FX Daily: Dollar Holds Gains as Geopolitical Risks Rise

The US dollar remains well supported as forex markets weigh geopolitical developments against resilient US economic growth and the prospect of further Federal Reserve tightening. While weekend headlines involving Houthi strikes in Saudi Arabia and a proposed Russia-Ukraine energy ceasefire have had limited immediate impact on currencies, the upcoming US September CPI report could reinforce the dollar’s strength.

Markets are also monitoring French fiscal concerns, eurozone inflation and economic releases across Central and Eastern Europe, with several currencies facing pressure from global market conditions.

USD: Geopolitics and US Inflation Keep the Dollar Supported

Forex markets began the week relatively quietly, apart from a jump in the Indian rupee following defensive measures introduced by the Reserve Bank of India.

Energy markets are assessing conflicting geopolitical developments. Houthi strikes against Saudi Arabia have intensified regional tensions, while US President Donald Trump has sought to present an energy ceasefire between Russia and Ukraine. Russia had yet to respond to the proposal in the period covered by the report and continued targeting Ukrainian energy infrastructure.

Despite these developments, currency markets remain focused primarily on the US economic outlook. Relatively solid growth, inflation above the Federal Reserve’s target and expectations of further monetary tightening continue to support the dollar.

US September CPI in Focus

The September US Consumer Price Index (CPI) report is a major event for forex markets this week. Unless energy prices fall sharply, the inflation release could keep expectations of further Fed tightening broadly intact.

The market consensus cited in the report anticipated a 0.2% month-on-month increase in core CPI, while analysts saw risks tilted to the upside.

A stronger-than-expected inflation reading could reinforce expectations of higher interest rates and support the US dollar. Conversely, a softer reading could reduce pressure for additional tightening, depending on the wider economic data and the Federal Reserve’s policy outlook.

The report also highlights that rate-hike expectations could remain embedded in money markets for an extended period, potentially until the following spring.

DXY Outlook: Consolidation Above 102

The US Dollar Index (DXY) was consolidating above 102, a technical and psychological level that the analysis viewed as supportive of further gains.

The stated outlook pointed to a potential move towards 102.85 during the week. This remains an analyst forecast rather than a guaranteed market outcome.

US bond markets were closed for the Columbus Day public holiday on the day covered by the report, which was expected to contribute to subdued trading conditions.

EUR/USD: French Fiscal Concerns Keep the Euro Under Pressure

EUR/USD was consolidating near 1.12, but support for the euro remained fragile. French debt concerns continued to weigh on sentiment, with the spread between French and German government bond yields remaining close to its widest levels.

Marine Le Pen’s alternative budget proposal had raised further questions about France’s fiscal outlook. Meanwhile, the French government’s proposed budget included €43 billion in savings, which was expected to be debated in parliament.

Progress on the budget appeared uncertain. Although the government might ultimately seek to pass the measures by decree, the political process remained a source of risk. Parliamentary opponents could also avoid triggering a government collapse if they believed that doing so would worsen the country’s debt problems.

These uncertainties are not supportive of the euro.

EUR/USD Forecast: Further Downside Remains Possible

Speculative positioning and the FX options market reflected a bearish bias towards EUR/USD, although positioning was beginning to look stretched.

According to the analysis, the broader macroeconomic picture remained negative for the pair unless a significant US policy mistake weakened confidence in the dollar.

The near-term outlook pointed to a possible decline towards 1.1100–1.1120. The path would depend on incoming US data, changing interest-rate expectations and developments in France.

EUR/CHF: Higher Rates Compete With French Debt Risks

EUR/CHF was consolidating after a sharp decline the previous week. The earlier move had been driven by concerns that France’s debt problems could limit the European Central Bank’s scope for further monetary tightening.

However, the outlook for short-term euro interest rates remained uncertain. A substantial further decline in rates was not considered inevitable unless energy prices fell sharply.

At the time covered by the report, markets were pricing in approximately 22 basis points of rate hikes for December, while the analysis expected a 25-basis-point increase. Markets were also pricing in another 30–40 basis points of tightening into the following year.

Eurozone inflation remained an important factor. September inflation was expected to be confirmed at 3.8% year on year, suggesting that it was too early to assume that future ECB rate hikes would be entirely removed from market expectations.

EUR/CHF Key Levels

The analysis identified two potential scenarios:

• Downside risk: EUR/CHF could correct towards 0.9230–0.9250 if the French-German government bond spread moved decisively above 150 basis points.
• Recovery scenario: Periods of reduced market stress could allow the pair to return towards 0.9350–0.9400.

