US
USD is building on its post hawkish Fed hike gains. Fresh headlines that the Strait of Hormuz could soon reopen has taken some steam out of the USD rally and weighing on energy prices.
Fed officials indicate more tightening is in the pipeline. St. Louis Fed President Alberto Musalem (non-voter) said further rate hikes may be needed to curb inflation, while Chicago Fed President Austan Goolsbee (2027 voter) warned of “more aggressive and more and more front-loaded” rate hikes if demand is overheating.
More Fed officials speak today: New York Fed president John Williams, Fed Vice Chair Philip Jefferson, and Richmond Fed President Tom Barkin (2027 voter).
Tightening by other major central banks limits policy divergence with the Fed and suggests USD will struggle to make new cyclical highs. But the US growth advantage relative to other major economies skews USD risk to the upside. Tomorrow’s September S&P Global PMI readings will likely show US maintaining its growth edge over the Eurozone, UK, and Japan.
UK
GBP/USD is trading heavy under 1.3400. UK fiscal policy is poised to become more restrictive. The UK government borrowed £18.3bn in August, up £2.9bn from August 2025 and £3.5 billion above the Office for Budget Responsibility forecast.
Meanwhile, higher borrowing costs are estimated to have halved the government’s fiscal headroom to around £12bn. That leaves Chancellor John Healey under pressure to raise taxes and cut spending to deliver his promised “buffer against uncertainty” in the October 28 Autumn Budget.
Bottom line: a tighter UK fiscal squeeze suggests the BOE may not need to raise the policy rate as much as markets expect (100bps in the next twelve months to 4.75%). As such, GBP is vulnerable to a dovish BOE repricing.
HUNGARY
National Bank of Hungary (MNB) is widely expected to keep rates on hold at 5.50% after delivering three straight 25bps cuts over the summer. The focus will be on the outcome of its inflation target review, launched in the spring. Market participants expect MNB to lower its inflation target to 2.5% from 3%, bringing it closer to the ECB’s 2% goal. The current framework, featuring a tolerance band of +/- 1%, has been in place since 2015. A lower inflation target is supportive of HUF as it will help keep real yields positive.
NEW ZEALAND
NZD is outperforming most major currencies. RBNZ Governor Anna Breman delivered hawkish remarks, raising odds (from 57% to 73%) of a 25bps hike to 3.00% at the next October 28 meeting. Breman stressed “if higher oil prices persist, they are expected to result in somewhat higher near-term inflation than we assumed in the September Statement.” New Zealand’s Q3 CPI is due on October 21, and the RBNZ forecasts headline CPI inflation to ease to 3.9% y/y vs. 4.1% in Q2.
