Weekly Forex Outlook: Dollar, Euro, Pound and Major Currency Pairs

Financial markets enter the new week with several competing forces shaping currency movements. US Treasury yields, the outlook for AI-related stocks, rising oil prices and expectations for central bank policy are likely to remain important drivers of the foreign exchange market.

The semiconductor sector suffered a weekly decline of more than 10%, its steepest drop since early April 2025. The sell-off has raised questions about the sustainability of the AI-driven investment theme and its contribution to US economic growth and household wealth. Meanwhile, crude oil prices continued to climb, adding another potential source of inflationary pressure.

The economic calendar is relatively light in several major economies, but the UK and China are notable exceptions. Employment, inflation and retail sales data will provide important signals for sterling, while China’s third-quarter GDP report will offer a fresh assessment of economic momentum.

Key Themes Driving the Forex Market

AI Stocks, Treasury Yields and the US Dollar

The semiconductor sell-off may have implications beyond the equity market. If concerns about AI-related investment begin to weigh on US growth expectations and financial-market wealth, Treasury yields could come under pressure. Lower US yields may, in turn, reduce support for the dollar.

During Wednesday and Thursday of the previous week, the 10-year Treasury yield fell from around 5.33% to 5.03%, while the two-year yield declined from approximately 4.95% to 4.68%. US yields subsequently moved higher ahead of the weekend, helping the dollar recover from its lows. Nevertheless, the dollar finished lower against most G10 currencies, with the Japanese yen broadly unchanged.

The semiconductor index also ended the week at its lowest level since mid-September. Whether this weakness develops into a broader reassessment of the AI investment theme could become an important influence on currency markets.

Oil Prices Add to the Market Uncertainty

Oil was another major market driver. December WTI crude futures gained almost 9% last week, marking their third consecutive weekly advance. The contract reached a new high near $99.35 before the weekend, while generic WTI futures rose more than 10% to approximately $101.50. The previous month’s high was around $106.75.

Further gains in oil could influence inflation expectations, central bank decisions and the relative performance of energy-importing and energy-exporting economies.

Looking to understand currency pair movements through technical indicators and fundamental economic factors? Explore our Market Analysis section for in-depth forex analysis, market trends, and insights to support more informed trading decisions.

US Dollar Outlook: DXY

Fundamental Drivers

The relationship between the US Dollar Index (DXY) and the US two-year Treasury yield weakened before the latest US inflation report. Their 30-day correlation fell to a seven-month low, slightly below 0.30.

That relationship could strengthen again, but the US data calendar is relatively light and Federal Reserve officials are entering the blackout period ahead of the October 27–28 FOMC meeting.

The Atlanta Fed’s GDP tracker estimates annualized US growth of 3.5% for the third quarter. The United States is also a significant energy exporter, potentially leaving it better positioned than some other economies to withstand global shocks.

However, a sustained decline in AI-related stocks could become a negative factor for the dollar, particularly if it pushes Treasury yields lower.

Economic Data to Watch

Following the latest CPI and PPI reports, upcoming US releases may have limited influence on expectations for the next Fed meeting. The market is expected to pay particular attention to the preliminary purchasing managers’ index (PMI) and the Philadelphia Fed’s non-manufacturing survey.

Housing data will also be relevant. Through August, the average monthly decline in housing starts during 2026 was approximately 0.3%, compared with an average monthly decline of 1.5% during the first eight months of 2025.

Interest-rate futures indicate a relatively limited probability of a rate increase at the upcoming meeting, while pricing in additional tightening between now and the end of the first quarter of 2027. These expectations should be checked against current market pricing before publication.

DXY Technical Outlook

The Dollar Index approached 103.00 last week, corresponding to a 50% retracement of its decline from the 2025 peak before President Donald Trump’s second inauguration. It subsequently reversed lower and slipped slightly below 101.60 ahead of the weekend.

Initial support is located around 101.40. Momentum indicators have turned lower, although consolidation may be more likely than a sustained directional move ahead of the upcoming Fed, ECB and Bank of Japan meetings.

Stay informed about inflation reports and key economic data releases that can influence currency movements and global financial markets. Explore our Macroeconomic News for the latest economic updates and developments.

Euro Outlook: EUR/USD

Fundamental Drivers

The euro has become more closely linked to changes in the US-German two-year interest-rate differential than to movements in US or German yields individually.

Over the latest 30 sessions, the correlation between euro movements and changes in the US-German two-year yield differential was approximately -0.45. The corresponding correlations with the US two-year yield and German two-year yield were around -0.22 and 0.18, respectively.

