The currency is benefiting from its traditional safe-haven status amid concerns about a possible escalation of the US-Iran conflict. President Donald Trump stated that Washington was not currently holding negotiations with Tehran and accused Iranian authorities of misleading financial markets with reports of shipping disruptions in the Strait of Hormuz. Iranian officials responded by warning that they were prepared to take retaliatory action. The increasingly confrontational rhetoric, combined with the US State Department's decision to reduce diplomatic staffing in parts of the Middle East and order the departure of some personnel and family members from Saudi Arabia, has raised investor concerns about a possible resumption of large-scale hostilities in the Persian Gulf, potentially before the congressional midterm elections. Such developments could push oil prices higher, increase inflation risks and influence the Federal Reserve's monetary policy decisions. The dollar is also supported by stronger-than-expected weekly labour market data: initial jobless claims fell to 194.0K, compared with forecasts of 200.0K and the previous reading of 200.0K. The four-week moving average declined from 198.75K to 197.75K instead of rising to the expected 200.0K, while continuing claims increased from 1.703 million to 1.728 million. These figures support expectations that the regulator may maintain a hawkish stance. The influence of inflation and geopolitical developments on currency markets was also discussed in our previous forex market review.
Eurozone
The euro is weakening against the US dollar, while showing mixed performance against the yen and the pound.
Preliminary October business activity data released on Friday were generally weaker than expected. According to S&P Global's latest eurozone PMI report, the services index declined from 53.0 to 51.7 points, compared with expectations of 52.6, while the manufacturing PMI fell from 52.9 to 52.4 against forecasts of 52.7. The composite indicator decreased from 53.1 to 51.9 points, below the expected 52.7. In Germany, the bloc's largest economy, the services PMI dropped from 52.9 to 51.7 instead of the expected 52.5, while the manufacturing indicator increased from 53.9 to 54.2, exceeding forecasts of 53.5. The composite PMI declined from 53.8 to 52.8 against expectations of 53.3. Analysts noted that business activity expanded at its slowest pace in four months, partly due to rising energy costs and political instability in France.
United Kingdom
The pound is weakening against the US dollar, while showing mixed performance against the yen and the euro.
Preliminary October business activity data released on Friday showed an improvement. The services PMI rose from 52.1 to 53.1 points, instead of declining to the expected 51.8, while the manufacturing index increased from 51.9 to 52.8 against forecasts of 51.8. The composite PMI advanced from 52.0 to 53.1 points, compared with expectations of a decline to 51.8. Overall, business activity expanded at its fastest pace since February, supported by rising new orders and demand for services related to artificial intelligence (AI) technologies. For the first time since the tax increases introduced in the 2024 budget under former Chancellor Rachel Reeves, companies reported an increase in hiring, signalling an improvement in labour market conditions. Manufacturing output also recorded its strongest growth in more than two years. Meanwhile, retail sales declined from 0.7% to –0.4% month-on-month, compared with forecasts of –0.1%, while annual growth slowed from 2.7% to 0.8%, below expectations of 1.0%. In addition, British Prime Minister Andy Burnham announced that the government would help businesses save almost £800.0 million annually by simplifying administrative procedures and extending the suspension of certain import tariffs.
Japan
The yen is showing mixed performance against the euro, the pound and the US dollar.
Investors are assessing September inflation data. The nationwide consumer price index increased from 1.9% to 2.1% year-on-year, while the core indicator accelerated from 1.7% to 2.1%. As a result, inflation moved above the Bank of Japan's 2.0% target amid higher fuel prices and a weaker yen, increasing the likelihood of further monetary tightening in the near term. October business activity data were mixed: the services PMI rose from 51.3 to 52.0 points, while the manufacturing index declined from 54.1 to 53.3. The composite indicator remained unchanged at 52.3 points.
Australia
The Australian dollar is strengthening against the euro and the pound, while showing mixed performance against the yen and the US dollar.
Preliminary October business activity data showed a deterioration in economic conditions. The manufacturing PMI increased slightly from 49.6 to 49.7 points but remained below the 50.0 threshold separating expansion from contraction. The services index declined from 51.9 to 47.8, while the composite PMI fell from 51.3 to 47.7 points. These figures may reduce expectations of another interest rate increase by the Reserve Bank of Australia (RBA). However, the regulator's next decision will also depend on third-quarter inflation data scheduled for release next week.
Oil
Oil prices are rising strongly.
Prices are supported by concerns about further supply disruptions from the Persian Gulf if hostilities between the United States and Iran resume, as well as a growing number of reported attacks on commercial vessels in the Strait of Hormuz. Representatives of Iran's Islamic Revolutionary Guard Corps (IRGC) stated that four vessels had been attacked and another three had struck sea mines during the latest incidents. The claims have not been independently confirmed. Meanwhile, in an effort to address rising energy costs, President Donald Trump signed a presidential determination under the Defense Production Act, declaring domestic oil production, refining and related infrastructure essential to national defence. The measure allows the US government to provide financial support for projects involving petroleum production, pipelines, refining facilities and liquid-fuel storage.
