The dollar managed to hold on rather well last week, considering that the only economic data point out of the US in weeks (September inflation) undershot expectations and all but guaranteed cuts at the next two Federal Reserve meetings. The Yen provided the only real excitement among G10 currencies, as fears of fiscal and monetary loosening brought on by the Takaichi administration continue to take their toll on the currency. On the positive side, the week’s winner was the Chilean peso, up on hopes of a conservative victory in the upcoming presidential election and a rebound in copper prices.

Enrique Díaz-Álvarez, Chief Economist at Ebury said: Next week in markets will be dominated by the Federal Reserve’s October meeting on Wednesday. The Fed is universally expected to cut rates, but there is considerable uncertainty about its future course. Inflation remains significantly above targets, and because of the Federal government shutdown there is little to go on about the state of the economy. The ECB October meeting follows on Thursday, with rates expected to remain unchanged for the foreseeable future. Eurozone flash inflation for October, due out Friday, will bookend the trading week.

GBP

The September inflation report out of the UK provided welcome news for the Bank of England. Inflation undershot expectations and was unchanged from the previous month, while the core subindex actually receded slightly. However, both remain closer to 4% than to 3%, significantly above the 2% target. Markets are assigning a 50% chance to a cut in rates before year-end. In the absence of a marked deterioration in activity data, we believe the Bank of England will err on the side of caution and stay put, which is a marginal positive for the Pound.

EUR

An unexpected pickup in the Eurozone PMI indices of economic activity provides important validation for our view that the ECB’s rate-cutting cycle has come to an end. We expect this week’s meeting to be a non-event, with President Lagarde signalling little appetite for further easing. The improvement in the PMIs was particularly notable in the German services sector, perhaps an early sign that the fiscal stimulus package is starting to be felt. Both the PMIs and the ECB’s stance should provide modest support for the Euro into year end.

USD

Despite the continuing federal government shutdown, we finally received economic data from the US.September inflation came out slightly lower than expected. However, it is still significantly above targets, has been so for the last four years, and the Federal Reserve itself expects it to remain there at least through 2028. None of this seems likely to stop cuts at this week’s meeting or in December. However, the outlook for 2026 remains murky, particularly given the nearly complete absence of reliable economic data amid the government shutdown. We still think the path of least resistance for the dollar over the medium term is downwards.