FX Daily · Tuesday, 27 October 2026
Dollar: a Fed backed by the barrel
By Walid Qairmi, Macro Edge, written by AI · data as of 08:11 CET
The dollar gained 0.13% on Monday, to 101.94 on our index, with no help at all from rates: the US 2-year yield fell 1 bp to 4.68% and the 10-year held at 5.00%. Sellers targeted the yen, the Swiss franc and the Canadian dollar, a pattern consistent with a safe-haven premium deflating as diplomacy picks up in Tehran and tech lifts Wall Street. The greenback's foundation remains the front end, which prices roughly an 80% chance of a Fed hike in December even though core PCE has stalled around 3% since March and employment is slowing: our reading is that this pricing rests on the oil shock. Durable goods (13:30) and the Conference Board (15:00) are the last data before an FOMC meeting that opens today without communication, but the main risk is diplomatic, as a deal on Hormuz would strip the December pricing of its central argument. Our bias remains bullish on the dollar until Wednesday evening's decision, with medium conviction.
What moved the market
The dollar rises without rates; the yen and the franc pay for the détente
The facts
On Monday, our dollar index gained 0.13% to 101.94, while the US 2-year yield fell 1 bp to 4.68% and the 10-year closed unchanged at 5.00%. The biggest declines against the greenback were in the yen (USD/JPY +0.41% to 157.45), the Canadian dollar (USD/CAD +0.24% to 1.4028) and the Swiss franc (USD/CHF +0.22% to 0.8262); EUR/USD (-0.04%) and AUD/USD (+0.03%) barely moved. The S&P 500 gained 0.7% to 7,676.77 and the Nasdaq Composite 0.8%, with the semiconductor index up 2.8%. In Tehran, Saudi, Pakistani and Turkish ministers were discussing a new ceasefire, and Qatar a five-day sequence of concessions, the reopening of Hormuz in exchange for lifting the US naval blockade, with no agreement on the order of concessions.
The market
Brent futures fell 1.0% on Monday according to Reuters, to around $115.5, then a further 0.5% or so on Tuesday morning in Asia; the EIA series in our dataset stops at 16/10 ($125.59) and cannot measure this decline. The session's only shock stayed local: the Brazilian real lost between 8 and 8.8% after Lula's surprise re-election, with no visible contagion to G10 currencies. Overnight, USD/JPY extended towards 157.53-157.65, its third session of gains since its one-month low, and US index futures were slightly negative.
Our reading
Our reading is that the session's marginal driver was risk appetite and oil, with the rate differential unchanged. A détente in the Middle East reduces demand for the yen and the franc as safe havens, and lower oil weighs on the Canadian dollar; the dollar benefits by default. This pattern matches the view put forward by ING last week, that the dollar has ceded its safe-haven role to the yen and the franc. For the day, a breakdown in the talks, or strikes following the US and Israeli preparations reported on Monday, would therefore benefit the yen and the franc first. Israel's legislative elections, held today, add event risk through the oil channel.
points (l.), % (r.)
Sources : ECB (Macro Edge calculation), US Treasury (DGS2), Macro Edge Terminal (2A-FF panel) 26/10/2026.
Does the dollar follow expectations for the Fed? On 22/10, the 2-year yield fell 16 bp yet the dollar index gained 0.10%; on Monday, the 2-year was down 1 bp and the dollar up 0.13%. Within the session, the dollar is not tracking the front end, which points the day's driver back to risk and oil.
DXY and US 2-year. On 22/10, the 2-year yield fell 16 bp yet the dollar index gained 0.10%; on Monday, the 2-year was down 1 bp and the dollar up 0.13%. Within the session, the dollar is not tracking the front end, which points the day's driver back to risk and oil.
The front end prices a Fed fighting oil
The facts
The Fed raised rates by 25 bp on 16/09, to 3.75-4.00%, unanimously, and its minutes indicate that ‘most participants’ judge a further hike likely appropriate by the end of the year. September CPI rose to 3.7% year on year (3.4% in August), with +0.6% on the month; petrol, up 9.1%, accounts for more than half of the monthly increase. Core rose 0.3% on the month and 2.6% year on year (2.4% in August). The FOMC meeting opens today; the decision is due on Wednesday at 19:00 Paris time, followed by Kevin Warsh's press conference at 19:30.
