Asia’s Policy Divide Comes Into Focus (19-23 October)

The yen recovered past 158 per dollar following Japan's intervention warnings, while BOJ officials kept the possibility of a December rate hike open.

Japan's 10-year bond yield climbed toward 2.95% as tightening expectations persisted. In China, annual inflation reached 0.9%, supported by higher transport costs, although weak food prices pointed to uneven domestic demand.

US inflation gathered pace in September, with consumer prices rising 0.6% and producer prices jumping 1.3%, driven largely by higher energy costs. Despite the figures, Fed Chair Kevin Warsh's cautious comments strengthened expectations of an October pause, with an 85% probability of unchanged rates. A December hike still carries a 77% probability, keeping the dollar and bond yields sensitive to policy signals.

Currencies

Dollar Index: The dollar index fell to a two-week low of 101.6, losing 0.4% for its first weekly decline after three consecutive gains. Concerns over AI spending and increased demand for safer assets weighed on the dollar, despite higher US CPI and PPI figures. Fed Chair Kevin Warsh's comments also supported expectations of an October pause, with an 85% probability of unchanged rates this month and a 77% chance of a December hike.
Euro: The euro recovered toward $1.12 as the dollar weakened, although it stayed close to its lowest level since May 2025. Expectations of further Fed tightening and political uncertainty in France limited its gains. ECB President Christine Lagarde called for fiscal consolidation and a cautious approach to interest rates, while Governing Council member Šimkus left the possibility of an October hike open.
British Pound: Sterling climbed to around $1.333, its highest since September 22, after positive UK economic data strengthened expectations of a Bank of England rate hike. GDP grew 0.1% in August, defying forecasts of a contraction. A November 5 hike remains the favored outcome, although Governor Andrew Bailey urged caution. The focus also turned to Chancellor Healey's October 29 budget, which aims to reduce the fiscal deficit.
Japanese Yen: The yen strengthened past 158 per dollar, recovering from a six-week low after Finance Minister Satsuki Katayama warned that Japan could intervene again to support its currency. She reaffirmed the position shared by Washington and Tokyo during their coordinated action in July. BOJ board member Koeda also cautioned against delaying further rate increases, although another hike this month appears unlikely.

Commodities

Gold Rises as Yields Retreat

Gold climbed toward $4,170 an ounce on Friday as falling equities encouraged demand for bonds and precious metals, pushing yields lower. Tensions in the Middle East, including the sinking of a ship in the Strait of Hormuz, added to its appeal. Fed expectations remained divided, with a 72% probability of unchanged rates in October and a 92% chance of a December hike.

Brent Rises Despite Supply Plans

Brent rose above $103 a barrel on Friday, heading for a weekly gain as Middle East supply concerns outweighed plans to release emergency reserves. The sinking of the GFS Pride in the Strait of Hormuz raised concerns about shipping disruptions, although more than 40 vessels continued through the waterway. IEA members pledged another 100 million barrels from emergency stockpiles, while Washington considered easing oil sanctions to help reduce supply pressures.

Silver Rally Faces a Fed Test

Silver advanced above $57 an ounce on Friday, supported by declining bond yields and demand for precious metals following the equity selloff. Uncertainty surrounding the Strait of Hormuz provided further support, although the prospect of higher US interest rates limited gains.

Fixed Income

US 10 Year Treasury Note Yield: The US 10-year Treasury yield edged up to 5.12% on Friday after falling 11 basis points in the previous session. It was still roughly 14 basis points lower for the week, below early-October highs last seen in 2002. Higher CPI and PPI readings reinforced expectations of further Fed tightening, while concerns over AI spending encouraged demand for government bonds.
UK 10 Year Bond Yield: The UK 10-year gilt yield rebounded to 5.38% after reaching a three-week low on October 15. August GDP growth of 0.1% increased expectations for a November 5 Bank of England rate hike, although Governor Bailey advised caution. Fiscal policy also came into focus as Chancellor Healey prepared an October 29 budget aimed at reducing the deficit while providing some economic relief.
Japan 10 Year Government Bond Yield: Japan's 10-year government bond yield recovered to around 2.95% on Friday as BOJ comments kept expectations of further tightening alive. Board member Koeda warned against unnecessary delays in raising rates, although another increase this month appears unlikely. December remains a possibility, while Governor Kazuo Ueda reiterated that bond yields should reflect market forces.
Germany 10-Year Bond Yield: Germany's 10-year Bund yield held near 3.42%, close to a five-week low and nearly 7 basis points lower for the week, following a broader decline in global borrowing costs. Warsh's comments strengthened expectations of an October Fed pause despite persistent US inflation.

Economic Data

United States Inflation Rate MoM

US consumer prices rose 0.6% in September 2026, accelerating from 0.4% in August and marking the largest monthly increase since April. Energy costs jumped 5.2%, led by a 9.1% surge in gasoline prices that accounted for more than half of the overall rise. Shelter increased 0.4%, food prices were unchanged, and core CPI climbed 0.3%, above the 0.2% forecast.

United States Producer Price Inflation MoM

US producer prices surged 1.3% in September 2026, the sharpest monthly increase since March 2022 and the second-largest on record, far above the 0.5% forecast. Energy costs at the producer level jumped 10.8% following disruptions in the Middle East, pushing transportation, trade and food prices higher. Core PPI increased 0.7%, while annual headline inflation reached 6.3%, its highest since December 2022.

United States Existing Home Sales

US existing home sales rebounded 1.5% in September 2026 to an annualized 3.99 million, recovering from a two-year low and slightly exceeding the 3.95 million forecast. Housing inventory increased to 1.6 million units, equivalent to 4.8 months of supply. Sales improved in the South and West but declined in the Northeast, while economist Lawrence Yun warned that rising mortgage rates were making homes less affordable.

China Inflation Rate

China's annual inflation rose to 0.9% in September 2026, up from 0.8% in August but slightly below the 1% forecast, reaching its highest level since June. Higher gasoline prices and Golden Week travel costs pushed non-food inflation upward, while falling pork prices contributed to a sixth consecutive monthly decline in food prices. Core inflation held at 1.0%, and monthly CPI increased 0.2%.

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