European bond-market tensions have also become more important. The correlation between euro movements and the French 10-year yield premium over Germany has risen to approximately 0.60, its highest level in four months. The corresponding correlation with Italy’s premium was around -0.60, the strongest reading since June.

These relationships highlight the potential influence of sovereign bond-market developments on the euro, although correlations do not establish a direct causal relationship.

Eurozone Data to Watch

The preliminary October PMI is likely to be the most influential eurozone release in the coming week. Germany’s ZEW economic sentiment survey will also attract attention.

The ZEW expectations index increased for five consecutive months through September, reaching 34.7. However, it remained below February’s 58.3 reading and the 45.8 recorded at the end of the previous year. The assessment of current economic conditions stood at -47.1, its least negative reading since May 2023.

The European Central Bank’s one-year and three-year consumer inflation expectations will also be released. Both measures have been running around 2.9%–3.0%, approximately 0.2–0.3 percentage points above their levels at the end of the previous year.

The eurozone current account has remained relatively stable despite challenges in the automotive sector and changing trade relations with China. ECB staff projections put the aggregate current-account surplus at around 1.5% of GDP for the current year and the following year.

EUR/USD Technical Outlook

EUR/USD approached 1.1110 in the middle of last week before recovering towards 1.1270 ahead of the weekend.

The 20-day moving average is near 1.1285, a level the pair has not traded above since September 10. Momentum indicators are turning higher, but the latest rebound has not yet established a convincing recovery.

A sustained close above 1.1300 could provide stronger evidence of an upside extension. Until then, consolidation remains a plausible scenario.

Stay updated on Federal Reserve decisions, interest rate policies, and officials’ latest statements to understand their potential impact on currency movements and financial markets. Explore our Central Banks section for the latest updates and insights.

Chinese Yuan Outlook: USD/CNH

Fundamental Drivers

The People’s Bank of China (PBOC) has continued to signal a preference for gradual yuan appreciation through its daily fixing mechanism.

The yuan has been among the stronger currencies this year, while the dollar reference rate has steadily declined. China’s substantial trade surplus also suggests that the yuan’s appreciation has not yet significantly reduced the country’s export competitiveness.

Speculation about possible intervention by Chinese banks remains difficult to verify. The clearest observable signals are the fixing levels and the yuan’s actual performance.

China GDP and Economic Activity

China is scheduled to release third-quarter GDP alongside September economic data. The median forecast cited in the source material calls for quarterly growth of 0.9%, unchanged from the second quarter, and annual growth of 4.4%, up from 4.3%.

Recent PMI readings suggest that activity may have improved modestly in September. Nevertheless, the property sector remains a significant weakness, with housing prices and sales continuing to weigh on the outlook.

The effects of Beijing’s targeted support measures and lower borrowing costs may take time to become apparent. Without clearer policy guidance, further reductions in banks’ prime lending rates are not assured.

USD/CNH Technical Outlook

The offshore yuan reached its strongest level since July 2022 ahead of the weekend, with USD/CNH falling below 6.6850.

The next psychological level to watch is 6.60. Continued yuan appreciation could place further downward pressure on the pair, although longer-term exchange-rate projections remain uncertain and should not be treated as guaranteed outcomes.

Japanese Yen Outlook: USD/JPY

Fundamental Drivers

USD/JPY has become more closely correlated with changes in the US two-year Treasury yield than with the 10-year yield. Over the latest 30 sessions, the correlations were approximately 0.45 and 0.35, respectively.

The September Japanese CPI report, scheduled for October 22 in the source calendar, is the main domestic release to watch. Tokyo inflation accelerated, with headline inflation rising to 2.7% from 2.5% and core inflation increasing to 2.7% from 1.8%. National inflation may rise by less because of differences in local subsidy effects.

Japan will also publish its trade balance and services activity index. Seasonal patterns generally favor an improvement in the September trade balance, but the country has continued to record a persistent trade deficit.

During the first eight months of the year, Japan’s average monthly trade deficit was approximately JPY347.5 billion, compared with JPY351.2 billion in the same period of 2025 and JPY599.3 billion in 2024.

Industrial production fell by a preliminary 1.7% in August after rising 0.4% in July. The preliminary October PMI will provide another indication of the economy’s momentum.

