Lower energy prices and strong risk appetite outweighed rising US yields as key driver for the US Dollar

KBC Market Research Desk KBC Bank

Markets

A broad-based equity rally yesterday lifted US stocks from 2.1% (Dow Jones) to 2.74% (Nasdaq). The SOX semiconductor index bounced almost 7% higher with investors looking past the Nvidia case. Unlike Friday, yesterday stock market rally offers a stronger basis for any further recovery to build from. 423 companies in the S&P500 for example were up at the end of the first trading day of a holiday-shortened week. Bond markets are closed on Wednesday for Veteran’s Day. The EuroStoxx50 surged almost 2% in a dramatic comeback from the sell-off end last week. Faltering energy prices helped the risk-on mood. Brent oil tumbled to the lowest since early September with prices dropping further this morning into the low $90 barrier. Natural gas prices are currently testing €80/MWh. Their geopolitical premium fell substantially in recent days but we would treat the decline with caution since a part of it is inspired by so-called unconfirmed reports (e.g. president Trump reportedly having agreed to an Iraqi proposal to end the war yesterday). POTUS also has a track record of talking down the price before resuming large(r)-scale operations. The jury remains very much out. Lower energy prices and strong risk appetite (beyond tech) outweighed rising US yields as key driver for the US dollar. Treasuries underperformed vs German bunds going into today’s CPI release with yields rising by up to 5 bps but that couldn’t prevent the greenback from sliding. EUR/USD turned Friday’s losses into gains, closing north of 1.12 again. DXY fell from 102.24 to 101.65. Sterling traded mixed by gaining against the dollar but losing marginally vs the euro. Thursday’s Q3 GDP figures are expected to come in strong and should give GBP an edge going into next week’s important summit between the UK and EU in search of improved (trade) relations. BoE governor Bailey yesterday speaking at an event in Zurich endorsed that: “If there are opportunities to increase the openness and the markets that we serve, wherever they are, whether it’s the European Union, Switzerland, or anywhere else — other things equal, we should take them.”

The US Bureau of Labour Statistics today only releases the monthly CPI print with a year-on-year reading absent because of last year’s shutdown-related missing data. Headline is expected to rise by 0.3% and core by 0.2%. Annualizing the three-month rolling average results in 5.3% and 3.25% as a yearly gauge. After the strong payrolls report last Friday, we expect the numbers to support the bottoming out of the front end of the US yield curve as well as the US dollar. The US $42bn 10-yr auction deserves attention as well. A series of high-profile central bank speeches from Fed’s Waller, ECB’s Lane and BoE’s Pill are on tap.

News and views

Median inflation expectations in the New York Fed’s monthly Survey of Consumer Expectations (October) were unchanged at the 1-yr, 3-yr, and 5-yr horizon at 3.9%, 3.3% and 3% respectively. Among commodities, median year- ahead expected price changes decreased by 0.6 percentage point to 4.2% for gas and were unchanged at 5.5% for food. When it comes to the labour market, median one-year-ahead earnings growth expectations remained unchanged at 2.6%. Especially respondents without a college degree turned more pessimistic on future employment with the mean perceived probability of losing one’s job in the next 12 months increasing from 13.5% to 13.9%. The mean probability that the US unemployment rate will be higher one year from now increased by 1.4 ppt to 45.3%, its highest reading since April 2020. Perceptions of households’ financial situations improved slightly with the net share of respondents reporting a better financial situation compared to a year ago increasing. Expectations about households’ financial situation a year from now were roughly unchanged.

The British Retail Consortium’s monthly UK Retail Sales Monitor showed same store sales rising by 1.1% Y/Y, roughly the same pace as in September (1%). Food sales were 2.4% higher compared with October 2025 (from 1.8%) while non-food sales fell slightly (-0.1% from +0.3%). BRC chief executive Dickinson referred to October as a subdued month for retailers, as shoppers delayed spending ahead of Black Friday and Christmas. Higher household costs and caution ahead of the Budget were also at play. For 2027, higher energy costs, inflation and interest rates create a challenging backdrop.

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KBC Market Research Desk

KBC Bank

KBC's Market Research Desk publishes a number of short-term reports.

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