60 sessions.
Headline CPI and Core CPI. Headline CPI rose to 3.72% in September while core stayed at 2.57%, below the 3.0-3.1% of summer 2025. The gap of more than one point measures the energy contribution and explains why a Fed in a hiking cycle is in no hurry for October.
Oil sets the US long-end premium, in both directions
The facts
On Tuesday, oil gained about 3% early in the session, with WTI touching $102.90 around 13:30 (Paris time), before falling back towards $97.40 on press reports of a peace proposal between the United States and Iran; no official source has confirmed this proposal. Overnight, Brent futures climbed back towards $110 (+1.4%) after attacks on tankers, a mine reported near the Strait of Hormuz and Houthi claims against Saudi sites, while Marco Rubio described a deal with Iran as "difficult". EIA spot Brent, the latest point in our dataset, stood at $127.43 on 9 October; the gap with futures has no verified explanation.
The market
The US 10-year yield closed at 5.12% (-3 bp) and the 30-year lost about 5 bp, while the 2-year gained 2 bp. The 2s10s slope is back to +33 bp, from +47 bp on 5 October, and the 10-year has lost 19 bp since its 5.31% peak. According to the press, the 10-year and the dollar hit their session lows as oil fell back. Equities reacted little (S&P 500 +0.28%, Nasdaq -0.02%).
Our reading
Traders do not appear to fear lasting US inflation: the 10-year breakeven remains around 2.35%, and the rise in long-term yields since the summer has come through the real yield, which climbed as high as 2.93% in September. That high real yield supported the dollar; it is receding (2.77% at the October reading, 2.74% on Tuesday according to Saxo) as the US long end follows oil lower. The dollar thus becomes dependent on press headlines about Iran: an incident in Hormuz lifts the long end and the dollar, a diplomatic opening pushes them down together. This dependence makes intraday moves noisy without changing the underlying trend, which is still set by the front end.
% (l.), % (r.)
Sources : US Treasury (DGS2, DGS10), Macro Edge Terminal (CURV panel) 20/10/2026.
% (l.), % (r.)
Sources : Federal Reserve (T10YIE, DFII10), Macro Edge Terminal (5Y5Y panel) 01/10/2026.
US 2-year and US 10-year. The 2s10s slope has come back to +33 bp, from +47 bp on 5 October: the 10-year yield has lost 19 bp while the 2-year held steady. This flattening led by the long end removes part of the support the dollar drew from long-term yields in September.
10-year breakeven and 10-year real yield (TIPS). The 10-year breakeven remains around 2.35%, within its 2.15-2.46% range since 2024, whereas the real yield rose from 2.44% in August to 2.93% in September before falling back to 2.77%. The rise in long-term yields came through the real yield, which is now receding.
French risk keeps the euro at its floor
The facts
The 10-year OAT-Bund spread closed on Tuesday at 150.8 bp (+8.5 bp), after approaching 159 bp in early October, a level unseen since the sovereign debt crisis according to the press. The political backdrop has become tenser, with curfews in several cities, and Moody's is due to review France's rating on Friday 23 October; the outcome of Tuesday's vote on the revenue part of the 2027 budget is not verified. At the ECB, the deposit rate stands at 2.50%, September HICP came in at 3.8% (core 2.5%, energy +18.8%) and a hold on 29 October is priced at about 91%.
The market
EUR/USD closed at 1.1215 (-0.09%), down 3.75% over thirty sessions and confined between 1.1177 and 1.1253 since 7 October. EUR/GBP fell to 0.8403 (-0.21%), the lowest in the series, or -2.3% since 25 September. The 10-year Bund yield lost about 3 bp, to 3.43%, without benefiting the euro.
Our reading
The euro is the only major currency not to benefit from the global repricing: the ECB has raised rates, but the market does not expect a hike from it on 29 October while it prices one for the BoE on 5 November. The French spread adds a risk premium that Moody's review could increase on Friday. Our reading is that the euro will remain the implicit funding currency for bets on tightening outside the United States as long as these two factors do not ease.
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Pricing gap
The market is pricing a cycle; the data still show only a first-round shock. The Reuters poll reflects this mismatch: 54 of 63 economists expect the November hike, but a narrow majority sees a hold thereafter. A pound supported by this pricing is exposed to any BoE communication that presents November as insurance rather than the start of a series.
