FX Daily · Monday, 26 October 2026
Dollar: oil is helping the others
By Walid Qairmi, Macro Edge, written by AI · data as of 09:40 CET
The dollar ends the week almost unchanged in aggregate, at 101.80 on our index (+0.05% on Friday), but it has lost 1.9% against the Canadian dollar since 12 October and remains firm against the euro, at 1.1193. Oil explains these divergences: Brent futures closed on Friday at $116.72, the highest since late April, and traders are passing this shock on to central banks outside the United States, with a hike priced at around 80% for the BoC on Wednesday and around 93% for the BoE on 5 November, while the Fed is expected to pause with around 90% probability. Today, the Fed and the ECB are in their blackout period, the German Ifo will weigh only marginally on the euro, and the oil price will hinge on the meeting planned in Tehran between Saudi, Turkish, Pakistani and Iranian officials, after a weekend of claimed Houthi attacks on Saudi facilities. Our bias is bearish on the dollar against the CAD and sterling, more cautious against the yen, and bearish on the euro as long as the OAT-Bund spread stays above 170 bp; the main risk is a hot PCE on Thursday, which would give the Fed back the room for surprise it has lost.
What moved the market
Oil is lifting G10 rates, except the Fed's
The facts
Brent futures gained 3.14% on Friday, to $116.72, their highest since 29 April, after Houthi attacks on Saudi Arabia and a statement by Donald Trump that the United States ‘could carry out another operation against Iran’. The latest EIA spot price in the dataset, $125.59, dates from 16 October. The shock hits inflation rates already above target: 3.1% in Canada in September, outside the BoC's 1 to 3% range, 3.5% in the United Kingdom (consensus 3.4%), 3.8% for euro area HICP. Tiff Macklem judged on 17 October that oil was ‘much higher’ than forecast in July and that the inflation forecast would be revised up.
The market
Traders have passed this shock on to central banks outside the United States. A 25 bp BoC hike on Wednesday is priced at around 80% (OIS as of 25 October), a BoE hike on 5 November at around 93%, and the ECB carries around 70 bp of hikes over twelve months according to secondary sources. The Fed, for its part, is expected to pause with around 90% probability on Wednesday, with 21.8 bp of hikes priced for December at Friday's close, against 20.3 bp the day before. USD/CAD dropped below 1.40 for the first time since 17 September, to 1.3995, and EUR/GBP has lost 2.7% since 25 September, to 0.8373.
Our reading
Our reading is that oil now mainly supports currencies whose central bank can still surprise, and the dollar less and less. The Fed raised rates on 16 September and December is four-fifths priced, which leaves it little room for a hawkish surprise; the BoC starts from 2.25% with inflation outside its range. The dollar does, however, keep the upper hand against the euro, weighed down by France, hence an index that has barely moved. This asymmetry holds as long as oil stays high and US data do not revive Fed pricing.
Canadian dollars per US dollar (l.), % (r.)
Sources : ECB, US Treasury (DGS2), Macro Edge Terminal (SPRDS panel) 23/10/2026.
% (l.), % (r.)
Sources : US Treasury (DGS2), Bank of England, Macro Edge Terminal (IMPLIED panel) 01/10/2026.
USD/CAD and US 2-year. From 13 to 23 October, USD/CAD lost 1.7%, to 1.3995, while the US 2-year yield moved from 4.79% to 4.69%, and the pair even fell between 16 and 21 October with the 2-year up 7 bp. The US rate differential does not explain the move; BoC pricing is the most consistent candidate.
US 2-year and BoE Bank Rate. Bank Rate has been at 3.75% since December 2025, and the gap with the US 2-year yield has moved from −37 bp in February to +94 bp in October (monthly averages). The 23 bp of hikes priced for 5 November would close about a quarter of that gap, which is enough to support sterling as long as the Fed does not step up its own tightening.
In risk-off, the safe haven runs through Treasuries and the yen
The facts
On 22 October, the increase in Meta's AI capex sent semiconductors tumbling (AMD −8%, Nvidia −4%) and the Nasdaq down 2.6%. Investors took refuge in Treasuries: the 10-year yield fell 17 bp in the dataset, to 4.96%, its biggest drop since March 2023 according to the press, and the 2-year 16 bp, to 4.65%. On Friday, oil pushed both back up by 4 bp, to 4.69% and 5.00%, and the S&P 500 lost 0.52% with the VIX at 19.45. Overnight, the Kospi lost 1.6% and the Nikkei 0.7%, with semiconductors still under pressure.
