• NFP and ISM set to send mixed USD signals.

• Blue wave favored in US Midterms.

• Nine central bank decision on tap. Four hikes, five holds.

Please note there will be no daily market strategy report this week as I’m on the road.

USD and short-term Treasury yields drifted lower last week as Fed Chair Kevin Warch struck a patient tone despite stalled progress on US inflation. Concerns about an AI investment slowdown compounded the move, casting doubt on the US growth outlook and dampening Fed rate hike expectations.

This week’s data is mixed for USD. Steady US hiring and slower wage growth would back Warsh’s gradual approach to rate hikes and keep USD in check. However, the ISM surveys are poised to keep a December Fed rate hike firmly in play and support USD. Expected hikes by the RBA, BOE, Riksbank, and CNB stand to lift their currencies. Norway, Brazil, Mexico, Malaysia, and Poland are set to hold.

NFP and ISM in the Hot Seat

October nonfarm payrolls (NFP) (Friday). Consensus looks for a +65k rise in payrolls vs. +29k in September, consistent with stabilizing labor demand. The unemployment rate is expected to hold at 4.2%, a tick higher than the FOMC 2026 projection of 4.1%. Average hourly earnings are forecast to rise 0.3% m/m vs. 0.1% in September, and ease at an annual pace of 2.9% y/y vs. 3.0% in September.

Slower wage growth underscores Warsh’s confidence that inflation compensation is going the right way. However, combined with sicky inflation, slower wage growth is also squeezing real household incomes, posing a downside risk to consumer spending.

Ahead of the NFP, the September JOLTS report (Tuesday) should reinforce the labor market’s low hire, low fire backdrop. October ADP private payrolls (Wednesday) are forecast at +67k vs. +90k in September. October Revelio Labs employment (Thursday) has no consensus but rose 56.9 in September. Revelio may offer a better NFP signal, with a reported correlation coefficient of 0.74 vs. ADP’s 0.26 since 2010 and virtually zero year-to-date.

October’s Manufacturing ISM (Monday) and the Services ISM (Wednesday) are expected to remain indicative of strong US economic activity and persistent upside inflation risks.

US Midterms: Blue Wave in the Pipeline

The US midterm elections will be held on Tuesday. Democrats are widely expected to win the House of Representatives. Senate control is much closer, but the tide favors the Democratic party. Democrats need a net gain of four seats to secure a majority in the Senate. That’s within reach as Republicans are defending six of the seven toss-up seats.

Betting markets favor a Democratic sweep with Polymarket and Kalshi putting the odds around 70%. That points to a relatively muted initial market reaction if Democrats win both chambers. A Republican Senate hold would be the bigger surprise and could spark more market volatility.

Beyond the initial reaction, the interplay between fiscal policy and monetary policy will drive USD. The projected fiscal drag is too small to derail the Fed’s tightening path, keeping USD supported in the coming months. Longer term, the US fiscal trajectory will not improve regardless of the midterm outcome, posing a structural headwind for USD. See our latest quarterly report for more on the midterms.

Nine Central Banks: Four Hikes, Five Holds

RBA policy decision and Statement on Monetary Policy (Tuesday). The RBA is expected to deliver a second straight 25bps hike to 4.85% because inflation is materially worse than the bank assessed in August. Cash rate futures imply 83% probability of a hike. Hawkish guidance would widen AUD’s yield advantage.

Riksbank policy decision (Wednesday). The Riksbank is expected to start tightening with a 25bps hike to 2.00% after a year on hold. That limits policy divergence with most other major central banks and should help SEK claw back some of this year’s underperformance against its G10 peers.

National Bank of Poland (NBP) policy decision (Wednesday). NBP is expected to keep the policy rate at 3.75% for a seventh straight meeting. Energy driven inflation shows little sign of feeding into the wider economy as core inflation continues to track below the upper bound of the NBP’s 1.5- 3.5% target range. Still PLN’s real yield advantage has evaporated, weighing on the currency.

Banco Central do Brasil (BCB) policy decision (Wednesday). BCB is expected to pause easing and keep rates at 13.75% after the post-election BRL selloff. Brazil’s attractive carry and strategic exposure to commodities linked to energy, AI, and defense remain key structural tailwinds for BRL.

Bank of England (BOE) policy decision and Monetary Policy Report (MPR) (Thursday). BOE is widely expected to start tightening with a 25bps hike to 4.00% after standing pat all year. Firmer UK inflation and economic activity back the move. The vote split is seen at 7-2 with doves Alan Taylor and Swati Dhingra supporting a hold.

BOE guidance and the updated MPR will test market expectations for 100bps of tightening over the next twelve months. Persistent spare capacity across the forecast horizon would strengthen the case for pricing out hikes and limit GBP upside.

Norges Bank policy decision (Thursday). The Norges Bank is expected to keep rates on hold at 4.50% after September’s 25bps hike. Keeping further hikes on the table would underpin NOK.

Czech Central Bank (CNB) policy decision (Thursday). CNB is widely expected to resume tightening and raise rates 25bps to 4.00%. CZK remains supported by an attractive carry and a favorable balance of payments backdrop.

Bank Negara Malaysia (BNM) policy decision (Thursday). BNM is expected to leave the policy rate on hold at 2.75% for an eighth consecutive meeting and reiterate it “considers the monetary policy stance to be consistent with the outlook of continued price stability and sustainable economic growth.” Malaysia’s positive real rates and strategic exposure to commodities linked to energy, AI, and defense remain key structural tailwinds for MYR.

Mexico’s central bank (Banxico) policy decision (Thursday). Banxico is expected to keep the policy rate unchanged at 6.50% for a fourth straight meeting. At its last September meeting, Banxico scrapped its previous guidance to keep the policy rate at 6.50% but cautioned it need not match the Fed’s expected rate increases.

That suggests the bar for a hike remains high as long as Mexico inflation tracks the bank’s forecast. Regardless, Mexico’s positive real yields, favorable balance of payments backdrop and energy exposure more than offsets the drag to MXN from less negative US-Mexico rate differentials.