Long-term sovereign bond yields trading heavy. Investor appetite for bonds may be weighing on yields despite firmer crude oil prices. For instance, Japan’s 20-year government bond auction saw the strongest demand on record, with a bid-to-cover ratio of 5.84 vs. 4.01 at the previous sale.
USD is broadly weaker. EUR/USD is directionless just above 1.1200 undermined in part by worsening German investors’ outlook. The October ZEW expectations index fell more than expected to a three-month low at 28.1 (consensus: 30.0) vs. 34.7 in September.
Today’s second-tier US data are unlikely to give USD fresh direction. Releases include weekly ADP private employment change, October Philly Fed non-manufacturing index, September housing starts, building permits, and pending home sales.
UK
GBP is up against most major currencies. UK August labor market data reinforced the case for a BOE 25bps policy rate hike to 4.00% on November 5.
In the three months to August, the employment rate increased +0.2ppt to 75.3% while the unemployment rate decreased -0.2ppt to 4.7%, suggesting more people are finding work. The unemployment rate is the lowest since July 2025 and tracking below the BOE’s Q3 projection of 5.0%.
The policy-relevant private sector regular pay growth matched consensus and the BOE’s Q3 projection at 3.0% y/y vs. 2.9% in July. But wage growth also suggests services inflation will remain sticky well above the bank’s 2% target.
The swaps curve implies 95% odds of a November BOE rate hike and 100bps of tightening in the next twelve months. In our view, the BOE may not need to tighten as much as markets anticipate, which is a headwind for GBP. The UK economy is operating below capacity, the policy rate is near the top of the BOE’s estimated 2% to 4% neutral range, and fiscal policy will likely turn more restrictive following the October 28 UK budget.
HUNGARY
HUF is underperforming. Regardless, Hungary’s government plan to meet euro adoption conditions by 2030 remains an important tailwind for HUF. To advance that goal, the government’s 2027 budget proposal targets a deficit of 4.9% of GDP in 2027, down from a planned 7.5% this year. The deficit would then narrow to 2.8% by 2030, below the 3% ceiling under the Eurozone’s fiscal convergence criteria.
National Bank of Hungary (MNB) is widely expected to keep rates on hold at 5.50% for a second straight meeting (1:00pm London, 8:00am New York).
CANADA
USD/CAD is down near a one month low as markets firmed up bets of a BOC rate hike next week. The modest lift in near-term inflation expectations outweighed Canada’s soft September CPI print. The swaps curve now pricing in 78% probability of a 25bps BOC rate hike to 2.50% on October 28, up from 60%.
Canada headline CPI rose to 3.1% y/y vs. 3.0% in August, driven by higher energy prices. That was less than consensus of 3.2% but above the BOC’s 2.5% Q3 projection. Underlying inflation was more subdued. Core CPI ex. food & energy matched consensus at 2.1% y/y vs. 2.1% in August, while the average of CPI trim and median unexpectedly eased to 1.85% y/y (consensus: 1.95%) vs. 1.95% in August, tracking below the BOC’s 2.0% Q3 projection.
Nevertheless, the pick-up in firm’s one- and two-year inflation expectations underscore BOC Governor Tiff Macklem’s warning on Friday that “the risk that inflation broadens and becomes more persistent has gone up.”
We still see the 100bps of BOC tightening priced over the next twelve months as excessive, limiting CAD upside. Canada core inflation remains near the banks’ 2% target, and the economy continues to operate below capacity.