The market
On 22 October, the dollar index gained only 0.1%, to 101.76, while USD/JPY lost 0.53% and USD/CHF 0.23%. USD/JPY closed on Friday at 156.80 without benefiting from the rebound in yields, and was trading around 156.75 in Asia this morning according to the press. Gold fell 1.3% on Friday, to around $4,008, then briefly dropped below $4,000, which rules out the hypothesis of generalised demand for protection. Outside the G10, the Tokyo-listed Bovespa ETF was down about 15% after Lula's victory in the Brazilian run-off.
Our reading
ING judges that the dollar has lost its safe-haven status; our figures point the same way. During a growth shock, protection goes into US duration, which compresses the rate gap with Japan and benefits the yen and the franc, and the dollar gains only against cyclical currencies. Positioning amplifies this channel: speculative accounts were net short 100,621 yen contracts as of 16 October (CFTC, secondary source). The absence of a USD/JPY rebound on Friday suggests that yen sellers are hesitant to return before Friday's BoJ meeting.
% (l.), % (r.)
Sources : US Treasury (DGS2, DGS10), Macro Edge Terminal (CURV panel) 23/10/2026.
yen per dollar (l.), % (r.)
Sources : ECB, US Treasury (DGS10), Macro Edge Terminal (CURV panel) 23/10/2026.
US 2-year and US 10-year. On 22 October, the 10-year yield fell 17 bp and the 2-year 16 bp, before each regained 4 bp on Friday. Since 5 October, the 2-10-year slope has come back from +47 bp to +31 bp, mostly through the long end: the 10-year fell from 5.31% to 5.00%, the 2-year from 4.84% to 4.69%.
USD/JPY and US 10-year. USD/JPY lost 0.53% on 22 October along with the 10-year yield, then recovered nothing on Friday when the yield rose 4 bp, at 156.80. The 60-session correlation, at 0.28, remains modest, and two sessions of asymmetry are not enough to establish a relationship.
The French spread is holding the euro below 1.125
The facts
The French 10-year yield ended Friday around 5.04-5.05%, the highest since 2002-2004, and the OAT-Bund spread at 171.8 bp, after intraday peaks of 175 to 178 bp during the week, unseen since 2011-2012 (secondary sources). Around 410,000 people demonstrated in France. The French composite PMI for October fell to 48.4, from 51.1, dragging the euro area figure down to 51.9 (53.1). On 16 October Eurostat confirmed September HICP at 3.8%, core at 2.5%, with energy at 18.8%.
The market
EUR/USD has traded between 1.118 and 1.125 for three weeks and closed on Friday at 1.1193 (−0.11%), after a low of 1.1177 on 7 October; it was trading around 1.1220 in Asia this morning according to the press. The ECB is expected to pause on Thursday with around 98% probability, despite around 70 bp of hikes priced over twelve months. The almost uninterrupted decline in EUR/GBP since 25 September suggests that the euro's weakness shows first against European currencies sheltered from French risk.
Our reading
The correlation between EUR/USD and the US 2-year yield is only −0.09 over 60 sessions: the differential with the United States does not explain the pair at the moment. Our reading is that the French risk premium is capping a euro that 3.8% inflation and ECB pricing ought to support. An ECB that validates its hikes on Thursday would help the euro, but France sets the upper limit: ING sees the link between the euro and the spread re-establishing itself beyond 200 bp, and BBH mentions EUR/USD around 1.10.
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Pricing gap
The two measures are not directly comparable, but 116 bp separate households' five-to-ten-year expectations (3.5%) from the 10-year breakeven (2.34%). Our reading is that traders trust the Fed to contain second-round effects, while companies' selling prices point the other way. If this confidence erodes, the 2-year yield and the dollar have ground to cover, since the market is currently pricing fewer near-term hikes for the Fed than for the BoC or the BoE.
