FX Daily · Thursday, 22 October 2026
Dollar: the G10 catches up with the Fed
By Walid Qairmi, Macro Edge, written by AI · data as of 08:11 CEST
The dollar has been falling for two weeks without any move at the US front end: the Macro Edge dollar index has lost 0.7% since 7 October, to 101.65, while the 2-year yield rose from 4.77% to 4.81%. The driver lies outside the United States: with the oil shock, traders are repricing one central bank after another, from the BoE, priced at around 96% for a hike on 5 November, to the RBA, whose hike probability doubled to around 50% in a single session. No tier-one data are due today and the Fed is in its blackout period: the session will hinge on Hormuz headlines, while Moody's review of France on Friday is already capping the euro. Our bias remains bearish on the dollar, against the AUD first, with two caveats: an escalation in the Gulf is the only channel still supporting it, and sterling has already priced in more than UK data justify.
What moved the market
The rest of the G10 is catching up with the Fed, and the dollar is losing its lead
The facts
Since 7 October, the Macro Edge dollar index has fallen from 102.41 to 101.65, or −0.7%, while the US 2-year yield moved from 4.77% to 4.81%. The repricing came from elsewhere. UK September CPI came in at 3.5% (consensus 3.4%), RBA Deputy Governor Andrew Hauser said yesterday that the inflation outlook was ‘materially worse’ than expected, and the BoC is priced at around 80% for a hike on 28 October, against 30% on the 16th (secondary source). At the BoJ, Himino for his part opened the door to December.
The market
The currencies whose central banks have been repriced the most are leading the move. AUD/USD has gained 1.8% since 15 October, to 0.7034, GBP/USD 1.5% since 2 October, to 1.3402, and USD/CAD has lost 1.5% since 12 October, to 1.4046. The probability of an RBA hike on 3 November rose from around 25% to 50% in a single session, and that of a BoE hike on 5 November from around 93% to 96%. By contrast, the Fed is priced at only around 15 to 18% for a hike on 28 October; for December, estimates diverge between 75-85% and more than 90%.
Our reading
Our reading is that the dollar is giving back the advantage it gained on 16 September, when the Fed raised rates ahead of the others. Oil is pushing every central bank towards the same hawkish response, and each foreign announcement reduces the dollar's relative carry. Positioning is amplifying the move: the gross long dollar position reached $44.6bn in the week to 13 October, an 11-week high (CFTC via Saxo), an excess that ING also notes. This catch-up nonetheless has a mechanical limit, as it lasts only as long as there are hikes left to price outside the United States: with the BoE at 96% and the RBNZ at around 80%, the remaining room is concentrated in the RBA.
points (l.), % (r.)
Sources : ECB (Macro Edge calculation), US Treasury (DGS2), Macro Edge Terminal (2A-FF panel) 21/10/2026.
% (l.), % (r.)
Sources : US Treasury (DGS2), Bank of England, Macro Edge Terminal (IMPLIED panel) 01/10/2026.
DXY and US 2-year. The dollar has been falling since 7 October with the US 2-year yield stable between 4.74% and 4.84%. The short-rate differential is narrowing through the other leg.
US 2-year and BoE Bank Rate. Bank Rate has been at 3.75% since December 2025, while the US 2-year yield rose from 3.38% in February to 4.81% in October (monthly averages). The market is beginning to close this 106bp gap by pricing a BoE hike on 5 November.
The euro gains the least from the dollar's retreat
The facts
The French 10-year yield briefly crossed 5% yesterday, for the first time since 2002, and the OAT-Bund spread reached 156 to 157.5bp, its widest since 2012 according to Newsquawk. The protests (550,000 people according to the Interior Ministry, 800,000 according to the CGT) precede a vote on the 2027 budget whose date has not been verified. Moody's reviews France's rating on Friday (Aa3, negative outlook). The ECB, at 2.50% since 10 September, is expected to pause on 29 October, with a December hike priced at around 73% according to a single source.
The market
EUR/USD is up 0.17% at 1.1234, but EUR/GBP is down 0.24% at 0.8383, its lowest in the past 30 sessions. Since its 7 October low (1.1177), EUR/USD has recovered only 0.5%, three times less than sterling over a comparable period. Carrefour lost 14% after cutting its 2026 targets because of the situation in France.
Our reading
The euro is following the dollar's general decline but capturing the smallest share of it, lacking a monetary catalyst before December and with a widening sovereign risk premium. Positioning nonetheless limits the downside against the dollar: speculative accounts were net short 137,573 contracts as of 13 October (secondary source), a three-year extreme for leveraged funds. Our reading is that the euro's weakness is expressed first against sterling and the AUD, and that Moody's will set its extent on Friday.
pounds per euro (l.), dollars per euro (r.)
