The dollar index (DXY00) is down by -0.30%, falling back from Monday’s 1.5-year high. The dollar is under pressure today after WTI crude oil fell nearly -1%, lowering inflation expectations that could prompt the Fed to loosen monetary policy and undercut the dollar. The dollar added to its losses today on comments from Fed Governor Christopher Waller, who said the recent surge in long-term bond yields is doing some of the Fed’s work to tighten monetary policy, suggesting he favors holding policy steady at the FOMC meeting later this month.
The dollar recovered from its worst level on hawkish comments from Chicago Fed President Austan Goolsbee, who said inflation tied to the AI boom is “jumping out of its lane” and starting to push up prices in unrelated corners of the economy. Also, the unexpected increase in Sep existing home sales is supportive for the dollar.
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US Sep existing home sales unexpectedly rose +1.5% m/m to 3.99 million, stronger than expectations of a decline to 3.95 million.
The International Monetary Fund (IMF) raised its 2026 global GDP forecast to 3.1% from 3.0% in July, and kept its 2026 global consumer price forecast unchanged from July at 4.7%.
Markets are pricing in a 24% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) is up by +0.32% today, rebounding from Monday’s 17-month low. Dollar weakness today has spurred some short covering in the euro. Also, today’s decline in crude oil prices is supportive for the Eurozone economy and the euro, as Europe imports most of its energy.
The markets are discounting an 11% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) is down by -0.15% today. The yen is moving higher today amid a weaker dollar. Also, today’s decline in crude oil prices supports the Japanese economy and the yen, as Japan imports more than 90% of its energy. In addition, lower T-note yields today are bullish for the yen.
Gains in the yen are limited today after Japan’s Sep producer prices rose less than expected, a dovish factor for BOJ policy. Also, Japan’s 10-year JGB yield fell to a 3-week low of 3.002% today, narrowing the yen’s interest rate differentials.