The market
According to CME FedWatch, as reported by several media outlets, the market prices a hold on Wednesday at about 90%, and a December hike at a probability of between 70% and 82% depending on the source and time, with the figure of about 80% the most cited. The 2-year yield has fallen 24 bp from its 28/09 peak (4.92%) and the 10-year 31 bp from its 05/10 peak (5.31%), for a 2s10s slope of +32 bp. At the long end, the year's rise has come from the 10-year real yield (2.66% in October, against 1.72% in February), with the breakeven staying around 2.3%.
Our reading
The market prices a credible Fed tightening against a supply shock, through real rates, without expecting lasting inflation. This reading is consistent with the minutes and with a still-moderate core rate. It makes the dollar's rate support dependent on oil: as long as energy pushes headline inflation higher, the December hike stays priced and the short-rate differential protects the greenback. Our reading matches ING's, which expects a pause on Wednesday and then a hike in December; we see it above all as pricing conditional on geopolitics.
% year on year (l.), % year on year (r.)
Sources : BLS (CPIAUCSL, CPILFESL), Macro Edge Terminal (OFFI panel) 01/09/2026.
Is US inflation still easing? The gap between headline CPI (3.72%) and core (2.57%) reached 1.15 points in September, whereas the two measures were identical in September 2025 (3.02%). It isolates the share of inflation that comes from energy, the share the Fed says it wants to contain.
% (l.), % (r.)
Sources : Federal Reserve (T10YIE, DFII10), Macro Edge Terminal (5Y5Y panel) 01/10/2026.
Are rising long-term yields driven by expected inflation or real yields? Since February, the 10-year real yield has risen 94 bp (1.72% to 2.66%) and the breakeven only 9 bp (2.25% to 2.34%). The market prices a Fed fighting inflation, without expecting inflation to last.
Headline CPI and Core CPI. The gap between headline CPI (3.72%) and core (2.57%) reached 1.15 points in September, whereas the two measures were identical in September 2025 (3.02%). It isolates the share of inflation that comes from energy, the share the Fed says it wants to contain.
10-year breakeven and 10-year real yield (TIPS). Since February, the 10-year real yield has risen 94 bp (1.72% to 2.66%) and the breakeven only 9 bp (2.25% to 2.34%). The market prices a Fed fighting inflation, without expecting inflation to last.
Tokyo toughens its tone at 157, the BoJ waits for December
The facts
Overnight, Finance Minister Katayama said the government stands ready to take decisive action in the currency market and is monitoring markets with a strong sense of urgency, adding that yen moves should reflect fundamentals. Japan intervened jointly with the United States in July 2026, according to Bloomberg. The BoJ, at 1.25% since its September hike, decides on Friday; OIS price only about a 2% chance of an October hike and about 80% for December. September services prices rose 3.7% year on year, in line with consensus and the highest since June 2024.
The market
USD/JPY closed on Monday at 157.45, above the recent low of 156.80 (23/10) but below the 12/10 closing high of 158.60; the market places the intervention threshold around 160. The Nikkei gained 1.6%. The 10-year JGB was trading around 2.8% according to secondary sources, against a September average of 3.05% in our dataset; this level has not been verified with the Ministry of Finance.
Our reading
Tokyo's words do not change the arithmetic of the carry trade as long as the BoJ does not move, and Friday is unlikely to deliver a hike. The risk does, however, become asymmetric above 158.60: the July precedent makes the threat credible, and MUFG mentions two possible dissents on Friday, which would amount to a hawkish hold. The narrowing of the long-term rate gap with the United States over a year, with no effect on the pair, suggests that the yen's weakness stems from the energy bill and carry more than from long-term rates.
% (l.), % (r.)
Sources : US Treasury (DGS10), OECD (IRLTLT01JPM156N), Macro Edge Terminal (SPRDS panel) 01/10/2026.
Is the yield spread supporting USD/JPY narrowing? On a monthly-average basis, the 10-year Treasury-JGB spread narrowed from about 2.5 points in September 2025 to 2.24 points in September 2026. Yet USD/JPY has held above 155 since mid-September: the long-end spread does not explain the yen's weakness.
yen per dollar (l.), % (r.)
Sources : ECB, US Treasury (DGS10), Macro Edge Terminal (CURV panel) 26/10/2026.
Does the yen still follow US yields? The US 10-year yield has fallen 31 bp since its 05/10 peak and USD/JPY gave up only about 1% over the same period before rebounding to 157.45. The yen responds more to the carry trade and risk appetite than to US long-term rates.