Sources : ECB, Macro Edge Terminal (FORCE panel) 21/10/2026.
EUR/GBP and EUR/USD. EUR/GBP has fallen 2.6% since 25 September, to 0.8383, while EUR/USD is stabilising above 1.12. The euro's weakness is relative: it shows up against currencies whose central bank is being repriced.
Oil remains the dollar's last support
The facts
Brent futures gained $1.32 yesterday, to $110.11, and WTI touched $100.40 intraday before falling back to $96.92 according to Newsquawk (Reuters has it up $1.18, at $99), after Iran rejected US nuclear demands while signalling openness to diplomacy. The Revolutionary Guards declare Hormuz ‘completely closed’, and a Kuwaiti-flagged tanker was hit near the strait this morning, with no casualties (weak sources). The EIA spot price shown on the dashboard, $127.43, dates from 9 October. On the US side, the data are not pushing the Fed any further: +29k jobs in September, wages at 3.0%, core CPI at 2.6%, with petrol accounting for half of the rise in headline CPI.
The market
Brent stayed between $110.0 and $110.5 overnight. Asian equities fell (Hang Seng −2.5%, SoftBank −5.6%) despite a positive session on Wall Street (S&P 500 +0.58%, Nasdaq +1.05%) and Meta and Tesla results above consensus. The dollar nonetheless fell against the EUR, the CHF, sterling, the yen and the CAD; only the AUD and the NZD weakened.
Our reading
The overnight Asian risk-off did not trigger safe-haven demand for the dollar, which suggests that the channel still supporting it runs through energy. The euro area and Japan import their energy: a high Brent price worsens their terms of trade and weighs on the EUR and the JPY. ING noted yesterday that a drop in oil is now negative for the dollar, and we share that diagnosis. De-escalation would therefore be the most unfavourable scenario for the dollar, and escalation the only one likely to revive it.
% 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). Payrolls fell to +29k in September and the three-month average is around 51k, with unemployment at 4.2%. The labour market gives the Fed no reason to accelerate beyond December.
Average hourly earnings and Core CPI. Average hourly earnings are rising 3.0% year on year, against nearly 4% in spring 2024, and core CPI is at 2.6%. Nothing in these two series signals second-round effects from oil in the United States.
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Pricing gap
Four hikes priced on a fuel shock assume a BoE that reacts to headline inflation and anticipates second-round effects that neither wages nor its Governor are yet showing. The November hike looks a done deal; what follows looks overpriced, and sterling, up 1.5% against the dollar since 2 October, carries the risk.
The narrative
The market is treating UK CPI as the start of a cycle: a 25bp hike is priced at around 96% for 5 November, with around 100bp cumulatively by June, according to ING, which also considers this pricing excessive.
The data
In 2025, with core inflation between 3.2% and 3.8%, the BoE cut Bank Rate from 4.75% to 3.75%. Core is now at 2.8%, and the acceleration in headline CPI comes from motor fuels (+29.8%). Wages rose 3.1% year on year in August according to the series in the data set, against 4.3% in June, and Bailey saw few signs of second-round effects on 16 October. Services at 3.7% and unemployment back down to 4.7% do, however, support the market's view.
What closes it
The statement and vote split on 5 November: a hike accompanied by cautious forward guidance would close the gap at sterling's expense. Conversely, an acceleration in wages or services CPI in upcoming releases would prove the market right.
% 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. UK CPI at 3.5% remains below the 3.8% of summer 2025, and core at 2.8% is one point below its April 2025 level. The BoE was cutting rates when both series were higher than they are today.
Unemployment rate and Wages (AWE). Wages rose 3.1% year on year in August, against 4.3% in June, which argues against second-round effects. Unemployment, back down from 5.2% at end-2025 to 4.7%, does however support the market's view.
Currency by currency
The biases taking shape
EUR · The French premium caps the rebound
EUR/USD closes at 1.1234 (+0.17%), between its 7 October low (1.1177) and its high of the 16th (1.1253). The euro is following the dollar's decline at a distance: EUR/GBP has fallen 2.6% since 25 September. The gap reflects two factors specific to the euro area: the ECB offers no catalyst before December, and the market now demands more than 150bp to hold OATs rather than Bunds.
Moody's review on Friday evening is the event risk of the week, and the euro-area flash PMI (10:00 Friday) the only macro test before it. ING expects consolidation between 1.120 and 1.125; the levels in the data set trace the same range. We read the euro as neutral against the dollar and vulnerable against sterling until Moody's decision.
