US dollar heads for second straight losing week as Fed meeting looms
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The gist
The US dollar index rose 0.2% to 101.98 on Oct 19 but the currency is set for a second consecutive losing week.
Investors await central bank meetings next week, with the Fed seen holding rates in October.
Background
The dollar has been a crowded long trade: the currency market is positioned for the AI boom to keep the US economy humming and for strong growth to keep US interest rates higher for longer. That bet has wobbled as US bond yields eased from recent highs, pulling the dollar lower in four of five sessions through late October. The euro has spent about a month sliding and become a favoured way to bet on a stronger dollar, as fiscal concerns in France and Europe's energy fragility attract short sellers. Traders are now waiting on next week's central bank meetings, with the Federal Reserve seen on hold in October at a 3.75-4% Fed funds window but hiking in December.
How it unfolded
- Oct 19, 2026The US dollar index ended two days of losses, rising 0.2% to 101.98, while the French-German 10-year bond spread widened 9.9 basis points to 147.3.
- Oct 20, 2026The euro held at $1.1216, sterling rose 0.1% to $1.3308 and the dollar was flat at 158.56 yen, with the US 10-year Treasury yield flat at 5.131%.
- Oct 21, 2026The dollar fell for the fourth time in five sessions as US bond yields eased from recent highs; the Australian dollar gained 0.4% and the New Zealand dollar 0.3%.
- Oct 22, 2026The dollar's slide paused ahead of next week's central bank meetings; sterling held at $1.33955 after a one-month high of $1.3409, and the Australian dollar stayed above 70 US cents at $0.7025.
- Oct 23, 2026The dollar was working on a second consecutive losing week; the preliminary US S&P Global Manufacturing PMI for October came in at 56.0 versus 55.6 consensus, and one-year consumer inflation expectations were 4.7%.
Who’s saying what
- Analysts
- Brent Donnelly of Spectra Markets said the euro cannot sell off and cannot rally, calling it a stalemate where the overhang of bad news roughly offsets market positioning.
- Analysts
- Chris Weston of Pepperstone said FX markets reflected improved risk appetite, with higher-carry currencies finding buyers.
- Analysts
- Weston also said Europe was less convincing, with French sovereign risk being priced into European equities, though the euro's resilience suggests traders don't yet treat it as a systemic European problem.
- Caution
- ING analysts said the spread of French government bonds over Germany has come under renewed widening pressure amid violent protests.
- Official
- Reserve Bank of Australia Deputy Governor Andrew Hauser said the inflation outlook looked materially worse, partly due to high oil prices.