US
Brent crude oil prices slipped back under $100 a barrel on talk of reserve releases. Reuters report that European Union members were considering a proposal to release 50 million barrels of diesel, and for International Energy Agency members to release 50 million barrels of crude oil
Meanwhile, the USD rally and bond market selloff stalled. This week’s comments by three FOMC heavyweights helped trim bets of a back-to-back hike in October. On Tuesday, New York Fed President John Williams said “there is no need for urgency, and we have time to gather more information.” On Thursday, Vice Chair Philip Jefferson cautioned it “may take more time” to assess the data before any future policy adjustment while Vice Chair for Supervision Michelle Bowman stressed “I don’t currently see an urgent need for further action.”
Dallas Fed President Lorie Logan (2026 voter) struck a more hawkish tone, arguing for “the target range needs to rise an additional 50 basis points or more.” Fed Funds futures imply 75bps of hikes over the next twelve months.
The USD uptrend sparked by the hot August CPI print in early September and turbocharged by the Fed’s hawkish hike on September 16 remains intact. Resilient US economic activity, improving labor demand, and sticky inflation back the case for additional Fed tightening.
The Atlanta Fed GDPNow model estimates above trend annualized real GDP growth of 3.7% in Q3 vs. 2.2% in Q2. Today, the September nonfarm payrolls (NFP) report will provide a fresh gauge of labor demand (1:30pm London, 8:30am New York).
Consensus is looking for NFP gains of +90k vs. +162k in August. Bloomberg’s whisper number is +84k while ADP private payrolls and Revelio Labs employment imply NFP gains of +67K. The unemployment rate is expected to remain at 4.1% for a third consecutive month, in line with the FOMC 2026 projection and indicative of an economy near full employment.
EUROZONE
EUR/USD recovered slightly after making fresh cyclical lows at 1.1215 yesterday. Immediate support levels for EUR/USD are offered at 1.1200 (August-September 2024 double top) and 1.1111 (50% retracement of 2025-2026 uptrend).
Eurozone September preliminary CPI inflation was mixed. Headline ran hot, but underlying measures tracked expectations:
•Headline CPI rose to a three-year high at 3.8% y/y vs. 3.2% in August on higher energy prices, exceeding consensus of 3.7% and the ECB’s 2026 projection of 3.0%.
•Excluding energy & food, core CPI matched consensus and ECB 2026 projection at 2.5% y/y vs. 2.4% in August.
•Services CPI rose to 3.2% y/y vs. 3.0% in August but is tracking just under the ECB’s 2026 projection of 3.3%.
Overall, above target Eurozone inflation and a firmer growth outlook give the ECB scope to deliver more hikes. The swaps curve implies nearly 75bps of tightening to 3.25% in the next twelve months. That limits policy divergence with the Fed and the drag on EUR/USD. However, stronger US growth traction relative to the Eurozone and France’s worsening budget crisis keeps EUR/USD risks skewed to the downside.
Yesterday, France’s minority government presented details of a plan to reduce the country’s budget deficit to 5.0% of GDP next year. We doubt the proposal will clear parliament without significant concessions. Even then, France’s fiscal watchdog warned that the economic assumptions in the 2027 draft budget are “optimistic.”
A rollover of the 2026 budget is the most likely outcome given the limited appetite for compromise before the presidential election on April 18, 2027. That could push the deficit from 5.4% of GDP in 2026 to roughly 6.0% in 2027, taking France further away from its European Commission commitment to bring it below 3% by 2029.