- Bias
- Neutral · confidence average
- Invalidation
- An EUR/USD close above 1.1253 (16/10) or a return of the OAT-Bund spread below 150bp would make the bias bullish; a close below 1.1177 (07/10) or a negative action by Moody's would make it bearish.
JPY · Himino opens the door to December, oil holds the pair
USD/JPY is down 0.16% at 157.88, still within the range of 156.88 to 158.85 that has contained it since 18 September. Deputy Governor Himino told Parliament yesterday that underlying inflation was ‘quite close to 2%’ and that financial conditions remained accommodative, remarks read as opening the door to a December hike. The BoJ, at 1.25%, is expected to pause on 30 October.
The long-rate differential has narrowed by around 70bp in two years without bringing the pair down. Our reading is that Japan's energy bill, with Brent futures at $110, offsets this narrowing. September CPI, due tonight, is expected at +2.1% excluding fresh food (single source), against 1.7% previously: a higher print would make December more credible, without being enough to push the pair out of its range while Hormuz stays closed.
% (l.), % (r.)
Sources : US Treasury (DGS10), OECD (IRLTLT01JPM156N), Macro Edge Terminal (SPRDS panel) 01/10/2026.
The 10-year Treasury-JGB spread narrowed from around 296bp in September 2024 to 224bp in September 2026 (monthly averages), without USD/JPY falling. The JGB level remains uncertain: a 3.05% September average in the data set, 2.89% on 22 October according to another source.
- Bias
- Neutral · confidence average
- Invalidation
- A USD/JPY close below 156.88 (28/09) would open a bullish bias on the yen; above 158.85 (24/09), the oil channel would take over again.
GBP · Sterling has already priced in the November hike
GBP/USD is up 0.41% at 1.3402 after September CPI came in at 3.5% year on year (consensus 3.4%, previous 3.1%), its highest since October 2025. Core rises to 2.8% and services to 3.7%, but motor fuels (+29.8% year on year) are driving the acceleration, with food at only 1.3%. The probability of a hike to 4.00% on 5 November has risen to around 96%.
With the decision almost fully priced, sterling has little left to gain from November itself; it depends on what the BoE chooses to do next, and the market expects a great deal (see the pricing gap). September retail sales (08:00) and the flash PMI (10:30), on Friday, are the next tests.
- Bias
- Neutral · confidence average
- Invalidation
- A GBP/USD close above 1.3520 (10/09) would signal that the market is extending the BoE cycle beyond what we consider justified; a return below 1.3335 (16/10) would mark the start of the unwinding.
AUD · The RBA takes up the hawkish baton
AUD/USD posts the best session among the majors, +0.70% at 0.7034, its highest since 23 September, after Andrew Hauser attributed the deterioration in the inflation outlook to oil and AI-related spending. The probability of a hike on 3 November rose from around 25% to 50% in 24 hours.
Unlike sterling, the AUD still has half a hike left to price. It nonetheless fell overnight alongside Asian equities, which shows its limit. Our bias is bullish as long as tech stocks digest earnings without a sharp sell-off.
- Bias
- Haussier · confidence average
- Invalidation
- A close below 0.6985 (20/10), a sharp sell-off in tech stocks, or RBA communication correcting Hauser before 3 November.
The scenarios
Headlines on Hormuz and Iran, in the absence of tier-one US data
| If | Then |
|---|---|
| Escalation (new attacks, prolonged closure) | Brent futures ↑ beyond $110 → USD probably supported against the EUR and the JPY, both energy importers → AUD hit by risk-off → Sensitive pairs: EUR/USD, USD/JPY, AUD/USD |
| Status quo | Brent stable around $110 → Hawkish repricing outside the United States remains the driver → USD under moderate pressure, AUD supported → Sensitive pairs: AUD/USD, GBP/USD |
| De-escalation (resumption of diplomatic contacts) | Brent ↓ → USD probably weakened against the EUR and the JPY → BoE and RBA hike premia trimmed at the margin → Sensitive pairs: USD/JPY, EUR/USD |
Paris time
Today's agenda
| Time | Event | Consensus | Précédent | FX sensitivity |
|---|---|---|---|---|
| 14:30 | United States: initial jobless claims (week to 17/10) | 200k | 199k | |
| 14:30 | United States: continuing claims | 1,720k | 1,710k | |
| 14:30 | Canada: industrial product prices (IPPI), September, month on month | +0.9% | +1.3% | |
| 16:00 | Euro area: consumer confidence, October (flash) | −16 | −17 | |
| 16:00 | United States: Conference Board leading indicator, September | −0.2% | −0.1% | |
| 01:30 | Japan: September CPI (Thursday night into Friday) | Excluding fresh food: +2.1% year on year (single source) | Headline 1.9%; excluding fresh food 1.7% |
Invalidation
What would change ourmind
Our bearish view on the dollar would be called into question by:
- A US 2-year yield above 4.92%, its 28 September high, a sign that the market is again pricing a Fed ahead of the others.
