Week ahead – With the treats potentially over, is risk sentiment about to be tricked?

• Risk appetite has not fully enjoyed the treats of a Fed rate cut, strong earnings and trade peace.
• Fedspeak, the US Supreme Court and US data could challenge the Dollar’s current strength.
• Aussie and Pound are on divergent paths as respective central banks meet next week.
• Yen weakness fuels verbal interventions; the battle for $4,000 Gold persists.

Flurry of risk-positive events this week

The week has confirmed expectations, proving to be both eventful and market-moving. Following speculation, the Fed announced another 25bps rate cut, and the Trump-Xi summit rubber-stamped a basic trade agreement, signaling a short-term truce between the two superpowers. Additionally, the current earnings round continues with strong results from the tech giants, once again confirming their bright outlook and market dominance.

US stock indices are in the green for the third consecutive week, outperforming their European counterparts. Notably, the Nasdaq 100 index is the best performing asset class this week, surpassing cryptocurrencies, gold and major FX pairs.

Risk sentiment somewhat bruised after a hawkish Fed

On face value, one could say that the week has been, hands down, a win for risk appetite. But this is not entirely accurate. While the Fed did not disappoint the rate cut expectations, the overall rhetoric was much less dovish than anticipated. Chair Powell’s remark that “a further cut in December is not a foregone conclusion, far from it” has really set the debate alight.

At the same time, he kept the door open for a December move. Powell’s comment about “what do you do if you're driving in the fog? You slow down” was a clear message that a restart of the official data releases could be necessary for the third consecutive rate cut that President Trump is craving.

Fedspeak is critical next week

Wednesday’s meeting also confirmed that the Fed has entered a new phase. While doves and hawks were united in terms of the response to the perceived labour market weakness, there now appears to be a split over how to act next.

The market was almost certain that a December rate cut would follow, but Powell’s rhetoric has given rise to second thoughts. This means that Fedspeak could be massively critical starting next week, when board members and regional Fed presidents resume their public appearances, laying the groundwork for the critical December meeting.

US Supreme court to hear tariff case; flare-ups are not out-of-the picture yet

Overall, it has been a positive week on the tariff front. Apart from the pivotal Trump-Xi summit, the US president has had a fruitful trip to East Asia.

This goodwill factor might evaporate this week, though, as on November 5, the US Supreme Court will hear oral arguments about Trump’s ability to impose tariffs using the International Emergency Economic Powers Act of 1977.

The ruling is not expected for a few months, although there will be pressure on the Court to expedite this case. That said, on Wednesday the judges will be able to ask questions to both sides, potentially giving a taste of their thinking ahead of the ruling. Any headline that judges were quite lenient toward Trump’s lawyers could support risk appetite.

The data week that could have been…

Under normal circumstances, next week would be a nonfarm payrolls week. However, with the US government shutdown entering its second month, the usual calendar will not be met. Importantly, even if the shutdown ends next week, the BLS will announce an amended calendar until year-end to normalize the missed releases, which probably means that chances of a Friday nonfarm payroll release are quite slim.

Luckily, next week is packed with private US data. Specifically, the usually ignored JOLTS job openings and the Challenger jobs cuts will get their fair share of attention, but understandably all eyes will be on the two ISM surveys and the ADP employment report. A soft set of data next week would refuel the December rate cut expectations.

Will Dollar maintain current gains?

After a sluggish start to the week, the more-hawkish-than-anticipated rhetoric from Powell turned the tide around for the dollar. Euro/dollar is trading around 1.1572, a level that has been acting as a floor on numerous occasions. Positive US data releases this week, coupled with a potential push to end the government shutdown could keep the dollar supported next week.

Notably, October has been an exceptional month for the greenback. The dollar index has climbed by 1.8%, boosted by strong moves in both euro/dollar (-1.3%) and dollar/yen (+4.1%). On the flip side, both the yen and the pound have been notably underperforming, with dollar/yen being the best performing FX pair in October, outperforming US equity indices and cryptocurrencies.

Euro rally to fizzle out?

The ECB meeting proved more interesting than anticipated, with President Lagarde conveying confidence in the growth outlook without adopting a hawkish rhetoric. With the market pricing in just 10bps of additional easing just mid-2026, an unimpressive data calendar and a flurry of ECB speakers – with the doves quickly trying to gain the upper hand in the discussion for a December rate cut in defiance of ECB’s confident stance – could undermine the euro next week.

Aussie best positioned to take advantage of any dollar weakness

Contrary to the Fed, the RBA is expected to keep rates steady on Tuesday for the third consecutive meeting, with the market fully pricing in the next 25bps rate cut in mid-2026. The much stronger Q3 inflation report squashed rate cut expectations arising from the weakness seen in the job market, postponing any serious rate-cut discussion until December at the earliest.

Markets are currently assigning a 92% chance of no change on Tuesday, with the aussie potentially benefiting from a slightly more hawkish rhetoric from the RBA and a continued improvement in the US-China trade relations.

In this context, there are some key Chinese releases next week, with Friday’s trade balance data potentially revealing some of the reasons why China capitulated so quickly to US demands at this week Trump-Xi summit in South Korea.

Euro/Pound climbs to a fresh 2½-year high; BoE might surprise with a rate cut

The pound has been under considerable pressure, posting losses against the euro and dollar this week, while the monthly picture is even worse. The main reason appears to be lingering concerns about the late-November budget, which could result in significant tax increases, denting the current fragile growth rate. The focus now shifts to the MPC meeting on Thursday, which includes the quarterly monetary policy statement and a press conference.

The softer CPI report for September and the weakness seen in jobs data are keeping the BoE rate-cut expectations alive, with the market assigning a 31% probability to such an event. Notably, economists are split about one additional cut by year-end, with one major investment bank suddenly forecasting such a rate cut next week.

For the doves, specifically Taylor and Dhingra, it is the perfect opportunity to get their rate cut approved by convincing just three members to join them. Notably, the August voting shenanigans cannot be excluded, particularly if Governor Bailey joins the dovish side, with the pound potentially being hit considerably in such a development.

Daily verbal interventions become the norm for the Yen

The goodwill from this week’s Trump-Takaichi meeting has quickly evaporated, as the combination of a more hawkish Fed meeting and the BoJ maintaining its prevailing balanced approach pushed dollar/yen to a fresh eight-month high.

Following a solid Tokyo CPI report, the data calendar is relatively busy next week with average cash earnings and household spending data on offer. That said, considering the dollar/yen move, verbal interventions could dominate the newsflow.  A decisive move above the busy 154.52-154.80 zone could force Japanese Finance Ministry officials to step up their rhetoric but still refrain from hinting at direct intervention.

The battle for $4,000 continues

The precious metal has lost around 9% from its recent all-time high, as the battle for the $4,000 level continues in full force. Fundamentally little has changed recently, as the US debt burden continues to climb and central bank demand is expected to remain strong. This means that gold is well positioned to benefit from a risk-off reaction, particularly if caused by another trade flare-up.