The narrative
The sterling curve appears to read the energy shock as a source of lasting inflation: about a 90% chance of a hike on 5 November before the CPI, and four 25 bp hikes priced by the end of 2027, with an implied rate close to 4.9% in October 2027 and a peak around 5.0% in early 2028 (curve as of 12 October).
The data
September CPI surprised on the headline (3.5% against 3.4%) because of motor fuels (+29.8% year on year), but core (2.8%) and services (3.7%) were in line. Private-sector regular pay is growing by 3.0%, vacancies fell by 21,000 over the quarter and payrolled employment is down 111,000 year on year. Only unemployment, back at 4.7%, points towards a tightening labour market.
What closes it
The gap would close to the upside if Bailey, today at 15:00, or the next services and private-sector pay data showed energy feeding through to domestic prices. It would close to the downside if the energy support in next week's budget lowers the inflation path, or if the BoE accompanies its 5 November hike with projections that do not call for further ones.
% year on year (l.), % year on year (r.)
Sources : ONS (D7G7, DKO8), Macro Edge Terminal (OFFI panel) 01/09/2026.
% of the labour force (l.), % year on year (r.)
Sources : ONS (MGSX, KAB9), Macro Edge Terminal (OFFI panel) 01/07/2026.
Headline CPI and Core CPI. Headline rose to 3.5% but core, at 2.8%, remains below the 3.1-3.8% of 2025. Since June, the gap between the two lines has widened with energy, whereas in 2025 core was above headline: the sterling curve is mainly pricing the first line.
Unemployment rate and Wages (AWE). Unemployment has come back to 4.7% after a peak of 5.2% at the end of 2025, an argument for the BoE hawks. Wage growth, however, has slowed throughout 2026, and a labour market that tightens without wage acceleration does not yet provide the second-round mechanism that a cycle of four hikes would require.
Currency by currency
The biases taking shape
GBP · CPI confirms November without validating the cycle the curve is pricing
Sterling has been the strongest currency of the past three weeks: GBP/USD climbed from 1.3201 on 2 October to 1.3347 and EUR/GBP fell to 0.8403, the lowest in the series. On Tuesday, UK unemployment came back to 4.7% for June-August, below expectations, and the press reported GBP/USD moving above 1.3400. This morning, September CPI came in at 3.5% (consensus 3.4%, August 3.1%), with core at 2.8% and services at 3.7%, both in line. The BoE projected 3.0% for September in its July report. The reaction of sterling between 08:00 and our cut-off is not sufficiently verified.
The 5 November hike, priced at about 90% before the release, comes out strengthened. What follows remains more fragile: private-sector regular pay is growing by 3.0%, vacancies fell by 21,000 over the quarter, and the budget announced for next week should include energy support measures (exact date not verified). Bailey speaks at 15:00 on central bank independence; it is his first public remarks since the release. On 16 October, he judged it too early to form a firm view on second-round effects. We keep a neutral bias: carry supports sterling, but its pricing leaves little room for a positive surprise and plenty for a disappointment.
- Bias
- Neutral · confidence average
- Invalidation
- Bailey explicitly referring to second-round effects, with GBP/USD sustained above 1.3400, would shift the bias to Bullish; a return of EUR/GBP above 0.8438 would instead signal a deflation of BoE pricing.
EUR · An ECB that hikes without supporting its currency
EUR/USD has lost 3.75% since 9 September, to 1.1215, and is failing to break out of the 1.1177-1.1253 range that opened on 7 October. The simultaneous fall in EUR/GBP (0.8403) indicates that the euro suffers from handicaps of its own. The first is the difference in pace: the ECB has taken its deposit rate to 2.50% but the market prices a hold at about 91% on 29 October, and most economists only see the next hike in December, whereas HICP has reached 3.8% and the BoE is expected to hike as early as 5 November.
The second handicap is French. The OAT-Bund spread widened by 8.5 bp on Tuesday, to 150.8 bp, and Moody's delivers its review on Friday. A downgrade would increase the risk premium at a time when the euro has no monetary support; an affirmed rating would not on its own be enough to push EUR/USD out of its range to the upside. The Lagarde appearance announced for around 18:00 is not confirmed, and the ECB normally enters its quiet period before the meeting.
pounds per euro (l.), dollars per euro (r.)
Sources : ECB, Macro Edge Terminal (FORCE panel) 20/10/2026.
The two pairs have fallen together since the end of September: EUR/USD from 1.1403 to 1.1215, EUR/GBP from 0.8605 to 0.8403. When the euro falls against both the dollar and the pound, the weakness comes from the euro itself.