USD/JPY Technical Outlook

The dollar briefly approached JPY159 after US inflation data pushed Treasury yields higher. It subsequently retreated towards JPY157.55 as US yields fell, despite verbal intervention from Japan’s finance minister.

The 20-day moving average is around JPY157.95. Although USD/JPY moved below it intraday during the final sessions of the week, it settled above the level.

The pair has spent relatively little time above JPY159 since early September and has also struggled to remain below JPY157.50 in recent weeks. These levels remain important reference points for near-term price action.

British Pound Outlook: GBP/USD

Fundamental Drivers

Sterling’s relationship with US Treasury yields has weakened. Its 30-day correlation with changes in the US two-year yield was approximately -0.27, while its relationship with the UK two-year yield fluctuated around zero.

The pound’s inverse correlation with the Dollar Index reached approximately -0.89, its most extreme reading since mid-May. Sterling and the euro also continued to move closely together, with a correlation near 0.90.

UK Employment, Inflation and Retail Sales

The UK economic calendar is particularly busy, with employment, inflation and retail sales data due ahead of the preliminary October PMI.

Payrolled employment may decline for an eighth consecutive month, while average weekly earnings growth has been slowing. Core inflation, measured using a definition that also excludes alcohol and tobacco, eased from 3.2% at the end of the previous year to 2.5% in April. It subsequently remained around 2.6% from May, with the source anticipating a possible increase to 2.8% in September.

Retail sales have remained relatively resilient despite slower wage growth and a softer labour market. They increased by an average of 0.3% per month through August, compared with an average monthly gain of 0.2% during the first eight months of 2025.

The composite PMI stood at 52.0 in September. A slight decline in October is possible, particularly if services activity weakens.

The source also reports strong market expectations for a 25-basis-point Bank of England rate increase in early November. That outlook could change if the upcoming data deliver significant downside surprises.

GBP/USD Technical Outlook

Sterling reached a new year-to-date low near $1.3135 in the middle of last week before reversing sharply. It subsequently rallied from around $1.3185 to above $1.3370, recording its highest settlement since September 22.

Momentum indicators have turned higher, and the five-day moving average approached the 20-day moving average. Sterling also moved from near the lower Bollinger Band to above the upper band during the recovery.

Despite the rebound, upside momentum faded towards the weekend. Near-term consolidation below $1.3400 remains a plausible scenario.

Canadian Dollar Outlook: USD/CAD

Fundamental Drivers

USD/CAD has become more closely correlated with changes in the US two-year yield and the US 10-year yield premium over Canada. The respective correlations cited in the source are approximately 0.45 and 0.47.

The relationship with Canada’s 10-year yield was weaker, at slightly above 0.15. These changes suggest that movements in US yields have recently become particularly relevant for the pair.

Political developments in Alberta may also attract investor attention. A referendum is scheduled for October 19, with the question of independence drawing particular interest. Even if independence is unlikely to secure majority support, a close result could leave the issue politically significant. Quebec’s separatist debate is another longer-term uncertainty.

Canadian Economic Data

Canada will publish September CPI and August retail sales data, alongside the Bank of Canada’s business survey.

Headline inflation reached 3.0% year over year in August, although the three-month annualized rate was zero. Underlying core inflation measures remained near 2%.

Retail sales declined 0.7% in July, but the monthly average through July was still positive at 0.6%. A rebound in August retail sales is anticipated in the source material.

Taken together, these figures may provide little immediate incentive for the Bank of Canada to raise rates at its October 28 meeting, although the latest data will determine whether that assessment remains valid.

USD/CAD Technical Outlook

USD/CAD traded between approximately 1.4200 and 1.4300 during much of the month before breaking lower on October 15. The pair reached around 1.4135 ahead of the weekend.

The former support near 1.4200 may now act as resistance. Momentum indicators are declining, while a move towards 1.4100 is a potential technical target if selling pressure continues.

Some consolidation following the breakout would also be consistent with typical market behaviour.

Stay prepared for upcoming CPI releases and scheduled speeches by central bank officials that could influence market volatility and trading decisions. Explore our Economic Calendar Events to track important economic announcements and scheduled events.

Australian Dollar Outlook: AUD/USD

Fundamental Drivers

Over the latest 30 sessions, the Australian dollar’s movements became more closely linked to changes in the US-Australia two-year interest-rate differential. The reported correlation was approximately 0.45, compared with around -0.37 for changes in the US two-year yield.

The correlation between the Australian dollar and gold also weakened to below 0.30, its lowest level of the year after reaching approximately 0.85 in June.

