FX Daily · Thursday, 29 October 2026
Oil strikes, central banks sort the G10
By Walid Qairmi, Macro Edge, written by AI · data as of 08:11 CET
The dollar ended Wednesday with no clear direction: the Macro Edge index stood at 102.35 at the ECB fixing (+0.16%), then Kevin Warsh's press conference brought EUR/USD back towards 1.1155 at the New York close, against 1.1133 at the fixing. The FOMC left rates at 3.75-4.00% with two votes for a hike. The 2-year fell to 4.67% (-3.0bp) and the 10-year rose to 5.05% (+6.0bp), a steepening driven by the long end that gives the greenback little support. The biggest moves played out between central banks facing the same oil shock: the BoC raised its rate to 2.50%, the RBNZ surprised with a hold voted 4 to 3, and NZD/USD lost 1.57%. Today, September PCE is released at 13:30, 45 minutes before an ECB expected to hold at 2.50%. Whether EUR/USD extends its decline, -3.0% since 17 September, depends on these two events. Our bias is neutral on the dollar overall, bearish on the euro and bullish on the CAD.
What moved the market
The Fed waits, the long end takes the risk
The facts
On Wednesday the FOMC held the fed funds rate at 3.75-4.00%, by 10 votes to 2: Lisa Cook and Beth Hammack voted for a 25bp hike. The statement describes activity expanding ‘at a strong pace’, employment keeping pace with the labour force and inflation that ‘remains elevated’. At his press conference, Kevin Warsh said monetary policy was starting to work without allowing ‘firm conclusions’, declined to describe financial conditions as tight and showed no urgency for December.
The market
According to CME FedWatch as cited in the press, the probability of a hike on 9 December rose from 73% on Tuesday to around 85%. Yet the 2-year fell 3.0bp to 4.67% and the 10-year gained 6.0bp to 5.05%, with the 30-year up 5.3bp according to investingLive. Dollar sellers stepped in during the press conference: EUR/USD ended the New York session around 1.1155, above its fixing of 1.1133. The S&P 500 closed at 7,743.98 (+0.28%).
Our reading
Our reading is that the front end is pricing a faster hike without extending the cycle, while the long end is demanding a premium from a Fed that leaves inflation at 3.7%. Monthly averages temper the idea of drifting expectations: since March, the 10-year has gained 75bp, of which 67bp from the real yield and only 8bp from the breakeven, at 2.38% in October. Yet the dollar has tracked US yields poorly for two months: over 60 sessions, the correlation of its daily changes is 0.16 with the 10-year and 0.12 with the 2-year. The rate differential now does little to explain the exchange rate; the driver has to be sought among foreign central banks.
% (l.), % (r.)
Sources : US Treasury (DGS2, DGS10), Macro Edge Terminal (CURV panel) 28/10/2026.
Is the US yield curve steepening? The 2-year loses 3.0bp and the 10-year gains 6.0bp on the day the FOMC leaves December open, i.e. 9bp of steepening in a single session. The front end did not follow the rise in December pricing, and the dollar index gained only 0.16% at the fixing.
% (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? On the October average, the 10-year breakeven stands at 2.38% and the real yield at 2.67%, against 2.30% and 2.00% in March. The rise in long-term yields since the spring is almost entirely down to the real yield. These monthly series say nothing about Wednesday's session itself.
US 2-year and US 10-year. The 2-year loses 3.0bp and the 10-year gains 6.0bp on the day the FOMC leaves December open, i.e. 9bp of steepening in a single session. The front end did not follow the rise in December pricing, and the dollar index gained only 0.16% at the fixing.
10-year breakeven and 10-year real yield (TIPS). On the October average, the 10-year breakeven stands at 2.38% and the real yield at 2.67%, against 2.30% and 2.00% in March. The rise in long-term yields since the spring is almost entirely down to the real yield. These monthly series say nothing about Wednesday's session itself.
One oil shock, opposite responses
The facts
The Bank of Canada raised its rate by 25bp to 2.50%, its first hike since July 2023, citing ‘higher-for-longer’ energy prices and greater pass-through to prices, with CPI around 3% since April and expected near 3.5% at year-end. A few hours earlier, the RBNZ had left its OCR at 2.75% by 4 votes to 3, whereas the consensus and pricing above 90% expected 3.00%. In London, John Healey's first budget kept around £15bn of headroom without touching income tax, and the gilt yield fell 2 to 3bp.