- Bias
- Baissier · confidence average
- Invalidation
- EUR/USD closing above 1.1253, with the OAT-Bund spread back below its Monday level (about 142 bp) or France's rating affirmed on Friday.
JPY · The 160 ceiling matters more than the rate differential
USD/JPY closed at 158.13 (-0.07%) and has oscillated between 157.67 and 158.60 since 1 October, despite a spike to 159.05 after the US CPI on 14 October. The following day, Finance Minister Satsuki Katayama reiterated that Japan was ready to intervene again, referring to the joint intervention with the United States at the end of July. The 10-year JGB yield is at 2.90% according to market sources, and the spread with Treasuries has come back to around 220 bp.
The BoJ meets on 28 October (date to be confirmed) with a hold priced at about 87%; Ueda judges underlying inflation to be close to 2%, and most economists expect a hike in December. The September trade deficit (¥536.6bn, against ¥181bn expected according to the press, figure not verified with the ministry) is a reminder of the cost of oil for Japan. With a narrowing rate spread and expensive oil, the pair remains pushed higher by carry and capped by Tokyo around 160. Our reading is that the range holds as long as the US 10-year yield does not climb back above 5.31%.
% (l.), % (r.)
Sources : US Treasury (DGS10), OECD (IRLTLT01JPM156N), Macro Edge Terminal (SPRDS panel) 01/10/2026.
The 10-year Treasury-JGB spread has narrowed from about 345 bp in May 2024 to about 220 bp as JGB yields have risen. Yet USD/JPY remains above 158: the pair no longer tracks this differential, and its ceiling now depends on Tokyo.
- Bias
- Neutral · confidence average
- Invalidation
- A USD/JPY close above 160 without a response from the Japanese authorities, or a break below 157.67 accompanied by a BoJ signal for October.
NZD · A CPI that only needs not to disappoint
NZD/USD has gained 1.6% since 8 October, to 0.5679 (+0.13%), as swaps priced in about an 80% chance of an OCR hike from 2.75% to 3.00% on 28 October. Third-quarter CPI is released tonight at 23:45 (Paris time): consensus expects 3.8% year on year (4.1% in the second quarter) and +0.8% quarter on quarter. The expected quarterly figure matches the RBNZ projection; the annual figure is one tenth below its 3.9%.
With a hike already priced at about 80%, the asymmetry is unfavourable: an in-line or higher figure adds little, a figure below 3.8% would reopen the debate about 28 October. We remain neutral, with low confidence, for lack of information on the expected split between imported goods and domestic inflation.
- Bias
- Neutral · confidence faible
- Invalidation
- Annual CPI at or above 3.9% with a quarterly figure above 0.8% would shift the bias to Bullish; an annual figure below 3.7% would shift it to Bearish.
The scenarios
Bailey (BoE) at 15:00, first public remarks since the September CPI
| If | Then |
|---|---|
| Bailey refers to second-round effects | UK short rates ↑, 2027 pricing consolidated → GBP probably supported → Sensitive pairs: EUR/GBP, GBP/USD |
| Bailey endorses November while stressing the energy origin | November hike maintained, 2027 hikes partly priced out → GBP under moderate pressure after its October gains → Sensitive pairs: EUR/GBP, GBP/JPY |
| Bailey sticks to the independence theme | No new signal on monetary policy → Sterling follows oil and the dollar → Attention shifts to New Zealand CPI at 23:45 |
Paris time
Today's agenda
| Time | Event | Consensus | Précédent | FX sensitivity |
|---|---|---|---|---|
| 08:00 | United Kingdom: September CPI, y/y (released: 3.5%; core 2.8%, services 3.7%) | 3.4% | 3.1% | |
| 15:00 | BoE: Bailey, OMFIF, "Central bank independence in an era of financial instability" | n/a | n/a | |
| 16:30 | United States: EIA crude inventories (week to 16 October) | n/a | -8.56M barrels | |
| 18:00 | ECB: Lagarde appearance (time and topic to be confirmed) | n/a | n/a | |
| 19:00 | United States: $13bn 20-year Treasury auction | n/a | 5.42% | |
| 23:45 | New Zealand: third-quarter CPI, y/y | 3.8% (+0.8% q/q) | 4.1% (+1.5% q/q) |
Invalidation
What would change ourmind
Our reading, a dollar deprived of momentum by central bank convergence and a pound that is already well priced, would be challenged by:
- A US 2-year yield above 4.84%, the top of its October range, with our dollar index beyond its 102.41 peak: the Fed would take the lead on its own again.