US 10-year and 10-year JGB. On a monthly-average basis, the 10-year Treasury-JGB spread narrowed from about 2.5 points in September 2025 to 2.24 points in September 2026. Yet USD/JPY has held above 155 since mid-September: the long-end spread does not explain the yen's weakness.
USD/JPY and US 10-year. The US 10-year yield has fallen 31 bp since its 05/10 peak and USD/JPY gave up only about 1% over the same period before rebounding to 157.45. The yen responds more to the carry trade and risk appetite than to US long-term rates.
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Pricing gap
These data leave the December hike resting on a single variable, energy, with no visible second-round effects on wages. The dollar's rate support becomes an option on oil, and therefore on diplomacy around Hormuz, and the market prices it as a given. Consensus nonetheless expects September core PCE at 3.1%, which would give the Fed one more argument.
The narrative
The market prices a Fed that raises rates again in December, at a probability of 70% to 82% depending on the source, and assigns about a 60% probability to a terminal rate of 4.00-4.25%. The argument is that of the minutes: headline inflation at 3.7% that requires a faster return towards 2%.
The data
The Fed's benchmark inflation measure is not accelerating: core PCE stood at 3.0% in August, against 3.1% in March, and core CPI at 2.6%. Hourly earnings growth is slowing to 3.0% year on year, the lowest in our dataset's series, implying falling real wages against inflation of 3.7%. Job creation is weak (+29k in September) and unemployment stable at 4.2%. The 10-year breakeven, at 2.34%, has stayed between 2.24% and 2.46% since January.
What closes it
The gap would close in the market's favour if Warsh confirms the hiking bias on Wednesday and if core PCE reaches or exceeds 3.1% (release expected on Thursday according to Newsquawk, BEA date not verified). It would close against the market in the event of a deal on reopening Hormuz followed by a lasting fall in oil, or a third-quarter ECI on Friday below the 0.8% expected.
% year on year (l.), % (r.)
Sources : BEA (PCEPILFE), US Treasury (DGS2), Macro Edge Terminal (IMPLIED panel) 01/08/2026.
Is the market pricing a Fed behind its preferred inflation measure? Core PCE has been stable around 3% for six months, while the 2-year yield has gained about 130 bp since February on a monthly-average basis. The priced tightening does not come from the Fed's benchmark inflation measure.
% of the labour force (l.), thousands of jobs per month (r.)
Sources : BLS (UNRATE, PAYEMS), Macro Edge Terminal (CLAIMS panel) 01/09/2026.
Is the US labour market easing? Weak job creation (+29k in September, 45k on average over twelve months according to the BLS) and unemployment stuck between 4.1% and 4.3% since March: no visible labour-market tension that would on its own justify another hike.
Core PCE and US 2-year. Core PCE has been stable around 3% for six months, while the 2-year yield has gained about 130 bp since February on a monthly-average basis. The priced tightening does not come from the Fed's benchmark inflation measure.
Unemployment rate and Job creation (NFP). Weak job creation (+29k in September, 45k on average over twelve months according to the BLS) and unemployment stuck between 4.1% and 4.3% since March: no visible labour-market tension that would on its own justify another hike.
Currency by currency
The biases taking shape
EUR · A euro without a catalyst at the bottom of its range
EUR/USD closed on Monday at 1.1188, down 3.0% since mid-September (1.1539) and 11 pips from the October low (1.1177 on 07/10). The good European news changed nothing: the October Ifo rose to 90.2 with expectations at 91.6, with industry back in positive territory for the first time in more than three years, and relief on OATs after Moody's affirmed the Aa3 rating tightened the OAT-Bund spread by more than 10 bp. The ECB, at 2.50%, is priced for a hold on Thursday at 97-98%, and ING expects a hike only in December.
The main brake on further downside comes from positioning: according to CFTC data aggregators, not verified on cftc.gov, the net speculative position on the euro stands at -134,524 contracts, a historic extreme. A less hawkish Fed than expected on Wednesday could therefore trigger a short squeeze. Until then, the bias remains bearish towards 1.1177, with low conviction.
- Bias
- Baissier · confidence faible
- Invalidation
- A close above 1.1253 (16/10 high), or a Warsh press conference that distances itself from a December hike.
