Market Review, October 9: Dollar, Euro and Oil

Weekly labour market data were released yesterday: initial jobless claims stood at 197.0K, below both forecasts of around 200.0K and the previous revised reading of 199.0K. The four-week moving average declined from 200.5K to 198.0K, while continuing claims increased from 1.699 million to 1.716 million, exceeding expectations of 1.710 million. Meanwhile, on Wednesday, NBC News, citing its sources, reported that President Donald Trump and members of his administration had discussed the possibility of large-scale strikes against Iran, including energy, infrastructure and nuclear facilities, potentially before the congressional midterm elections. Axios also reported that the Pentagon had been instructed to prepare for the possible resumption of major military operations, although no final decision had been made. The threat of further escalation contributed to higher oil prices and increased concerns about another acceleration in inflation, which could strengthen the Federal Reserve's hawkish monetary policy stance. However, President Trump subsequently rejected reports of imminent military action and stated on Truth Social that the United States would not attack Iran before the midterm elections, helping to calm financial markets. In addition, Federal Reserve Governor Christopher Waller noted that further interest rate increases would likely be needed if incoming economic data developed as expected, although the timing and pace of tightening remained uncertain. Thus, investor expectations of further monetary tightening remain relatively strong despite the recent stabilisation of price pressures and signs of cooling in the labour market.

As discussed in our previous market review, US labour market statistics and changing expectations regarding Federal Reserve monetary policy remain among the main factors influencing the dollar's performance.

Eurozone

The euro is strengthening against the US dollar and Japanese yen while showing mixed dynamics against the British pound.

Investors and forex traders are focused on foreign trade statistics from Germany, the largest economy in the European Union. Exports declined by 0.8% in August instead of the expected increase of the same magnitude, while imports rose by 0.9%, significantly below forecasts of 2.8%. As a result, the trade surplus reached €19.5 billion, exceeding expectations of €19.0 billion. Meanwhile, according to a Reuters survey of leading economists regarding the European Central Bank's (ECB) next monetary policy decisions, most respondents expect the deposit rate to remain unchanged at 2.50% this month before increasing by 25 basis points in December, as eurozone inflation is currently almost twice the regulator's 2.0% target. Notably, earlier forecasts had suggested that no further monetary policy adjustments would be necessary before the end of the year.

United Kingdom

The British pound is strengthening against the US dollar and Japanese yen while showing mixed dynamics against the euro.

Yesterday, Bank of England Governor Andrew Bailey, speaking at a conference in Istanbul, stated that the government needs to redouble its efforts to restore confidence in public finances, as fiscal policy must remain focused on stability and financial markets need to recognise this commitment. The official added that maintaining a credible fiscal framework could help contain rising risk premiums. He also reiterated that there is still limited evidence of higher energy prices feeding through into broader UK inflation, making it premature to draw firm conclusions about the longer-term consequences of the current energy shock.

Japan

The Japanese yen is weakening against the euro, pound and US dollar.

In August, household spending growth slowed from 0.5% to 0.1% month-on-month, while the annual indicator improved from –3.6% to –3.1%, compared with forecasts of –3.5%. Nevertheless, household expenditure has now declined for nine consecutive months in annual terms, indicating that consumer demand remains weak despite improving wage conditions. This could limit domestic inflationary pressure and complicate the Bank of Japan's decisions on further monetary policy tightening. Today, Prime Minister Sanae Takaichi stated that the government would continue to closely monitor exchange rate and price developments and respond appropriately. The previous day, she noted that Japan's economy no longer required reflationary policies, as the country was no longer experiencing deflation.

Australia

The Australian dollar is strengthening against the euro, pound, Japanese yen and US dollar.

Investors are assessing comments from Jonathan Kearns, a former Reserve Bank of Australia (RBA) official, who suggested that growing investment in artificial intelligence (AI) could increase inflation in the short term, as productivity benefits may take longer to materialise. RBA Governor Michele Bullock has also expressed similar concerns, highlighting the inflationary risks associated with the rapid expansion of AI-related demand and infrastructure investment. In August, Australia's Consumer Price Index accelerated from 3.5% to 4.0% year-on-year amid higher energy and broader consumer prices. In September, RBA officials raised the benchmark interest rate for the fourth time this year, bringing it to a fifteen-year high of 4.60%.

Oil

Oil prices showed mixed dynamics, declining earlier in the session before recovering toward the close.

Crude oil initially came under pressure as concerns about possible disruptions to Middle Eastern supplies eased after President Donald Trump pledged that the United States would not attack Iran before the congressional midterm elections and noted that his administration was engaged in diplomatic discussions with Tehran. According to Iran's Tasnim news agency, citing Foreign Minister Abbas Araghchi, Tehran is reviewing Washington's response to its seven-day proposal for reopening the Strait of Hormuz and expects to respond within the coming days. However, the decline in oil prices was limited by the effects of Hurricane Isaias, which forced producers in the Gulf of Mexico to suspend approximately 1.5 million barrels per day of crude oil output at one stage. As a result, Brent crude recovered from earlier losses and ended Friday's trading session near $104.72 per barrel, while West Texas Intermediate (WTI) settled around $91.85, reflecting continued uncertainty over energy supplies.