The currency is receiving support amid rising geopolitical tensions in the Persian Gulf and comments from US officials. Over the weekend, President Donald Trump suggested that the White House could conduct another military operation similar to Operation Epic Fury, potentially after the congressional midterm elections. Market concerns have also intensified following the departure of non-essential US diplomatic personnel and their families from several countries in the Persian Gulf region.
US Director of National Intelligence Jay Clayton warned of an increased threat of Iranian attacks against American personnel abroad. Together, these developments raise the risk of renewed large-scale hostilities and strengthen demand for the US dollar as a traditional safe-haven asset. Meanwhile, preliminary October business activity data showed that the services Purchasing Managers' Index (PMI) declined from 58.8 to 57.9 points, broadly in line with forecasts, while the manufacturing index increased from 55.9 to 56.0 instead of falling to the expected 55.5.
The composite PMI eased from 58.4 to 57.6 points but remained at a level consistent with strong economic expansion. These figures support a relatively positive outlook for the US economy and could strengthen the Federal Reserve's hawkish stance in the medium term. Similar geopolitical and monetary policy risks were discussed in our previous forex market review.
Eurozone
The euro is strengthening against the pound and the yen, while showing mixed performance against the US dollar.
October business sentiment data released today in Germany, the European Union's largest economy, were generally positive. According to the ifo Institute's latest survey, the business climate index increased from 89.9 to 90.2 points, exceeding forecasts of 90.0, while the expectations indicator rose from 90.4 to 91.6 instead of declining to the anticipated 90.0. Only the current assessment index deteriorated, falling from 89.5 to 88.8 points against expectations of 89.9. Commenting on the results, ifo Institute President Clemens Fuest noted that the German economy continues to recover, although current conditions remain challenging for businesses, particularly because of persistently high energy prices. Analysts also warn that the negative effects on German companies could intensify if France, one of the country's major export markets, remains in stagnation amid political unrest and instability.
United Kingdom
The pound is weakening against the US dollar and the euro but is strengthening against the yen.
October retail sales data released today by the Confederation of British Industry (CBI) were more positive than expected: the index improved from –55.0 to –10.0 points, compared with forecasts of –47.0, indicating a much slower decline in retail sales. In addition, Prime Minister Andy Burnham confirmed in an interview with ITV's Good Morning Britain that Chancellor of the Exchequer John Healey will present an updated government budget on Wednesday, including plans to increase defence spending. Military expenditure is expected to reach 3.0% of gross domestic product (GDP) by 2030 and 3.5% by 2035, potentially providing significant support to companies in the defence sector. Burnham also stated that he does not intend to call an early general election, while emphasising that improving relations with the European Union (EU) remains part of the government's economic growth strategy. However, he ruled out pursuing full EU membership during the current Parliament, saying that any further changes would require public support.
Japan
The yen is weakening against the euro, the pound and the US dollar.
Investors and forex traders are preparing for the Bank of Japan's monetary policy decision on Friday, October 30. Analysts do not expect the regulator to change its current interest rate of 1.25%, but they anticipate clearer signals about its next steps. The Bank of Japan may emphasise that inflation has reached and exceeded its 2.0% target and highlight the risk of further price increases, potentially signalling another round of monetary tightening in December. Reuters sources also suggest that the regulator could raise its inflation forecast for the next fiscal year in the quarterly outlook report to be published following the meeting.
Australia
The Australian dollar is strengthening against the euro, the pound and the US dollar, while showing mixed performance against the yen.
Investors are awaiting the publication of Australian inflation data for the third quarter on Wednesday at 02:30 (GMT+2). According to market forecasts, annual consumer price inflation could ease from 4.0% to 3.9%, while the trimmed mean measure is expected to remain at 3.6%, significantly above the Reserve Bank of Australia's (RBA) target range of 2.0–3.0%. These figures could encourage officials to continue tightening monetary policy. Market participants currently estimate the probability of an interest rate hike at approximately 30.0% for the November meeting and 50.0% for December.
Oil
Oil prices have corrected lower after a significant increase on Friday. Previously, prices were supported by reports that a significant number of US diplomats and their family members were leaving diplomatic facilities in the Middle East, increasing investor concerns about escalating geopolitical tensions in the Persian Gulf. However, downward pressure has now returned as fears of potential disruptions to crude oil supplies have been partly replaced by expectations of weaker global demand. Some analysts warn that Brent crude oil prices in the 110.0–130.0 range could make energy-intensive business operations significantly less profitable, forcing companies to reduce activity and ultimately lowering demand for energy resources.
