Dollar extends recovery, pound slips as oil stabilizes

The US dollar climbed to multi-week highs, supported by hawkish Federal Reserve expectations, while the British pound dipped. Oil prices halted a four-day slide, and gold stabilized amid mixed signals from Middle East diplomacy.

Major currencies

• The US dollar extended its recovery to a nearly 8-week high, driven by persistent bets for further Federal Reserve tightening after last week's hike. Not every desk reads it the same way: Commerzbank argued the same day that Fed support for the dollar is starting to fade, while TD Securities projected headline US September inflation at 0.54% month on month, driven mainly by an almost 8% jump in gasoline.
• The British pound slipped over 0.17%, with GBP/USD trading at 1.3343 after peaking at 1.3387, even as reports hinted Tehran could reopen the Strait of Hormuz if the United States meets certain conditions. The pound remained on the defensive.
• The euro slipped as euro area flash consumer confidence for September came in at -16.5, worse than the expected -16.0 and down from -15.5 last month. ECB Executive Board member Philip R. Lane stated that a second wave of oil and gas price increases is extending Europe's energy shock and keeping inflation elevated.
• The Australian dollar trimmed earlier losses and stabilized as traders assessed new diplomatic signals surrounding US-Iran tensions.
• The Japanese yen was flat amid holiday trading volumes, though it showed weakness against the pound, with GBP/JPY rising for a third consecutive day to trade around 210.75-210.80.

Commodities and regional FX

• West Texas Intermediate (WTI) crude oil stopped its four-day losing streak, trading around $92.30 per barrel, despite ongoing Middle East diplomacy hopes. TD Securities cautioned that elevated speculative positioning leaves crude vulnerable to shifting headlines around the region's supply routes.
• Gold stabilized, halting its intraday decline, as traders weighed new Middle East headlines against the Federal Reserve's hawkish outlook, which capped upside.
• The South Korean won strengthened, with Commerzbank reporting a 78.3% year-on-year surge in September exports for the first 20 days, driven by a 259% jump in semiconductor shipments. OCBC strategists noted the won's recovery alongside tech equities and lower oil prices.
• The Chinese yuan reached a 3.5-year high, supported by a strong People's Bank of China fixing.

Market gauges

• Our proprietary metrics showed market readiness (MRS) at 69 and the carry trade score (CTS) at 71, with market sentiment (FSI) registering at 68, indicating a 'Greed' phase. The risk-on backdrop was visible elsewhere: the Nasdaq hit a fresh record and Bitcoin broke above $84,000, with conviction in AI investment overriding the higher-rate headwind, though market breadth stayed narrow.
• The New Zealand dollar led the session for 19% of the minutes, while the Swiss franc spent 17% of them as the weakest. MUFG called the NZD the main overnight mover on hawkish Reserve Bank of New Zealand guidance, while a separate report from the Asian session had NZD/USD down for a third day, around 0.5700, amid geopolitical tensions.

Ahead

• Traders will turn their attention to a series of Flash Manufacturing and Services PMI releases from France, Germany, the UK and the United States, due later today, followed by remarks from Federal Reserve officials Barr and Goolsbee.