The Dollar remains under pressure with EUR/USD testing the 1.1100 barrier

KBC Market Research Desk KBC Bank

Markets

(US) eco data on Friday were few and mostly second tier. US August import and export price data were softer than expected. The Michigan consumer confidence was slightly better than expected (69 from 67.9). The inflation expectations subindices (1-y 2.7% from 2.8%, LT 3.1% from 3.0%) also didn’t add much to the Fed easing debate. US yields declined further between 5.7 bps (2-y) and 0.9 bps (30-y) but most of this move already realized before the publication of the data. Market positioning was driven by considerations on what could/should be an appropriate Fed tactics. What Fed-strategy (fast 50 bps steps start, or gradual 25 bp lift-off) would best serve the Fed’s aim to engineer a soft landing with no additional further damage to the labour market? This debate, also ‘orchestrated’ by some high profile articles in the financial press (WSJ, FT) on Friday again tilted back to a growing chance of 50 bps first step (+/- 60% chance). German Bunds again underperformed Treasuries with yields changing between 1.4 bps (2-y) and +0.6 bps (30-y). ECB policy makers on Friday and this weekend basically confirmed ECB Chair Lagarde’s guidance from press conference on Thursday that easing of inflationary pressures should allow the ECB to cut rates further (Nagel, Wunsch) but they didn’t commit on the timing of further steps. EBC Holzmann indicated that December rather than October might be the right time for a next ECB cut. The revival of expectations on an aggressive start of the Fed easing cycle, this time again supported equities with the Dow (+ 0.72%) and the S&P 500 (+0.54%) again trading within reach of the all-time records. Easing of global financial conditions again put the dollar in the defensive. DXY again tested the 101 level but closed above (101.1). Gains in EUR/USD were marginal (1.1075). The yen still outperformed (USD/JPY close 140.85).

This morning, Japanese, mainland China and Korean markets are closed. Chinese August activity data (retail sales, production & investment data published this weekend) again showed a mediocre growth performance spurring calls for additional policy stimulus (cf infra). The dollar remains under pressure with EUR/USD testing the 1.11 barrier. USD/JPY (140.1) is even breaking below the key 140.25 area (December low). Today, the data calendar is thin with the US Empire manufacturing survey the exception to the rule (expected at -4.3 from -4.7). ECB governors Panetta, de Guindos and Lane are scheduled to speak. We don’t see much reason for markets to backtrack on its assessment of a growing chance for a 50 bps Fed inaugural rate cut on Wednesday. We don’t expect the US August retail sales (to be published tomorrow) to be a gamechanger anymore. On FX, USD weakness looks to be the by default FX bias going into the Fed policy decision. The Bank of England (Thursday) and the Bank of Japan (Friday) also will hold regular policy meeting but are expected to leave policy unchanged.

News and views

UK property website Rightmove said that average asking prices for homes rose by 0.8% M/M in September following a steep 1.5% drop in August. It’s double the long-term average pace in September. The average price stood at £370 759, which is 1.2% higher on a yearly basis. Rightmove’s director of property science referred to the new government and the Bank of England’s first rate cut as key drivers. Improving buyer demand was also visible in the increase of number of sales agreed between buyers and sellers (+27% Y/Y). The average five-year fixed mortgage was 4.67% in September, coming off a 6.11% peak in July 2023. London house prices increased by 0.7% M/M (1.4% Y/Y) to average £682 375.

The People Bank of China on Friday signaled more action in fighting deflation and reviving the economy. In a rare statement, they vowed to make maintaining price stability and pushing for the mild rebound in prices an important consideration for monetary policy. They also stressed meeting reasonable financing demand for consumption in a more targeted way. Policymakers are “preparing to launch some additional measures, further lower the financing costs for businesses and households, and keep liquidity reasonably ample.” The central bank sets 5-yr (currently 3.85%) and 1-yr prime loan rates (3.35%) at its September 20 meeting. Both were reduced by 10 bps in July.

Download The Full Sunrise Market Commentary

Author

KBC Market Research Desk

KBC Bank

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

AUD/USD seems vulnerable near 0.6800, 10-month low amid bullish USD

AUD/USD languishes near a 10-month low during the Asian session on Friday, awaiting a break below 0.6800 before the next leg up amid a bullish US Dollar. Firming Fed rate-hike expectations, along with fading hopes for US-Iran diplomacy, help the USD hold gains at its highest level since April 2025. Moreover, the RBA’s dovish tilt undermines the Aussie and backs the case for further losses.

USD/JPY bulls turn cautious near 160.00 amid intervention risks

USD/JPY enters a bullish consolidation phase around its highest level since early September as bulls turn cautious amid intervention risk near 160.00. Meanwhile, the downside seems cushioned as the wide US-Japan interest rate gap keeps the Yen carry trade active. Furthermore, the possibility of a jumbo Fed rate hike and Middle East uncertainties hold the US Dollar near a 19-month top, supporting the currency pair.

Gold sticks to gains above $3,900; bulls lack conviction as Fed and Iran risks support USD

Gold clings to modest recovery gains above the $3,900 mark during the Asian session, snapping its three-day losing streak to the lowest level since late September set the previous day. The US Dollar takes a breather after a strong three-day rally to its highest level since April 2025, offering some support to the commodity. However, firming US Federal Reserve rate-hike expectations and Middle East uncertainties continue to support the Greenback. This keeps a lid on any further upside for the precious metal.

Bitcoin slips below $70,000 for the first time since August

Bitcoin is attracting some serious sellers, pushing it below $70,000 on Friday after an over 3% decline the previous day. The Crypto King is down over 5% so far this week, and a bearish close could mark its sixth consecutive week of losses. The technical outlook for Bitcoin is bearish, with sellers tightening their grip despite overextending the downtrend to oversold levels.

Asian stocks post mixed results amid Nvidia leadership turmoil, Anthropic IPO buzz

Asian stocks post mixed results on Friday, with Japan’s Nikkei 225 Index climbing 0.91% to around 61,370 and China’s Shanghai Composite rising 0.22% to 3,660. Conversely, Hong Kong’s Hang Seng Index fell 0.82% to 23,810, while South Korea’s KOSPI declined 0.49% to near 5,320.

What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.