- A Bailey speech explicitly linking September CPI to second-round effects, which would validate the 2027 pricing of the sterling curve.
- An officially confirmed US/Iran deal followed by a dollar rebound against the pound and the New Zealand dollar: it would show that the hikes priced outside the United States depended more on oil than those of the Fed.
- A USD/JPY close above 160 without a response from Tokyo, which would reopen the way for the carry trade against the yen.
In short
What you need pick
The regime is that of an oil shock turned global inflation shock, to which the Fed is no longer alone in responding. The dollar is holding its level but losing its driver, as the US front end peaks while the BoE, the RBNZ and the RBA are repriced towards hikes. The dominant trade is to favour currencies whose central bank is accelerating over the euro, held back by an ECB on pause and by French risk ahead of Moody's on Friday. The main risk to this reading is BoE pricing that has gone further than the data, which Bailey can correct as early as 15:00; New Zealand CPI at 23:45 will then put the same question to the RBNZ.
Taken at 08:27, Paris time
The markets in numbers
| Price | 1 session | 1 month | Since 31/12 | |
|---|---|---|---|---|
| Currencies | ||||
| EUR/USD | 1.1215 | −0.09% | −2.14% | −4.55% |
| USD/JPY | 158.13 | −0.07% | +0.15% | +0.93% |
| GBP/USD | 1.3347 | +0.12% | +0.02% | −0.88% |
| USD/CHF | 0.8236 | −0.17% | −0.25% | +3.90% |
| USD/CAD | 1.4051 | −0.16% | +0.29% | +2.62% |
| AUD/USD | 0.6985 | −0.01% | −1.90% | +4.51% |
| NZD/USD | 0.5679 | +0.13% | −0.55% | −1.50% |
| EUR/GBP | 0.8403 | −0.21% | −2.16% | −3.70% |
| Dollar index (Macro Edge calculation) | 101.84 | +0.02% | +1.32% | +3.67% |
| Rate | ||||
| US 2-year | 4.79 % | +2 bp | +3 bp | +132 bp |
| US 10-year | 5.12 % | −3 bp | +11 bp | +94 bp |
| Commodities | ||||
| Brent | 127.43 | +6.17% | +28.60% | +101.60% |
| WTI | 96.88 | −1.21% | +6.25% | +67.01% |
| 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. ONS, Consumer price inflation, UK: September 2026, 2026-10-21.
- 2. ONS, Labour market overview, UK: October 2026, 2026-10-20.
- 3. BLS, Consumer Price Index Summary – September 2026, 2026-10-14.
- 4. Federal Reserve, Federal Reserve issues FOMC statement, 2026-09-16.
- 5. Eurostat, Annual inflation up to 3.8% in the euro area, 2026-10-16.
- 6. Statistics Canada, Consumer Price Index, September 2026, 2026-10-19.
- 7. Bank of England, Upcoming events: Andrew Bailey, OMFIF, 2026-10-21.
- 8. Reuters (via Investing.com), UK inflation picks up more than expected to 3.5% in September, 2026-10-21.
- 9. Reuters (via Investing.com), BoE to raise rates to 4% in November, but economists narrowly expect hold from there – Reuters poll, 2026-10.
- 10. Reuters (via Investing.com), Federal Reserve seen skipping Oct rate hike but hiking in Dec – Reuters poll, 2026-10.
- 11. Saxo, Asia Market Quick Take – 21 October 2026, 2026-10-21.
- 12. investingLive, Asia-Pacific market news: RBA's Hauser puts November hike in play, 2026-10-21.
- 13. Invezz, Oil falls from five-month highs after report of US-Iran peace proposal, 2026-10-20.
- 14. HDFC Sky, Oil prices today: Brent above $110, WTI near $100 as Middle East supply risks intensify, 2026-10-21.
- 15. Bloomberg, Japan's Katayama Renews FX Warnings After US CPI Heats Up, 2026-10-15.
- 16. Idéal Investisseur, OAT-Bund spread, 2026-10-20.
- 17. FinanceFeeds, Euro Near $1.12 as French Bond Spread Tops 150bp Before Moody's Friday Review, 2026-10-20.
- 18. FXStreet, New Zealand Dollar has one CPI release left before the RBNZ, 2026-10-20.
- 19. ING THINK (counterpoint), FX Daily: No trigger in sight for a dollar reversal, 2026-10-13.
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.