The market
NZD/USD lost 1.57% at the fixing, to 0.5613, and AUD/NZD posted, according to Bloomberg, its largest intraday rise since October 2017. The probability of an RBNZ hike in December fell to 40.8% (LSEG), from nearly 75% previously. USD/CAD moved from 1.4047 at the fixing, before the 14:45 decision, to around 1.3992 at the New York close: the market had been pricing only 20bp the day before. Sterling barely reacted to the budget, at 1.3288 at the fixing.
Our reading
Faced with the same supply shock, each G10 central bank strikes its own balance between imported inflation and growth, and these differences now weigh more on exchange rates than the dollar itself. The BoC is tackling the persistence of inflation; the RBNZ and, to a lesser extent, the Fed are holding off. As long as the dollar remains caught between a stable front end and a long end under pressure, the crosses offer the clearest terrain. Governor Anna Breman also judged the chances of a December hike ‘high’ overnight, which limits the impact of Wednesday's surprise.
The euro will play out its session on PCE before hearing Lagarde
The facts
The switch to winter time in Europe puts September PCE and third-quarter GDP at 13:30, 45 minutes before the ECB decision. The consensus expects core PCE of +0.3% month on month and 3.1% year on year, above core CPI at 2.6%; headline would rise from 3.4% to 3.6%. The ECB is expected to hold, with the deposit rate at 2.50%, against September HICP of 3.8%, of which 1.71 points from energy, with core at 2.5% (Eurostat).
The market
EUR/USD starts the session at 1.1133 at the fixing, its lowest in the past 30 sessions. Pricing leaves almost nothing on today's decision, around 1bp, and concentrates the stakes on 17 December: around 20bp of hikes are priced by year-end (Newsquawk) and OIS gave a 74.8% chance of a December hike as of 26 October. Continuum expects only one hike, in December, which is less than the market.
Our reading
Our reading is that the asymmetry tilts against the euro. Lane described the rise in long-term yields as ‘material’ and Dolenc said the ECB ‘may not have to do much’ if the market tightens in its place: two arguments for cautious forward guidance. France adds a reason for restraint, with an OAT-Bund spread of 156bp as of 26 October and October PMIs below 50. An in-line PCE would therefore be enough to keep EUR/USD under pressure if Christine Lagarde refuses to commit on December; a strong PCE would land on an already fragile euro.
% year on year (l.), % year on year (r.)
Sources : BEA (PCEPI, PCEPILFE), Macro Edge Terminal (OFFI panel) 01/08/2026.
Is the Fed's preferred inflation measure converging towards 2%? Headline PCE rose from 2.80% in February to 3.42% in August, while core has hovered around 3% since March (3.01% in August). Today's consensus, 3.6% and 3.1%, would further widen the gap opened up by energy.
% 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? Headline CPI reaches 3.72% in September against core at 2.57%, a 115bp gap linked to energy. Core PCE sits above core CPI, and the Fed's hawks draw their best argument from this inversion.
Headline PCE and Core PCE. Headline PCE rose from 2.80% in February to 3.42% in August, while core has hovered around 3% since March (3.01% in August). Today's consensus, 3.6% and 3.1%, would further widen the gap opened up by energy.
Headline CPI and Core CPI. Headline CPI reaches 3.72% in September against core at 2.57%, a 115bp gap linked to energy. Core PCE sits above core CPI, and the Fed's hawks draw their best argument from this inversion.
The FX Daily signature
Pricing gap
A hiking cycle in response to a supply shock is justified if wages pick up where prices leave off. They have been decelerating for a year and are growing more slowly than headline inflation, which suggests an erosion of purchasing power rather than a wage-price spiral. If this reading is correct, 2027 pricing is exposed, and with it the rate support the dollar still enjoys against the euro. The same mismatch exists at the ECB, between HICP at 3.8% and core at 2.5%.
The narrative
The market prices around an 85% chance of a Fed hike on 8 and 9 December and around three hikes by September 2027: it treats the energy shock as a second-round threat. The FOMC statement, which describes ‘strong’ growth, supports this reading.
The data
Since February, the 2-year has gained 129bp on a monthly average basis, while core PCE stayed close to 3%. Average hourly earnings growth slowed to 3.02% year on year, against 3.85% a year earlier, and the economy created only 51,000 jobs a month on average from July to September, with unemployment at 4.2%. Headline CPI at 3.7% owes much to petrol, which accounts for more than half of September's rise, while core remains at 2.6%.