The narrative
The market seems to be treating the oil shock as an inflation problem for the BoC, the BoE and the ECB, and as a problem the Fed has already dealt with: a pause at around 90% on Wednesday, a December hike priced at around 80%, the 10-year breakeven at 2.34%, in the middle of its range for the year.
The data
US activity and price data are firm. The October flash composite PMI is at 57.6, its output prices component at 59.8, the highest since August 2022, and University of Michigan inflation expectations have risen to 4.7% at one year and 3.5% at five-to-ten years. Headline CPI is at 3.7%, and the consensus expects PCE at 3.6% and core at 3.1% on Thursday. Employment, on the other hand, argues for patience: +29k in September, unemployment at 4.2%, wages at 3.0% year on year, core CPI at 2.6%.
What closes it
The gap would close in the dollar's favour if Kevin Warsh opens the door on Wednesday to more than one hike, or if Thursday's core PCE exceeds 3.1%. It would close against the dollar if PCE comes in line and oil retreats, which would validate the market's current reading.
% (l.), % (r.)
Sources : Federal Reserve (T10YIE, DFII10), Macro Edge Terminal (5Y5Y panel) 01/10/2026.
% year on year (l.), % year on year (r.)
Sources : BEA (PCEPI, PCEPILFE), Macro Edge Terminal (OFFI panel) 01/08/2026.
10-year breakeven and 10-year real yield (TIPS). The 10-year real yield rose from 1.72% in February to 2.66% in October (monthly averages), while the breakeven stayed between 2.24% and 2.46% throughout 2026, at 2.34%. The rise in US long-term yields comes from the real component: the bond market is not pricing any drift in inflation despite oil.
Headline PCE and Core PCE. Headline PCE was at 3.42% and core at 3.01% in August, after peaks of 3.82% and 3.16% in May. Thursday's consensus, 3.6% and 3.1%, would put both series back on the rise for the second consecutive month.
Currency by currency
The biases taking shape
CAD · The loonie gets ahead of a hawkish BoC
USD/CAD closed on Friday at 1.3995, down 0.27% on the session and 1.9% from 1.4262 on 12 October. The move happened with the US 2-year yield confined between 4.65% and 4.81%, which points to BoC pricing as the driver: a hike to 2.50% on Wednesday at 14:45 is priced at around 80%, against 75% on 20 October, and 19 of the 34 economists polled by Reuters expect it.
September CPI at 3.1% exceeds the BoC's range, and Tiff Macklem has announced an upward revision to the inflation forecast. Wednesday's hike is almost fully priced; traders will mainly judge the message, while the central scenario of the economists polled by Reuters foresees a second hike by the end of March. The 1.40 threshold acts as a pivot, and the pair would need a dovish message or a pullback in oil to reclaim it durably.
- Bias
- Haussier · confidence average
- Invalidation
- BoC on hold on Wednesday, or a hike accompanied by a pause signal: USD/CAD would move back above 1.4050.
GBP · Sterling has priced the BoE, the budget will set the next step
GBP/USD closed at 1.3368, up 1.3% from 1.3201 on 2 October, and EUR/GBP at 0.8373, the lowest of the past thirty sessions. September CPI, published by the ONS at 3.5% against 3.4% expected, with services at 3.7% against 3.6%, lifted the probability of a Bank Rate hike on 5 November to around 93% (OIS as of 23 October).
This pricing is almost complete, while core at 2.8% and wages at 3.1% do not signal overheating: sterling has less to expect from the BoE than the loonie from the BoC. Wednesday's budget becomes the main risk, with the 10-year gilt at 5.37% on Friday (secondary source), 37 bp above Treasuries. Our bullish bias is expressed first against the euro; against the dollar, it depends on the Fed.
% year on year (l.), % year on year (r.)
Sources : ONS (D7G7, DKO8), Macro Edge Terminal (OFFI panel) 01/09/2026.
UK CPI rose back to 3.5% in September, but core, at 2.8%, remains 0.7 point below its September 2025 level. The BoE hike priced for 5 November responds to energy and services (3.7%), without any general acceleration in prices.
- Bias
- Haussier · confidence faible
- Invalidation
- A budget that pushes the 10-year gilt above 5.50%, or a BoE hike probability falling back below 70%: EUR/GBP would move back above 0.8450.