GBP · A priced-in BoE carries sterling ahead of a risky Budget
EUR/GBP has fallen 2.6% in a month, from 0.8605 (25/09) to 0.8382, and GBP/USD is holding at 1.3348. September CPI at 3.5%, with services at 3.7% and core at 2.8%, established the pricing of a BoE hike to 4.00% on 05/11, at about 95% according to secondary sources. Overnight, BRC shop prices came in at 2.1% year on year, against 1.6% expected.
John Healey's first Budget, on Wednesday, reduces the value of this support. Fiscal headroom has reportedly shrunk to £10-12bn according to Reuters, against £23.6bn in March, and the gilt issuance programme is expected to rise by about £10bn, with the 10-year gilt already at 5.35% on Monday according to Newsquawk. With the BoE fully priced, sterling has little to gain between now and next Thursday and more to lose if the OBR forecasts unsettle the bond market.
% year on year (l.), % (r.)
Sources : ONS (DKO8), Bank of England, Macro Edge Terminal (OFFI panel) 01/09/2026.
UK core CPI rose back to 2.8% in September, from 2.5% in April, with Bank Rate unchanged at 3.75% since December 2025. This move supports the pricing of a hike on 05/11, which has carried sterling for a month.
- Bias
- Neutral · confidence average
- Invalidation
- A Budget that rebuilds headroom without enlarging the gilt programme, with the 10-year gilt yield falling, would revive the decline in EUR/GBP below 0.8373 (23/10 low); conversely, a 30-year gilt yield above its 08/10 peak (about 6.05%) would turn the bias bearish.
CAD · A BoC hike priced in, inflation excluding petrol slowing
USD/CAD climbed back to 1.4028 on Monday, after falling from 1.4262 (08/10 and 12/10) to 1.3995 on 23/10, a decline of 1.9%. The market prices about an 80% chance that the BoC raises its rate from 2.25% to 2.50% on Wednesday at 14:45, after remarks by Governor Macklem on likely upward revisions to inflation forecasts, the exact date of which has not been verified. The Reuters poll points the same way, but TD and Dominion Lending expect a hold.
Recent data offer little justification for this pricing: September CPI came in at 3.1%, below the 3.2% expected, inflation excluding petrol slowed to 2.2% (2.4% in August) and employment fell for two months in a row. With pricing at 80%, a hike would bring only a limited gain for the loonie, whereas a hold would push it lower. Lower oil, if diplomacy makes progress, would add to this asymmetry.
- Bias
- Baissier · confidence faible
- Invalidation
- A BoC hike accompanied by forward guidance opening the door to further hikes, with USD/CAD below 1.3995.
The scenarios
Durable goods orders (13:30) and Conference Board confidence (15:00), the last US data before the FOMC
| If | Then |
|---|---|
| Stronger than expected (ex-transport above +0.6%, confidence above 81.9) | US short rates ↑, 2-year towards 4.70% and beyond → December pricing reinforced towards the top of the range → USD probably supported → Sensitive pairs: EUR/USD towards 1.1177, USD/JPY towards 158 |
| In line | Limited impact on the front end → Risk and oil remain the session's drivers → Sensitive pairs: USD/JPY, USD/CHF, USD/CAD depending on news from Tehran |
| Weaker than expected (negative ex-transport, confidence below 80) | US short rates ↓, 2-year towards 4.65% → December debate reopened ahead of Warsh → USD offered, especially against EUR given positioning → Sensitive pairs: EUR/USD, USD/JPY below 157 |
Paris time
Today's agenda
| Time | Event | Consensus | Précédent | FX sensitivity |
|---|---|---|---|---|
| 10:00 | Euro area, M3 money supply, September (y/y) | 3.6% | 3.5% | |
| 13:30 | United States, durable goods orders, September (m/m) | +1.6% | 0.0% | |
| 13:30 | United States, durable goods ex-transport, September (m/m) | +0.6% | +0.3% | |
| 14:00 | United States, FHFA house prices, August (m/m) | +0.2% | +0.3% | |
| 15:00 | United States, Conference Board consumer confidence, October | 81.2 or 80.5 depending on the source | 81.9 | |
| 15:00 | United States, new home sales, September | 649k | 684k | |
| 15:00 | United States, Richmond Fed manufacturing index, October | n/a | n/a | |
| 01:30 | Wednesday overnight: Australia, September CPI (m/m) and third-quarter CPI | +0.6% m/m; Q3 trimmed mean 3.5-3.6% y/y | +0.4% m/m | |
| 02:00 | Wednesday overnight: RBNZ, rate decision | Hike to 3.00% | 2.75% |
Invalidation
What would change ourmind
Our view, a dollar supported until the FOMC by oil-backed Fed pricing, would be called into question by:
- A deal on the sequence of reopening Hormuz in exchange for lifting the blockade, followed by Brent futures falling below $110.
