Credit Ágricole: FX Weekly
USD gains have resumed, with of special note EUR/USD posting new 18-month lows under 1.11. While equities had rather dominated the market narratives in recent weeks, short rates have returned to the driving seat after the upside surprise in US core CPI, which has revived the prospects of a more frontloaded tightening by the Fed. Such a repricing has been fuelled by the comments made by Fed member Christopher Waller about the possibility of a 50bp hike in December. Doubling down on the hike increment after not even dissenting against the November pause appears quite surprising, especially as similar dynamics in core inflation over summer 2025 did not prevent Waller from backing some easing later that year. Such a view may thus struggle to gain much traction within the FOMC, while the upcoming interventions of Fed members and the November minutes could still be more closely scrutinised than normal, for any eventual hints on faster tightening. The markets could quickly call that bluff, and the USD would have to give up recent gains. The fact that US equities have overall withstood the steepest daily surge in short USD rates since the aftermath of so-called Liberation Day has likely pl
USD gains have resumed, with of special note EUR/USD posting new 18-month lows under 1.11. While equities had rather dominated the market narratives in recent weeks, short rates have returned to the driving seat after the upside surprise in US core CPI, which has revived the prospects of a more frontloaded tightening by the Fed. Such a repricing has been fuelled by the comments made by Fed member Christopher Waller about the possibility of a 50bp hike in December.
Doubling down on the hike increment after not even dissenting against the November pause appears quite surprising, especially as similar dynamics in core inflation over summer 2025 did not prevent Waller from backing some easing later that year. Such a view may thus struggle to gain much traction within the FOMC, while the upcoming interventions of Fed members and the November minutes could still be more closely scrutinised than normal, for any eventual hints on faster tightening. The markets could quickly call that bluff, and the USD would have to give up recent gains.
The fact that US equities have overall withstood the steepest daily surge in short USD rates since the aftermath of so-called Liberation Day has likely played a big part in the latest USD resurgence, even though it mostly stemmed from encouraging reports around AI. On that matter, Tuesday’s Nvidia results could set the tone for the whole sector, while the expected closing of the Anthropic IPO could centre more around the magnitude of potential capital inflows into the US (than questions around the company’s valuation), just like last June with the SpaceX listing.
In all that, geopolitics may try to grab some limelight as the US President looks set to meet his Chinese and Russian counterparts at the APEC Leaders’ summit next week. With plenty of topics on the table, and very little progress during similar encounters over the past year, the odds are high for a potential breakthrough towards a resolution in the Middle East. Energy prices are yet to correct durably lower, with the NOK arguably being the most vulnerable to such an outcome. Elsewhere, (core) CPI data out of the UK, Japan and Canada could be checked for eventually any steeper pick-up in October too.
Nonetheless, the BoJ and BoC should have enough other arguments to stick to gradual adjustments, while the already overly hawkish UK money markets may put the overvalued and overbought GBP at risk of a fold.