EUR · The euro caught between a hawkish ECB and France
EUR/USD has lost 3.1% from 1.1551 on 14 September and has oscillated between 1.118 and 1.125 for three weeks. Strategists frame this range in the same way: ING places resistance at 1.1250/70 and vulnerable support at 1.1180, Saxo a lower support at 1.1113.
This morning's Ifo (consensus 90.0, previous 89.9) will show whether Germany is offsetting the French contraction signalled by the PMI. On Thursday, an ECB on hold that confirms the priced hikes would support the euro; as long as the OAT-Bund spread stays above 170 bp, our reading is that a rebound above 1.125 would be unlikely to hold.
- Bias
- Baissier · confidence faible
- Invalidation
- An OAT-Bund spread back below 160 bp and a EUR/USD close above 1.1270.
JPY · The yen benefits from the US bond rally
USD/JPY closed at 156.80, 1.8 yen below its 12 October level (158.60) and 2 yen below the 24 September peak (158.85). The decline took place during the 22 October Treasury rally and was not reversed on Friday, when yields regained 4 bp. Saxo places the next supports at 156.00 then 155.00.
The BoJ decides on Friday: the market gives it only about a 10% chance of hiking in October, but 80 to 88% in December. With net speculative short positions of more than 100,000 contracts as of 16 October, a message that reinforces December could trigger a short squeeze. Tokyo renewed its warnings on the yen on 15 October (Katayama, according to Bloomberg), which also limits the pair's upside.
% (l.), % (r.)
Sources : US Treasury (DGS10), OECD (IRLTLT01JPM156N), Macro Edge Terminal (SPRDS panel) 01/10/2026.
The 10-year Treasury-JGB spread narrowed from 252 bp in September 2025 to 224 bp in September 2026 (monthly averages), without USD/JPY falling over the period. If the narrowing continues, the pair has ground to make up; the daily JGB level (2.78% this morning) rests only on a secondary source.
- Bias
- Haussier · confidence faible
- Invalidation
- A US 10-year yield back above 5.13% (21 October level) or a BoJ that pushes December further out: USD/JPY would move back above 157.50.
The scenarios
Oil: Tehran meeting and Houthi risk, on a day without any top-tier US indicator
| If | Then |
|---|---|
| De-escalation (positive signals from Tehran) | Brent futures ↓ below $114 → BoC and BoE pricing slightly pared back → USD/CAD probably rebounding towards 1.40-1.41; EUR/GBP supported → EUR/USD helped by lower energy prices → Sensitive pairs: USD/CAD, EUR/GBP, EUR/USD |
| Status quo (no confirmed attack, no agreement) | Brent futures around $114-116 → EUR/USD probably held within 1.118-1.125 → Attention shifts to the 2-year auction at 18:00, then Wednesday's RBNZ and BoC → Sensitive pairs: little movement expected |
| Escalation (confirmed damage in Saudi Arabia, threat to Iran) | Brent futures ↑ above $116.72, Friday's high → US yields ↑ via inflation expectations → USD probably supported against EUR; CAD supported by BoC pricing → Sensitive pairs: EUR/USD, USD/CAD, EUR/CHF |
Paris time
Today's agenda
| Time | Event | Consensus | Précédent | FX sensitivity |
|---|---|---|---|---|
| 10:30 | Germany: Ifo business climate index, October (time given by ifo; usual release at 10:00) | 90.0 (single source) | 89.9 | |
| 12:30 | Brazil: BCB Focus survey and current account, first session after the election (high sensitivity for the BRL) | Current account: −$4.5bn | −$5.06bn | |
| 15:30 | United States: Dallas Fed manufacturing index, October | n/a | 9.8 (secondary source) | |
| 18:00 | United States: $69bn 2-year note auction, on the eve of the FOMC meeting | n/a | n/a |
Invalidation
What would change ourmind
Our bearish view on the dollar against the CAD and sterling would be called into question by:
- A September core PCE above 3.1% on Thursday, or Warsh raising on Wednesday the prospect of a hike beyond December, with the 2-year yield back above 4.81%, its 21 October level.
- A BoC that leaves its rate at 2.25% on Wednesday despite around 80% pricing, with USD/CAD above 1.4050.
- A lasting retreat in Brent futures below $110, which would remove the rest of the G10's justification for its hikes.