What closes it
Today's core PCE and Friday's ECI at 13:30 will be the first to settle the matter. Monthly core at 0.2% and a moderate ECI would close the gap from below, at the dollar's expense; an acceleration in wages in the ECI would prove the market right.
% 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? Since February, the 2-year has gained 129bp on a monthly average basis, from 3.38% to 4.67%, while core PCE moved from 2.96% to 3.01%. The front end seems to be pricing the energy shock more than the Fed's reference inflation measure excluding energy.
% year on year (l.), % year on year (r.)
Sources : BLS (CES0500000003, CPILFESL), Macro Edge Terminal (OFFI panel) 01/09/2026.
Are US wages sustaining services inflation? Average hourly earnings growth slowed to 3.02% year on year in September, against 3.85% a year earlier, and is running below headline CPI (3.72%). Nothing on this chart signals a wage-price spiral that would justify a prolonged hiking cycle.
Core PCE and US 2-year. Since February, the 2-year has gained 129bp on a monthly average basis, from 3.38% to 4.67%, while core PCE moved from 2.96% to 3.01%. The front end seems to be pricing the energy shock more than the Fed's reference inflation measure excluding energy.
Average hourly earnings and Core CPI. Average hourly earnings growth slowed to 3.02% year on year in September, against 3.85% a year earlier, and is running below headline CPI (3.72%). Nothing on this chart signals a wage-price spiral that would justify a prolonged hiking cycle.
Currency by currency
The biases taking shape
EUR · The euro decouples from its rate spreads
EUR/USD has fallen 3.0% since 17 September, from 1.1481 to 1.1133 at Wednesday's fixing. Over the same period, the long-term rate spread moved in the euro's favour: on a monthly average basis, the US 10-year eased from 5.29% to 5.05% between September and October and the Bund from 3.47% to 3.44%, bringing the spread down from 182 to 161bp. The euro did not benefit, which is consistent with a specific risk premium linked to France and the energy bill.
The rebound towards 1.1155 after Warsh's press conference does not change the trend. Our central scenario for the ECB is a hold accompanied by forward guidance that leaves December open without promising it; with around 20bp already priced, the outcome would be slightly dovish for the euro. Continuum sees support at 1.10 then 1.09 and judges that a break above 1.12 would be needed to signal profit-taking; on Wednesday ING placed support around 1.1065-1.1110.
% (l.), % (r.)
Sources : US Treasury (DGS10), OECD (IRLTLT01DEM156N), Macro Edge Terminal (SPRDS panel) 01/10/2026.
On a monthly average basis, the 10-year Treasury-Bund spread narrowed from 182bp in September to 161bp in October, while EUR/USD lost 3.0%. The euro no longer tracks this spread, which points to a risk premium specific to the euro area.
- Bias
- Baissier · confidence average
- Invalidation
- An EUR/USD close above 1.12, or a Lagarde who explicitly confirms a December hike.
GBP · Sterling leans on an already priced BoE
John Healey's budget did not change the read on sterling: 1.3288 at the fixing (-0.30%), in the dollar's wake, and the 10-year gilt down 2 to 3bp towards 5.33%. EUR/GBP, at 0.8378, has fallen 2.6% since 25 September (0.8605). The market expects a BoE hike on 5 November; the press cites a probability of 94% to 99%, a figure we were unable to verify sufficiently before publication.
UK data justify this pricing better than elsewhere: September CPI accelerated to 3.5%, core to 2.8% and services to 3.7%, under a Bank Rate of 3.75% unchanged since December 2025. The labour market, however, is loosening, with unemployment at 4.7% and wages at 3.1% year on year according to the latest series. With a hike almost fully priced, the asymmetry around 5 November turns against sterling if the BoE pairs it with a cautious message.
% year on year (l.), % (r.)
Sources : ONS (DKO8), Bank of England, Macro Edge Terminal (OFFI panel) 01/09/2026.
UK core CPI rose from 2.5% in April to 2.8% in September, under a Bank Rate unchanged at 3.75% since December 2025. The policy rate remains 95bp above core: the hike expected on 5 November responds mainly to headline inflation, at 3.5%.
