Investors and forex traders are focused on September inflation data: the Consumer Price Index (CPI) increased from 3.4% to 3.7% year-on-year, exceeding forecasts of 3.6%, while the core indicator rose from 2.4% to 2.6% against expectations of 2.5%. Meanwhile, the Producer Price Index (PPI) accelerated from 5.6% to 6.3%, reaching its highest level since December 2022 instead of declining to the expected 5.3%, while the core measure, excluding food, energy and trade services, increased from 4.8% to 5.0% against forecasts of 4.4%. Thus, inflation remains above the Federal Reserve's 2.0% target, renewing investor concerns about a possible interest rate hike in October. Nevertheless, speaking today at the annual meetings of the International Monetary Fund (IMF) and World Bank, Federal Reserve Chair Kevin Warsh reassured markets by stating that the outcomes of upcoming policy meetings were not predetermined. He also noted that artificial intelligence (AI) technologies would make economies that successfully adopt them more productive, although the transition could be challenging. In addition, Cleveland Federal Reserve Bank President Beth Hammack suggested that the regulator might need to tighten monetary policy more aggressively if public inflation expectations deteriorate significantly. Against this backdrop, the probability of an interest rate increase by December remains close to 90.0%, according to the Chicago Mercantile Exchange (CME) FedWatch Tool. Monetary policy expectations and geopolitical risks were also among the key factors influencing currency markets in our previous forex market review.
Eurozone
The euro is weakening against the pound but strengthening against the yen and the US dollar.
September data confirmed a further acceleration in inflation: the Consumer Price Index increased from 0.4% to 0.6% month-on-month and from 3.2% to 3.8% year-on-year, while the core indicator remained at 0.2% in monthly terms and rose from 2.4% to 2.5% annually. Inflation remains above the European Central Bank's (ECB) 2.0% target, which could strengthen hawkish sentiment among policymakers. Market participants continue to consider the possibility of another 25-basis-point interest rate increase before the end of the year, while persistent price pressures may require further monetary tightening in 2027. According to the latest International Monetary Fund forecasts, eurozone gross domestic product (GDP) is expected to grow by 1.1% this year and 1.2% next year.
United Kingdom
The pound is strengthening against the US dollar, the yen and the euro.
In August, gross domestic product (GDP) increased by 0.1%, although analysts had expected a decline of the same magnitude. The positive result was supported primarily by growth in industrial production, while the services sector remained unchanged. Nevertheless, analysts note that pressure on the economy could intensify toward the end of the year due to persistently rising energy prices. Meanwhile, yesterday Bank of England Deputy Governor Sarah Breeden stated that cost-cutting measures by British companies in response to higher oil prices, caused by escalating geopolitical tensions in the Persian Gulf, would make it easier for the regulator to contain inflation. Bank of England Governor Andrew Bailey also reiterated his earlier view that the broader effects of the sharp increase in fuel prices on domestic inflation have so far remained relatively limited, although it is still too early to draw firm conclusions.
Japan
The yen is weakening against the pound and the euro but strengthening against the US dollar.
Investors are assessing the latest comments from Bank of Japan Governor Kazuo Ueda, whose remarks were delivered at a meeting of Japanese credit union representatives. He stated that factors such as tensions in the Middle East, demand related to artificial intelligence (AI) technologies and exchange rate fluctuations could increase the risk of underlying inflation exceeding the 2.0% target. Therefore, it is important to keep inflation expectations anchored near the target and prevent excessive price pressures. Meanwhile, according to Reuters, several major global brokerage firms expect another interest rate increase in December, followed by further monetary policy tightening next year.
Australia
The Australian dollar is strengthening against the euro, the pound, the yen and the US dollar.
The positive performance comes despite weak September labour market data: unemployment remained at 4.7%, compared with forecasts of a decline to 4.6%, while employment fell by 39.3K, although analysts had expected an increase of 19.6K. Nevertheless, full-time employment rose by 34.4K, while part-time employment declined by 73.7K. As the labour market cools, officials at the Reserve Bank of Australia (RBA) may reconsider the need for further monetary policy tightening. Following the employment report, market expectations of an interest rate increase at the November meeting declined sharply, strengthening the case for keeping borrowing costs unchanged.
Oil
Oil prices remain volatile, with earlier downward pressure offset by persistent concerns about global energy supplies.
Despite the slowdown in upward momentum, fundamental factors continue to support crude oil prices. In particular, the increasing number of attacks by Yemen's Houthi forces on Saudi Arabian infrastructure has heightened investor concerns about potential reductions in global hydrocarbon supplies. This week, attacks targeted facilities associated with Saudi Aramco, including an administrative building, raising fears of further disruptions to energy production and exports. Analysts warn that continued tensions in the Persian Gulf could maintain a substantial geopolitical risk premium in oil prices over the medium term. Furthermore, according to the International Energy Agency's (IEA) October report, tight conditions in the global diesel market may persist well into 2027 due to prolonged supply disruptions and reduced inventories. Meanwhile, US commercial crude oil inventories declined sharply, with the American Petroleum Institute (API) also indicating a substantial withdrawal. According to the US Energy Information Administration (EIA), crude inventories fell by approximately 8.6 million barrels during the latest reporting week, providing additional support to oil prices.