The outlook therefore remained mixed, with French fiscal concerns weighing on the euro while interest-rate expectations could provide some support.

Central and Eastern European Currencies: Inflation in Focus

Economic releases and central bank commentary were expected to shape currency movements across Central and Eastern Europe (CEE). However, the region’s currencies remained exposed to broader global conditions, including a stronger US dollar and higher energy prices.

Romania: Inflation and Political Developments

Romania’s September inflation report was expected to show an increase from 6.2% to 6.4%. The outlook described in the report also anticipated further inflation increases towards year-end, consistent with the central bank’s guidance.

Meanwhile, negotiations to form a new government were continuing. Signs of progress could help stabilise EUR/RON if political uncertainty eased.

Czech Republic: Inflation Supports the Koruna Outlook

Final data were expected to confirm Czech inflation at 2.5% in September. Core inflation, measured according to the Czech National Bank’s methodology, was projected to rise from 3.0% to approximately 3.1–3.2%, above the central bank’s forecast.

The koruna was viewed as an exception to the broader bearish outlook for regional currencies, partly because of its wider interest-rate differential.

The analysis retained a bullish view on the Czech currency and projected a move towards 24.250 in EUR/CZK. This target should be understood as the report’s forecast, not a confirmed future price.

Poland: EUR/PLN Remains Near the Upper End of Its Range

Poland’s headline inflation was expected to be confirmed at 4.0% on Wednesday, while core inflation was projected to decline from 3.3% to 3.1% on Thursday.

A decline in core inflation could give the National Bank of Poland greater room to manoeuvre on monetary policy.

Following the central bank meeting, EUR/PLN had moved into the 4.380–4.400 range identified in the analysis. The pair was expected to remain near the upper end of that range in the coming days.

Hungary: Wage Growth and Fiscal Policy

Hungary’s wage data were due on Friday. Wage growth remained high relative to other economies in the region, creating a continuing source of inflationary pressure.

Markets were also watching for the government’s draft budget for 2027 and its medium-term fiscal outlook. Expectations for the relevant market rate had shifted from around 5.5% towards 5.0%, raising the bar for a positive surprise. Nevertheless, the direction of those expectations was considered supportive of bonds.

Hungarian assets remained vulnerable to higher energy prices and further dollar strength.

Global Factors Continue to Drive CEE FX

Despite the importance of regional inflation and political developments, the broader direction of CEE currencies remained closely linked to global market conditions.

The analysis maintained a broadly bearish bias towards regional FX, while retaining a more positive view on the Czech koruna. Differences in interest-rate expectations, energy-price movements and the strength of the US dollar remained key factors for traders to monitor.

Key Economic Events to Watch

The main events highlighted in the report included:

• US September CPI: A key test for expectations of further Federal Reserve tightening.
• Eurozone September CPI: Confirmation of the inflation outlook and its implications for ECB policy.
• Romanian September inflation: Relevant to the outlook for domestic policy and EUR/RON.
• Czech inflation data: Important for rate expectations and the koruna.
• Polish inflation data: A potential influence on National Bank of Poland policy expectations.
• Hungarian wage data: Relevant to domestic inflationary pressure.
• IMF meetings and the World Economic Outlook: Important for the broader global economic outlook.
• US third-quarter earnings season: A source of information on corporate performance and economic resilience.

These events could influence currency markets through changes in inflation expectations, central bank policy pricing and overall investor sentiment.

Conclusion: Inflation and Rate Expectations Remain Central to the Dollar Outlook

The market outlook presented in this report favours a well-supported US dollar, with resilient US growth, above-target inflation and expectations of further Federal Reserve tightening providing the main sources of support.

The euro faces additional pressure from French fiscal uncertainty, while EUR/CHF remains caught between concerns over French debt and expectations for ECB policy. Across Central and Eastern Europe, regional inflation releases will be important, but global conditions remain a dominant influence on currencies.

For forex traders, the key is to monitor incoming inflation data and central bank expectations alongside geopolitical developments, while treating projected exchange-rate levels as conditional scenarios rather than certainties.

Frequently Asked Questions

Why is the US dollar holding its gains?

The analysis attributes dollar strength to relatively solid US economic growth, inflation above the Federal Reserve’s target and expectations of further monetary tightening.

How could US CPI affect the dollar?

A stronger-than-expected CPI reading could reinforce expectations of higher interest rates and support the dollar. A softer reading could reduce those expectations, although the overall market response would depend on other economic and policy developments.

What is the EUR/USD outlook?

The report identifies a bearish near-term bias and a possible move towards 1.1100–1.1120, largely due to the US macroeconomic outlook and concerns about French public finances.