US
Crude oil prices are edging toward recent highs, weighing modestly on bonds. US equity futures are slightly higher. The dollar index (DXY) is firm and within reach of its October 14 intraday high at 102.95.
The FOMC is expected to keep the Fed funds target range steady at 3.75-4.00% after raising rates 25bps in September (6:00pm London, 2:00pm New York). Calls for patience from several key Fed officials support a pause. Futures market imply only 10% probability of a hike today.
The FOMC vote split and Fed Chair Kevin Warsh’s assessment of inflation are poised to keep a December hike in play. We lean towards a 9-3 vote to hold, with Beth M. Hammack, Neel Kashkari, and Lorie K. Logan dissenting in favor of a 25bps hike, as they did in July. Warsh is also likely to reiterate that inflation remains too high and underlying inflation pressures have yet to improve meaningfully.
Bottom line: robust US economic activity and rising price pressures reinforce the Fed’s hawkish bias, keeping rate differentials supportive of USD.
UK
GBP and gilts will take their cue from today’s UK budget (12:30pm London, 8:30am New York). The focus is whether the government preserves the planned fiscal tightening and keeps gilt issuance in check.
In March, the OBR projected the cyclically adjusted primary balance, which excludes interest costs and adjusts for the economic cycle, to improve from a 0.3% of GDP deficit in 2026/27 to a 0.3% surplus in 2027/28, implying a fiscal drag of 0.6% of GDP.
Meanwhile, analysts expect 2026/27 total gilt sales of £249.6bn, up £3.4bn from April’s plan, but £2.5bn below March’s original figure.
Maintaining or increasing the fiscal squeeze should support gilts by easing inflation pressure and tempering BOE hike expectations. For GBP, stronger fiscal credibility would compete with lower rate support and limit upside. By contrast, fiscal slippage and heavier gilt issuance can drive gilt yields up and GBP down.
CANADA
USD/CAD is holding above key support at 1.4000 ahead of the Bank of Canada (BOC) policy decision and Monetary Policy Report (1:45pm London, 9:45am New York). The BOC is expected to start tightening with a 25bps hike to 2.50% (80% priced in), after holding rates steady since December 2025. BOC Governor Tiff Macklem’s warned recently that “the risk that inflation broadens and becomes more persistent has gone up.”
The BOC will likely raise its inflation and real GDP forecast, which can underpin CAD. September headline CPI printed at 3.1% y/y, exceeding the bank’s 2.5% Q3 projection, while Q2 real GDP grew 3.3% annualized vs. the bank’s 2.5% projection. The average of CPI trim and median was 1.85% y/y in September, tracking just below the BOC’s 2.0% Q3 projection. But the pick-up in firm’s one- and two-year inflation expectations could lift the core CPI outlook, reinforcing the case for further hikes.
NEW ZEALAND
NZD/USD plunged 1.6% to an intraday low around 0.5585 after the RBNZ unexpectedly kept the policy rate steady at 2.75%. Ahead of the decision, the swaps curve implied 85% odds of a 25bps hike to 3.00% while 23 of the 25 analysts polled by Bloomberg expected a hike and only 2 had a hold penciled in.
It was a split 4-3 decision to hold. The majority supporting a hold [Governor Anna Breman, Rebecca Williams, and external members Carl Hansen and Prasanna Gai] emphasized the risk of a weak recovery in household consumption and investment.
Those favoring a hike [Chief Economist Paul Conway, Assistant Governor Karen Silk and external member Hayley Gourley] warned of the risk inflation becomes entrenched, citing resilient aggregate growth.
Despite the split, all members retained a tightening bias. But they noted that incoming data over the next six weeks “could meaningfully change the appropriate policy stance in either direction”. For now, the swaps curve implies 85% odds of a 25bps hike to 3.00% at the next December 9 meeting, and nearly 125bps of tightening in the next twelve months.
Bottom line: the RBNZ less hawkish stance relative to the Fed and RBA should keep NZD on the defensive against USD and AUD.
AUSTRALIA
AUD/USD failed to break above resistance at its 200-day moving average (0.7056), but immediate support is offered at 0.7000. Australia inflation beat expectations, strengthening the case for another RBA hike and underpinning AUD. September headline CPI rose 4.3% y/y (consensus: 4.2%) vs. 4.0% in August reflecting rising housing and transport costs. Trimmed mean CPI matched consensus at 3.6% y/y up from 3.5% in August. But the policy-relevant Q3 trimmed mean CPI ran hot at 3.7% y/y (consensus: 3.6%) vs. 3.6% in Q2.
Inflation is materially worse than the RBA assessed in August, when it forecast year-end headline CPI at 3.6% and trimmed mean at 3.3%. This argues for additional tightening. RBA cash rate futures raised odds of a 25bps hike to 4.85% on November 3 from 60% to 85%, and increased bets on another hike in Q1.
ISRAEL
ILS is underperforming across the board, and the Tel Aviv stock index is down over 1.5%. Prime Minister Benjamin Netanyahu’s bloc stronger showing has raised his chances of staying in power. The market selloff likely reflects concerns that another Netanyahu-led government would revive the judicial overhaul, raising concerns about the rule of law and political stability.
With over 70% of votes counted, Netanyahu’s bloc was projected to win 54 seats vs. 48 for the bloc led by Gadi Eisenkot, while the Arab parties were set to win 18. With no bloc likely to reach the 61-seat threshold needed for a stable government, coalition dealmaking will take center stage over the next couple of months. If no politician can command a majority in the 120-seat Knesset, fresh elections will have to be called.