- A US 2-year yield below 4.65%, the 22/10 low, before Wednesday's decision.
- An EUR/USD close above 1.1253, the 16/10 high.
- A statement or a Warsh press conference that does not repeat the hiking bias of the September minutes.
In short
What you need pick
The front end prices a hawkish Fed facing the oil shock, while the currency market arbitrates day by day between risk-on and a safe-haven premium. The dollar's rate support hinges on oil: a deal on Hormuz would push oil lower, then the December pricing and the dollar with it. The day's main risk comes from Tehran rather than from the US afternoon data. The next catalyst arrives tonight with Australian CPI and the RBNZ, ahead of a Wednesday that brings the UK Budget, the BoC and the FOMC in succession.
Taken at 08:28, Paris time
The markets in numbers
| Price | 1 session | 1 month | Since 31/12 | |
|---|---|---|---|---|
| Currencies | ||||
| EUR/USD | 1.1188 | −0.04% | −1.89% | −4.78% |
| USD/JPY | 157.45 | +0.41% | −0.09% | +0.49% |
| GBP/USD | 1.3348 | −0.15% | +0.72% | −0.88% |
| USD/CHF | 0.8262 | +0.22% | −0.26% | +4.22% |
| USD/CAD | 1.4028 | +0.24% | −0.81% | +2.46% |
| AUD/USD | 0.7025 | +0.03% | −0.08% | +5.11% |
| NZD/USD | 0.5681 | −0.11% | +0.17% | −1.47% |
| EUR/GBP | 0.8382 | +0.11% | −2.59% | −3.94% |
| Dollar index (Macro Edge calculation) | 101.94 | +0.13% | +0.94% | +3.76% |
| Rate | ||||
| US 2-year | 4.68 % | −1 bp | −13 bp | +121 bp |
| US 10-year | 5.00 % | 0 bp | −17 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. Federal Reserve, Federal Reserve issues FOMC statement, 16/09/2026.
- 2. Federal Reserve, Minutes of the Federal Open Market Committee, September 15-16, 2026, 2026.
- 3. BLS, Consumer Price Index – September 2026, 14/10/2026.
- 4. BLS, Employment Situation Summary – September 2026, 02/10/2026.
- 5. BEA, Personal Income and Outlays, August 2026, 30/09/2026.
- 6. ONS, Consumer price inflation, UK: September 2026, 21/10/2026.
- 7. ifo Institute, ifo Business Climate October 2026, 26/10/2026.
- 8. ABS, Release calendar, Consumer Price Index, 28/10/2026.
- 9. Reuters via Investing.com, Asian shares make cautious start, Brent eases from six-month high, 25/10/2026.
- 10. Investing.com, French yields retreat from 2002 highs as Moody's holds; ECB in focus, 26/10/2026.
- 11. investingLive, Japan finance minister Katayama warns of decisive action as yen intervention risks linger, 27/10/2026.
- 12. Bloomberg, Japan's Katayama renews warnings on yen after US CPI heats up, 15/10/2026.
- 13. HNGN, Saudi-led talks in Tehran as US readies major Iran strike, 26/10/2026.
- 14. Saxo, Asia Market Quick Take – 27 October 2026, 27/10/2026.
- 15. Saxo, COT on forex and commodities – Week to 20 Oct 2026, 26/10/2026.
- 16. Newsquawk, Week in Focus 26-30th October 2026, 26/10/2026.
- 17. Newsquawk, UK Budget 28th October 2026 preview, 2026.
- 18. CNBC, BoJ October meeting: CNBC survey, 27/10/2026.
- 19. BNN Bloomberg, September inflation rates for Canadian provinces, 19/10/2026.
- 20. Kitco, Canadian dollar hits five-week high; data supports rate hike bets, 23/10/2026.
- 21. ING THINK, FX Daily: BRL set to suffer on surprise Lula win, 26/10/2026.
- 22. ING THINK, Federal Reserve preview: a pause before a December hike, 23/10/2026.
- 23. ActionForex, Eco Data 10/27/26, 27/10/2026.
- 24. FXStreet, Forex Today: US Dollar holds ground ahead of mid-tier data releases, FOMC meeting, 27/10/2026.
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.