- A return of the Macro Edge dollar index above 102.41, its 7 October peak.
- A session in which Brent rises and the dollar gains with it against the EUR and the JPY, which has not happened this week.
- RBA communication that would bring the probability of a hike on 3 November back below 25%, its pre-Hauser level.
In short
What you need pick
The regime is one of catch-up: the oil shock is pushing G10 central banks towards hikes, and the Fed, which moved first in September, is losing its relative lead. The dominant trade-off pits this repricing outside the United States, which is negative for the dollar, against the energy channel, which supports it as long as Hormuz stays closed. The main risk to our view is an escalation that would bring flows back to the dollar; the second, an unwinding of BoE bets that would weigh on sterling. Next events: Japanese CPI tonight, Moody's on France on Friday evening, then the BoC, the RBNZ and the Fed on 28 October, the ECB on the 29th and the BoJ on the 30th.
Taken at 08:28, Paris time
The markets in numbers
| Price | 1 session | 1 month | Since 31/12 | |
|---|---|---|---|---|
| Currencies | ||||
| EUR/USD | 1.1234 | +0.17% | −2.23% | −4.39% |
| USD/JPY | 157.88 | −0.16% | +0.39% | +0.77% |
| GBP/USD | 1.3402 | +0.41% | +0.05% | −0.47% |
| USD/CHF | 0.8239 | +0.04% | +0.31% | +3.94% |
| USD/CAD | 1.4046 | −0.04% | +0.30% | +2.58% |
| AUD/USD | 0.7034 | +0.70% | −1.45% | +5.25% |
| NZD/USD | 0.5692 | +0.24% | −0.74% | −1.27% |
| EUR/GBP | 0.8383 | −0.24% | −2.28% | −3.94% |
| Dollar index (Macro Edge calculation) | 101.65 | −0.19% | +1.42% | +3.47% |
| Rate | ||||
| US 2-year | 4.81 % | +2 bp | +5 bp | +134 bp |
| US 10-year | 5.13 % | +1 bp | +17 bp | +95 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. BLS, The Employment Situation, September 2026, 2026-10-02.
- 3. CNBC, CPI inflation report September 2026, 2026-10-14.
- 4. CNBC, Fed rate decision September 2026, 2026-09-16.
- 5. CNBC, Stock market news for Oct. 21, 2026, 2026-10-21.
- 6. Reuters via RTÉ, Brent oil prices near 5-month high on supply fears, 2026-10-21.
- 7. Reuters via Investing.com, Asian markets dip as investors weigh tech earnings, Gulf tensions, 2026-10-22.
- 8. Reuters via US News, Fed to Skip October but Raise Rates Again in December, Nearly All Economists Say, 2026-10-20.
- 9. The Edge / Reuters, Bank of Japan's Himino signals readiness to raise borrowing costs, 2026-10-21.
- 10. The Edge / Bloomberg, UK inflation can seal the deal on BOE's November rate hike, 2026-10-21.
- 11. Newsquawk, European Market Wrap, 21st October 2026, 2026-10-21.
- 12. Newsquawk, Week in Focus 19-23rd October 2026, 2026-10-19.
- 13. FXStreet, Australian Dollar extends rally to one-month high on hawkish RBA, 2026-10-21.
- 14. FXStreet, New Zealand's CPI inflation eases to 3.7% YoY in Q3, 2026-10-21.
- 15. FXStreet, ECB Preview: October pause, 2026-10-20.
- 16. Babypips, What Canada's 3.1% Inflation Implies for BOC Policy, 2026-10-20.
- 17. ideal-investisseur, OAT-Bund spread, 2026-10-21.
- 18. Saxo, COT on forex and commodities - Week to 13 October 2026, 2026-10-19.
- 19. investingLive, Asia-Pacific market news: Asian stocks slide, dollar slips, 2026-10-22.
- 20. ActionForex, Eco Data 10/22/26, 2026-10-22.
- 21. Investing.com, Initial jobless claims highlight Thursday's economic calendar, 2026-10-22.
- 22. straits.live, Strait of Hormuz News, October 22, 2026 (weak source), 2026-10-22.
- 23. ING THINK, FX Daily: Dollar shows fresh vulnerability to oil price drops (counterpoint), 2026-10-21.
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.