- Bias
- Neutral · confidence average
- Invalidation
- EUR/GBP below 0.8315, a level cited by ING, would signal that the market expects a longer cycle at the BoE.
CAD · The BoC chooses inflation, the loonie benefits
The BoC raised its rate when the market was pricing only 20bp, against 9bp a few days earlier, and USD/CAD moved from 1.4047 at the fixing to around 1.3992 at the New York close, far from 1.4262 on 12 October. The statement expects CPI near 3.5% at year-end and does not rule out further hikes, while promising to ‘proceed carefully’.
The loonie has two supports: a policy rate spread that is narrowing against a Fed on hold, and WTI above $100. Yet USD/CAD's 60-session correlation with Brent is close to zero (0.03); the move is mainly down to the BoC. US GDP at 13:30 remains the main short-term risk for the pair.
- Bias
- Haussier · confidence average
- Invalidation
- A return of USD/CAD above 1.4100, or Brent falling back below $100 on a confirmed de-escalation with Iran.
NZD · The kiwi paid for the surprise, Breman tries to take it back
The RBNZ left the OCR at 2.75% by 4 votes to 3, against a hike priced at more than 90%, and NZD/USD lost 1.57% to 0.5613, erasing its gains since 15 October (0.5601). We were unable to consult the RBNZ statement: the detail of its guidance relies on press reports.
Overnight, Anna Breman judged the chances of a December hike to be high, which the market now prices at only 40.8%. The October ANZ survey gives her arguments, with confidence at 52.5 and pricing intentions at their highest since May, but expected activity falls to 46.2. The kiwi remains caught between pricing that could rebound and a divided committee; AUD/NZD remains the most direct reflection of the divergence between Wellington and Sydney.
- Bias
- Neutral · confidence faible
- Invalidation
- December pricing moving back above 60%, a sign that the market believes Breman, or NZD/USD below 0.5589, the lowest in the past 30 sessions.
The scenarios
September PCE (13:30), then ECB decision (14:15)
| If | Then |
|---|---|
| Core PCE at +0.4% m/m or more | US short-term rates ↑, December pricing above 85% → USD probably supported against the whole G10 → The ECB decides facing an already weakened euro → Sensitive pairs: EUR/USD, USD/JPY towards 158.85 |
| In-line PCE (+0.3%), Lagarde cautious on December | US 2-year stable → ECB December pricing slightly lower → EUR probably under moderate pressure → Sensitive pairs: EUR/USD, EUR/GBP |
| In-line PCE, Lagarde opens the door to December | European short-term rates ↑ → EUR probably supported, EUR/USD towards 1.12 → Sensitive pairs: EUR/USD, EUR/JPY |
| Core PCE at +0.2% m/m or less | US short-term rates ↓, December pricing lower → USD probably weaker, especially against JPY and EUR → Sensitive pairs: USD/JPY, EUR/USD, USD/CAD |
Paris time
Today's agenda
| Time | Event | Consensus | Précédent | FX sensitivity |
|---|---|---|---|---|
| 11:00 | Euro area: economic sentiment (October) | 97.5 | 97.9 | |
| 13:30 | United States: Q3 GDP, first estimate (annualised) | 3.2% (Continuum: 2.8%) | 2.2% | |
| 13:30 | United States: Q3 GDP deflator | 3.5% | 6.1% | |
| 13:30 | United States: September PCE, headline (m/m; y/y) | +0.5%; 3.6% | +0.3%; 3.4% | |
| 13:30 | United States: September core PCE (m/m; y/y) | +0.3%; 3.1% | +0.2%; 3.0% | |
| 13:30 | United States: personal income and spending (September) | +0.3%; +0.6% | +0.2%; +0.9% | |
| 13:30 | United States: weekly jobless claims | 196k (other source: 200k) | 194k | |
| 14:00 | Germany: October flash CPI | n/a | n/a | |
| 14:15 | ECB: monetary policy decision (deposit rate 2.50%) | No change | 2.50% | |
| 14:45 | ECB: Christine Lagarde's press conference | n/a | n/a |
Invalidation
What would change ourmind
Our reading (a dollar without a driver of its own, a euro under pressure, a G10 sorted by central banks) would be called into question by:
- Core PCE at +0.4% m/m or more, with the US 2-year moving back above 4.80%: the front end would take back control and the dollar would rise against the whole G10, CAD included.