Australian PMI and RBA Expectations

The preliminary October PMI is the main scheduled release in the coming week.

The Reserve Bank of Australia has raised interest rates four times this year. However, the unexpectedly weak September employment report raised concerns about the impact of tighter policy.

Manufacturing activity weakened to 49.6 in September from 52.0 in July and August. The services PMI fell for a second consecutive month to 51.9, while the composite PMI declined to 51.3.

Markets have priced in approximately a 35% chance of another rate increase at the November 3 meeting. The September CPI report, due on October 28 according to the source calendar, could influence those expectations.

AUD/USD Technical Outlook

The Australian dollar moved outside its recent $0.6900–$0.7000 range in both directions during the week, before finishing near the middle of the range.

Weak employment data and pressure in the property market have encouraged speculation that the RBA could pause after its previous rate increases. Futures pricing indicates a relatively limited amount of additional tightening by the middle of next year.

A stronger-than-expected CPI reading could challenge that view. However, with the five-day and 20-day moving averages still declining, a sustained bullish move remains uncertain. Consolidation is the baseline scenario in the source analysis.

Mexican Peso Outlook: USD/MXN

Fundamental Drivers

USD/MXN remains sensitive to broader risk sentiment. Its 30-session correlation with the JPMorgan Emerging Market Currency Index was approximately -0.74, although this was the least negative reading in two months.

The pair’s correlations with changes in the US two-year yield and the Dollar Index were approximately 0.35–0.40. Its sensitivity to Mexico’s two-year yield had declined to around 0.03.

The correlation with the S&P 500 was approximately -0.50, indicating that broader equity-market conditions remained a relevant reference point for the peso.

Mexican Economic Data

Mexico’s economy contracted by 0.3% quarter over quarter in the first quarter of 2026 before expanding by 1.4% in the second quarter. The source characterises both readings as exaggerating the underlying trend, which points to annual growth of around 1.5%.

Upcoming releases include August retail sales, September unemployment, first-half October CPI and the IGAE monthly economic activity indicator.

Through July, the IGAE had recorded an average monthly increase of 0.26%, compared with 0.10% during the same period in 2025 and 0.17% in 2024. The upcoming releases are not expected to fundamentally change the prevailing economic outlook unless they produce significant surprises.

USD/MXN Technical Outlook

The dollar extended its advance against the peso, rising slightly above MXN18.60 in the middle of last week before consolidating.

Momentum indicators remain positive but appear stretched. A convincing break above MXN18.60 could bring the upper Bollinger Band, around MXN18.7650, into focus.

On the downside, a move below approximately MXN18.2150 could indicate a corrective or consolidative phase.

Key Economic Events to Watch

Region	Key releases	Potential market impact
United States	Preliminary PMI, Philadelphia Fed non-manufacturing survey	Dollar, Treasury yields and rate expectations
Eurozone	Preliminary October PMI, ECB inflation expectations	Euro and European bond markets
China	Q3 GDP, September activity and property data	Yuan and broader Asian-market sentiment
Japan	September CPI, trade balance, services activity, preliminary PMI	Yen and BOJ expectations
United Kingdom	Employment, CPI, retail sales, preliminary PMI	Sterling and BOE rate expectations
Canada	September CPI, August retail sales, BoC business survey	Canadian dollar and rate expectations
Australia	Preliminary October PMI	Australian dollar and RBA expectations
Mexico	Retail sales, unemployment, CPI and IGAE	Peso and emerging-market sentiment

Confirm the publication dates, times and latest consensus estimates against an up-to-date economic calendar before publication.

Conclusion: What Could Shape Forex Markets This Week?

The outlook for the US dollar will depend partly on whether Treasury yields stabilise and whether weakness in AI-related stocks becomes a broader concern for US growth and financial markets. Rising oil prices add another layer of uncertainty by potentially influencing inflation expectations and central bank decisions.

For the euro, European bond-market developments and the preliminary PMI are key factors. Sterling faces an unusually busy data week, while the yen remains sensitive to US yields and Japanese inflation. China’s growth figures could influence the yuan, and Canadian and Australian data will help investors assess the next steps for their respective central banks. The Mexican peso is likely to remain sensitive to broader risk sentiment.

With several major central bank meetings approaching, the interaction between economic data, interest-rate expectations and technical levels may prove more important than any single release.

These outlooks describe potential scenarios rather than guaranteed market outcomes. Traders should verify current prices and economic data, assess event risk and apply appropriate risk management before making trading decisions.