Upside momentum in the euro remains firmly restricted against the US dollar, with the currency struggling to push beyond the key 1.1270 barrier. Friday's preliminary October flash purchasing managers' index (PMI) data across the eurozone presented notable resilience, underscoring expectations for respectable third-quarter gross domestic product figures. Yet this broader economic stability contrasts starkly with ongoing developments in France, where lackluster economic momentum continues to complicate the government's efforts to mend an already delicate fiscal situation.
On a more positive note for European sovereign debt, French government bond yield spreads over German Bunds narrowed on Monday morning following the decision by rating agency Moody's to maintain France's Aa3 sovereign credit assessment on Friday. While this rating validation provides welcome breathing room in the immediate term, sovereign spreads and the single currency will require verifiable, substantive progress regarding the French state budget over the coming months to lift the overhang on the euro. Achieving that fiscal clarity appears difficult, especially as elevated energy prices continue to strain national balances. Concurrently, even though the two-year swap rate differential between the euro and the dollar tightened by 10 basis points recently, providing some technical justification for an incremental rise in EUR/USD, underlying economic risks warrant an enduring 1% to 2% risk premium on the euro.
Dollar Softness and Shifts in Asian Trading
In the broader foreign exchange sphere, the US dollar encountered renewed selling interest through Monday's Asian session, dampening its attempt to mount a sustainable recovery from recent three-week lows. A further pullback in US Treasury yields, reinforced by a moderate easing in international crude oil prices, restricted the greenback's capacity to build upward momentum.
Capitalising on the softer US dollar, the Australian dollar held above the psychological 0.7000 threshold throughout Asian market hours, hovering near a one-month peak attained earlier on Monday. Beyond broad greenback weakness, the Australian currency drew support from heightened market speculation pointing toward an interest rate hike by the Reserve Bank of Australia at its November policy gathering. Nevertheless, substantial gains for the currency pair remained restrained ahead of the consequential two-day Federal Open Market Committee meeting scheduled to begin on Tuesday.
Sovereign Yields Impact Yen and Precious Metals
Downside pressure also defined the USD/JPY currency cross during Monday's Asian session, arresting a nascent bounce from Friday's lows, which marked its weakest print since September 18. Depressed US Treasury bond yields weighed heavily on the pairing, while market perception of a more hawkish Bank of Japan provided steady tailwinds to the Japanese yen. Downside momentum in the pair was tempered, however, as market participants maintained measured positions before back-to-back monetary policy decisions from both the Federal Reserve and the Bank of Japan later in the week.
Simultaneously, spot gold (XAU/USD) consolidated modest gains to start the week, staging a cautious recovery following intense selling that had driven the precious metal down to $3,975 last week, matching levels unseen since August. A slight retreat in energy costs alongside visible diplomatic initiatives aimed at reducing geopolitical hostilities in the Middle East afforded underlying support to the bullion price.
Crypto Selling Stays Heavy as Treasuries Surge
In contrast to traditional haven assets, crypto markets saw deepening distress in Cardano, which fell below $0.202. The token has now absorbed three consecutive weeks of steep price drops exceeding 20% each since early October. Sustained selling pressure reflects deteriorating technical configurations, soft on-chain network indicators, and worsening derivatives positioning, all pointing to ongoing downside vulnerability in Cardano.
Meanwhile, the fixed-income landscape saw US Treasuries advance for a second consecutive week, driving benchmark yields on 10-year and 30-year paper to 5% and 5.33%, respectively. This yield movement resulted in a pronounced curve flattening, occurring even as Brent crude registered a weekly gain of roughly 7% to hover near its previous March highs of US$119.50, and technology equities suffered their second straight week of contractions.
Midterm Elections and Long-Term Monetary Trajectory
Looking ahead, the US dollar enters a pivotal phase ahead of the November 3 midterm elections. Although financial markets are actively pricing in another interest rate tightening by the Federal Reserve at its December meeting, the pending fight over the legislative balance of power in Congress carries significant weight. The political outcome could substantially redraw expectations for future tax and spending policies, which in turn could indirectly steer the course of US monetary policy well into 2027.
