Most major currencies remain range-bound in early October, struggling to recover from September’s sell-off. EUR/USD is trading at 1.1160-1.1280, GBP/USD at 1.3180-1.3300, USD/JPY at 157.0-158.4, USD/CAD at 1.42-1.43, and AUD/USD at 0.69-0.70. The 14-day RSI suggests that the EUR and CAD remain oversold, while selling pressure eased on GBP and JPY. Markets are navigating multiple risks, from shifting Fed rate expectations and JPY intervention concerns to France’s fiscal problems. The S&P 500 Index is struggling to sustain a breakout above 7800, as rising Treasury yields and the prospect of further Fed tightening weigh on valuations.
The September FOMC minutes reinforced the market’s expectation for the Fed to pause on October 28 before potentially hiking again on December 9. The New York Fed reported that 1-year inflation expectations rose to a three-year high of 3.9% YoY in September. Although WTI crude oil prices have not revisited April’s peak, gasoline has returned towards its 2026 high, while diesel has surged to new highs amid exceptionally tight distillate supplies. This weakens the argument that US energy self-sufficiency leaves the US economy substantially insulated from global fuel-price shocks, undermining one of the arguments supporting the USD.
Turning to the EUR’s French fiscal headwinds, Bank of France Governor and European Central Bank Governing Council member Emmanuel Moulin has rejected far-right National Rally leader Marine Le Pen’s call for ECB intervention to ease French borrowing costs. Moulin insisted fiscal consolidation in Paris, rather than monetary support from Frankfurt, was the appropriate response. The ECB’s priority remains restoring inflation sustainably to its 2% medium-term target. Intervention in the sovereign bond markets would require evidence of unwarranted market fragmentation, not simply higher borrowing costs arising from fiscal concerns.
France’s 2027 Budget will test whether fiscal consolidation can survive political divisions ahead of next year’s presidential election. Parliamentary review has officially begun on October 7, with October 20 set as the target date for the initial vote on the revenue and taxation portion of the bill. The final reading in the National Assembly is scheduled for November 18, with the legal deadline to conclude all parliamentary debates and votes set for December 10-15.
The widening OAT-Bund spread alone does not tell the whole story. The French 10Y yield has risen towards 5%, narrowing its gap with US Treasuries as global bond pressures compound France’s domestic fiscal concerns. With France’s 2027 budget negotiations underway, markets have reason to assess the prospects for fiscal consolidation before extrapolating the country’s difficulties into another Eurozone sovereign debt crisis.
Quote of the Day
“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.”
Marie Curie
Today in history
Clive Granger and Robert F. Engle shared the Nobel Prize in Economic Sciences on October 8, 2003, “for methods of analyzing economic time series with time-varying volatility (ARCH)”.
Topic
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