- A Lagarde who endorses a December hike with no caveat on financial conditions, with EUR/USD closing above 1.12.
- A de-escalation between Washington and Tehran confirmed by official sources, which would bring Brent back below $100 and reduce the divergence born of the energy shock.
- USD/JPY above 158.85, the highest in the past 30 sessions, with no reaction from Tokyo: the dollar would have regained a rate driver.
In short
What you need pick
The dollar no longer has a driver of its own: the Fed is holding off and its curve is steepening from the long end, so currencies are sorting themselves according to each central bank's response to the oil shock. The dominant trade pits currencies whose central bank is tackling imported inflation, led by the CAD, against those that are holding off or carry a specific risk, such as the euro and the NZD. The main risk is core PCE above 0.3%, which would hand the US front end back its role 45 minutes before the ECB. After Lagarde, the BoJ and euro area GDP, on Friday, will set the next leg.
Taken at 08:29, Paris time
The markets in numbers
| Price | 1 session | 1 month | Since 31/12 | |
|---|---|---|---|---|
| Currencies | ||||
| EUR/USD | 1.1133 | −0.15% | −2.15% | −5.25% |
| USD/JPY | 157.96 | +0.09% | +0.69% | +0.82% |
| GBP/USD | 1.3288 | −0.30% | +0.18% | −1.32% |
| USD/CHF | 0.8306 | +0.24% | −0.14% | +4.78% |
| USD/CAD | 1.4047 | +0.17% | −0.84% | +2.59% |
| AUD/USD | 0.7033 | +0.01% | +0.13% | +5.23% |
| NZD/USD | 0.5613 | −1.57% | −0.98% | −2.64% |
| EUR/GBP | 0.8379 | +0.15% | −2.33% | −3.98% |
| Dollar index (Macro Edge calculation) | 102.35 | +0.16% | +1.24% | +4.18% |
| Rate | ||||
| US 2-year | 4.67 % | −3 bp | −25 bp | +120 bp |
| US 10-year | 5.05 % | +6 bp | −19 bp | +87 bp |
| Commodities | ||||
| Brent | 121.02 | −3.64% | −2.52% | +91.46% |
| WTI | 107.17 | +7.25% | +3.51% | +84.74% |
| 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, 2026-10-28.
- 2. Bank of Canada, Bank of Canada raises the policy rate by 25 basis points to 2½%, 2026-10-28.
- 3. Eurostat, Annual inflation up to 3.8% in the euro area, 2026-10-16.
- 4. BLS, Consumer Price Index, September 2026, 2026-10-14.
- 5. ONS, Consumer price inflation, UK: September 2026, 2026-10-21.
- 6. BEA, Release schedule (Q3 GDP, Personal Income and Outlays), 2026-10-29.
- 7. CNBC, New Zealand dollar falls after central bank hold interest rates steady, 2026-10-28.
- 8. Bloomberg, Aussie-Kiwi Rates Split Drives Biggest Currency Move in 9 Years, 2026-10-28.
- 9. Yahoo Finance, Fed meeting live updates: rates held steady in split vote, 2026-10-28.
- 10. investingLive, Americas FX news wrap 28 Oct: Fed holds rates, yield curve steepens, 2026-10-28.
- 11. investingLive, Asia-Pacific market news: oil eases on Vance's Iran outreach, 2026-10-29.
- 12. Saxo, Asia Market Quick Take, October 29, 2026, 2026-10-29.
- 13. MarketScreener / Dow Jones, Gilt Yields Ease, Sterling Falls Slightly in Muted Reaction to U.K. Budget, 2026-10-28.
- 14. Newsquawk, Preview: ECB policy announcement due Thursday 29th October 2026, 2026-10-29.
- 15. rateprobability.com, ECB OIS-implied probabilities, 2026-10-26.
- 16. ideal-investisseur.fr, OAT-Bund spread, 2026-10-26.
- 17. Continuum Economics, FX Daily Strategy: Asia, Oct 29, 2026-10-29.
- 18. ING THINK, FX Daily: Abatement in AI risk helps the dollar, 2026-10-28.
- 19. Japan Times, BoJ meeting preview, 2026-10-28.
- 20. Bloomberg, Japan's Katayama renews warnings on yen after US CPI heats up, 2026-10-15.
- 21. ActionForex, Eco Data 10/29/26, 2026-10-29.
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.
