US
USD extends this week’s broad gains to a fresh 19-month high as the sharp upward adjustment to Fed funds rate hike expectations lift Treasury yields. Brent crude oil prices bounced back just above its 200-day moving average ($94.36 a barrel) after hitting its lowest level since late August at $89.16 on Tuesday. Equity markets are mixed. Nvidia’s leadership turmoil is raising concerns over disruption to the broader AI industry, including the risk of tighter US chip export curbs on China.
The USD rally may look stretched in the near-term, but robust US growth, favorable labor market conditions and sticky underlying inflation keep the bias tilted higher.
Fed officials remain united in their hawkish message. Yesterday, San Francisco Fed President Mary Daly (2027 voter) said “My view is that further tightening will be needed…We have a strong labor market and solid growth, but we definitely have an inflation problem right now.”
New York Fed President John Williams warned “inflation is far too high and it continues to be high even in the latest data.”
Chicago Fed President Austan Goolsbee (2027 voter) stressed “We're way above target” on inflation.
Cleveland Fed President Beth Hammack (who dissented in favor of a 25bps hike in October) argued in favor of more frequent and smaller policy rate increases over larger moves.
The US October PPI is up next (1:30pm London, 8:30am New York). Focus will be on the PPI components that feed into core PCE, particularly Airline Passenger Services and PPI Services less Trade, Transportation, and Warehousing. A hot PPI print reinforcing October’s strong CPI reading could further bolster Fed rate hike bets and underpin USD.
The Fed unveiled the revised tentative schedule of FOMC meetings in 2027. Eight meetings remain on the calendar, but the October 26-27 gathering will focus exclusively on broad monetary policy strategy and carry no rate vote or policy statement. The final meeting moves forward to November 16-17 from mid-December. One fewer scheduled rate decision could amplify market moves around meetings and increase sensitivity to data between them.
JAPAN
USD/JPY is testing the waters at 160.00 as Tokyo fires warning shots. Finance Minister Satsuki Katayama called recent yen movements “one-sided and rapid,” adding “we will continue to coordinate closely with the U.S. Treasury Department and respond appropriately.”
Yesterday, the New York Fed released its Q3 report on FX operations for the Fed’s System Open Market Account (SOMA) and the US Treasury’s Exchange Stabilization Fund (ESF). The Federal Reserve did not intervene in foreign exchange markets over Q3, while the US Treasury purchased ¥79.4bn ($500mn) against the sale of euros over the period.
For its part, Japan spent a record ¥15.4 trillion (roughly 10% of its FX reserves) to prop up JPY on July 30-31 and August 3. USD/JPY plunged from an intra-day high of 163.74 on July 30 to a low of 155.23 on August 3 and has largely failed to sustain a break above 160.00 since.
Bottom line: higher US yields keep USD/JPY biased upward, but intervention risk makes chasing gains beyond 160.00 a less attractive risk-reward trade.
