The US dollar maintained strength this week despite a lower likelihood of an October rate hike by the Federal Reserve. After the Fed's recent 25bps rate increase, market expectations for further hikes were dampened by soft labor market data and remarks from Fed officials. However, the ISM services PMI for September showed strong price inflation, suggesting potential upside risks for the upcoming US CPI data.
Next week’s US CPI report for September is highly anticipated, as sticky inflation figures could revive speculation about faster rate hikes. Additional data, including PPI numbers, retail sales, and industrial production for September, will also influence market expectations. The dollar’s strength could persist if more rate hikes are priced in for next year.
In Europe, the euro is facing challenges due to France’s political uncertainty. Prime Minister Sébastien Lecornu’s government presented a 2027 budget bill aiming to reduce the budget deficit, but opposition parties may demand concessions or threaten a no-confidence vote. French government bond yields have surged, raising concerns about fiscal contagion across the Eurozone. The European Central Bank is caught between fighting inflation and avoiding aggressive tightening that could weaken growth.
Meanwhile, Australia and the UK will release key economic data that could influence rate hike expectations. The Reserve Bank of Australia and the Bank of England are both facing decisions on future rate adjustments. Additionally, the IMF and World Bank Annual meetings and Q3 earnings reports from major banks will shape market sentiment.