Weekly FX Outlook: Central Banks, Shutdowns & Fragile Trade Calm

Global markets begin the week with a sense of cautious balance. Three major central bank meetings, ongoing U.S. political uncertainty, and tentative progress in trade negotiations are all shaping sentiment, building on themes we identified in our recent G10 currency analysis.

Reports from the weekend suggest U.S. and Chinese officials have agreed on a positive framework ahead of the Trump-Xi meeting in South Korea. That has lifted confidence slightly, encouraging modest gains in risk-sensitive currencies such as the Australian and New Zealand dollars. The U.S. dollar remains steady, supported by expectations of another Federal Reserve rate cut later this week, while safe-haven demand has eased slightly. 
 

Trade Diplomacy Returns to Centre Stage 

While the tone between Washington and Beijing has improved, tensions have surfaced elsewhere. Ontario Premier Doug Ford’s anti-tariff advertisement targeting U.S. audiences drew criticism from President Trump, who responded by halting trade talks with Canada and raising tariffs on Canadian goods. 

The Canadian dollar weakened briefly before stabilising as Prime Minister Mark Carney moved to repair relations. The incident highlights a theme running through markets this week: even as investors welcome signs of cooperation, trade politics remain unpredictable. Behind every headline of progress lies the potential for renewed disruption. 
 

Federal Reserve: Managing Optics in a Data Blackout 

The Federal Reserve meeting on Wednesday is expected to dominate global market focus. Inflation remains near 3 percent, but the government shutdown has frozen key economic data, leaving policymakers with limited visibility. 

Another rate cut is widely expected, but investors will be watching the language rather than the decision itself. Understanding both Dovish and Hawkish Fed signals is crucial for interpreting market reactions. A cautious tone from Chair Powell could lend temporary support to the dollar, while any expression of confidence in the growth outlook might encourage renewed interest in higher-yielding currencies. The Fed’s challenge now is not crisis management, but expectation management. 
 

Sterling: Muted but Resilient 

Sterling starts the week on a softer note following last week’s subdued inflation figures, which reignited speculation of a rate cut later this year. Despite the weaker tone, the underlying data tells a more balanced story. Business surveys, retail spending, and consumer confidence have all surprised to the upside, pointing to a steady if unspectacular recovery. 

The pound remains rangebound for now, shaped by fiscal uncertainty ahead of November’s Budget and a cautious Bank of England. If inflation continues to ease and the government delivers a credible fiscal plan, the currency could find a firmer footing into year-end. 
 

EUR/GBP: Diverging Policy Paths 

The euro–sterling cross has opened the week quietly after touching a one-month high on Friday. The market continues to weigh the contrast between a Bank of England still open to easing and a European Central Bank that appears content to pause. This policy divergence keeps the pair steady within a narrow range as traders wait for Thursday’s ECB decision. 

Political tension in France remains a background risk, with Moody’s revising its outlook to negative amid fiscal and leadership pressures. For now, both currencies appear comfortable in consolidation, awaiting fresh guidance from central banks. 
 

Japan: Fiscal Firepower Meets Policy Patience 

The Japanese yen has stabilised after slipping to a two-week low, but sentiment remains cautious ahead of the Bank of Japan meeting. Service-sector inflation rose again in September, suggesting domestic price pressures are building. However, fiscal policy under new Prime Minister Sanae Takaichi is expected to remain expansionary, reducing the urgency for the BoJ to tighten. 

Markets are focused on tone rather than action. A patient and measured BoJ stance would likely keep the yen subdued, while even a modest hint of policy normalisation could help restore support. The balance between fiscal stimulus and monetary restraint remains the defining feature of Japan’s outlook. 
 

The Broader Picture 

This week’s mix of central bank meetings and trade headlines captures a familiar mood: optimism is improving, but it is still fragile. 

Investors are positioning carefully, staying alert but not alarmed. The tone across markets is one of watchful optimism; patient, steady, and aware that calm can shift quickly. 

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