The US dollar maintained its strength as geopolitical tensions escalated over the weekend. News of Houthi strikes in Riyadh and an alleged 'energy ceasefire' between Russia and Ukraine had minimal impact on foreign exchange markets. Instead, traders focused on the upcoming US September Consumer Price Index (CPI) report, which is expected to reinforce expectations of further Federal Reserve tightening and a stronger dollar.
The euro continues to struggle, with EUR/USD hovering near 1.12. French debt spreads remain wide, and political uncertainty persists as Marine Le Pen's counter-budget proposal raises more questions than it answers. While the French government's budget proposal of €43bn in new savings is up for debate, consensus suggests it will likely pass by decree, avoiding a government collapse but offering little relief for the euro.
In Switzerland, EUR/CHF is consolidating after a sharp drop last week driven by French debt concerns. The market prices in 22 basis points of hikes in December, with the European Central Bank expected to raise rates by 25 basis points. Eurozone inflation remains high, pushing the ECB to continue tightening, which supports the Swiss franc against the euro.
Central and Eastern European markets will focus on regional inflation data this week. Romania's September inflation is expected to rise from 6.2% to 6.4%, while Czech Republic and Poland's inflation data will also be closely watched. Hungary may publish its draft budget for next year, with expectations moving towards a 5% deficit. CEE currencies remain influenced by global factors, with a bearish regional bias persisting.