- A poorly received UK budget on Wednesday, with the 10-year gilt above 5.50%.
In short
What you need pick
The market is translating the oil shock into rate hikes outside the United States, while the Fed stays frozen by pricing that is already well advanced. The dominant trade pits currencies with hawkish central banks, led by the CAD and GBP, against a euro weighed down by France, and leaves the dollar in the middle. The main risk is a more hawkish than expected PCE or Warsh, which would give the dollar back the rate advantage the others are closing. The next test is the 2-year auction at 18:00, ahead of Wednesday's RBNZ, BoC and Fed sequence.
Taken at 09:58, Paris time
The markets in numbers
| Price | 1 session | 1 month | Since 31/12 | |
|---|---|---|---|---|
| Currencies | ||||
| EUR/USD | 1.1193 | −0.11% | −1.91% | −4.74% |
| USD/JPY | 156.80 | −0.15% | −0.71% | +0.08% |
| GBP/USD | 1.3368 | −0.06% | +0.69% | −0.72% |
| USD/CHF | 0.8244 | +0.28% | +0.18% | +4.00% |
| USD/CAD | 1.3995 | −0.27% | −0.66% | +2.22% |
| AUD/USD | 0.7022 | +0.15% | −0.64% | +5.07% |
| NZD/USD | 0.5687 | +0.11% | −0.08% | −1.36% |
| EUR/GBP | 0.8373 | −0.05% | −2.59% | −4.05% |
| Dollar index (Macro Edge calculation) | 101.80 | +0.05% | +0.91% | +3.62% |
| Rate | ||||
| US 2-year | 4.69 % | +4 bp | −16 bp | +122 bp |
| US 10-year | 5.00 % | +4 bp | −11 bp | +82 bp |
| Commodities | ||||
| Brent | 125.59 | −1.44% | +12.30% | +98.69% |
| WTI | 99.93 | +3.15% | +0.86% | +72.26% |
| 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. ifo Institute, ifo Business Climate Index, 2026-09-24.
- 3. Eurostat (via Eunews), Euro area September inflation confirmed up at 3.8 per cent, 2026-10-16.
- 4. BLS (via CNBC), Consumer prices rose 3.7% annually in September, 2026-10-14.
- 5. Newsquawk, US Market Wrap: stocks hit as oil rally stokes inflation concerns, 2026-10-23.
- 6. Newsquawk, Week in Focus 26-30th October 2026, 2026-10-23.
- 7. CappNotes, Closing Look, Friday, October 23, 2026, 2026-10-23.
- 8. 24/7 Wall St., The 10-Year Yield Just Fell Below 5% as Investors Fled AI Stocks, 2026-10-23.
- 9. investingLive, Asia-Pacific market news: Brazil ETF slumps on Lula win, 2026-10-26.
- 10. France 24, Yemen's Houthi rebels claim new attacks on oil facilities and airports across Saudi Arabia, 2026-10-24.
- 11. The Globe and Mail, Markets now pricing in strong odds of BoC rate hike next week, 2026-10-20.
- 12. Reuters (via KFGO), Bank of Canada to raise rates to 2.50% on October 28 and once again by end-March, 2026-10-23.
- 13. Bloomberg, Most BOJ watchers expect next interest rate hike in December, 2026-10-21.
- 14. Bloomberg, Japan's Katayama renews FX warnings after US CPI heats up, 2026-10-15.
- 15. ideal-investisseur.fr, OAT / Bund spread today, 2026-10-23.
- 16. BlueGamma / Investing.com, The Bank of England interest rate forecast, 2026-10-23.
- 17. Tradingpedia, Euro climbs, but French fiscal strains limit upside, 2026-10-26.
- 18. Saxo, Fed, ECB, BoJ decisions, 2026-10-26.
- 19. ING THINK (counterpoint), FX Daily: BRL set to suffer on surprise Lula win, 2026-10-26.
- 20. ING THINK (counterpoint), FX Daily: Dollar has lost its safe-haven crown, 2026-10-23.
- 21. ING THINK (counterpoint), Federal Reserve preview: a pause before a December hike, 2026-10-23.
- 22. ING THINK, Eurozone PMI shows continued decent growth outside of France, 2026-10-23.
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.
