CAPITALDIGEST MARKET REVIEW, 19/10/2026
October 19, 2026
DOLLAR FIRMER, EURO WEAKENS AS FRENCH PROTESTS TURN VIOLENT
The dollar edged up from near its lowest levels of the month at the start of trading in Asia on Monday as violent protests in France put pressure on the euro. The euro fell 0.1% at $1.1225 as trading began in Asia. The biggest weighting in the dollar index , the common currency’s drop helped steady the greenback, which traded level at 101.83. French President Emmanuel Macron condemned on Sunday “shocking” scenes of violence on the sidelines of protests over the cost of living in a televised address to the nation, a day after France suffered one of its worst days of unrest in years. “The weekend unrest matters for the euro mainly through French bonds rather than directly,” said Kieran Williams, head of Asia FX at InTouch Capital Markets in London. Against the yen , the US dollar was flat at 158.00 yen as Bank of Japan Governor Kazuo Ueda said on Monday underlying inflation is “quite close” to the central bank’s 2% target. The US dollar was flat at 6.6842 yuan in offshore trade ahead of the release of Chinese GDP data for the third quarter. China’s economy is expected to have sped up slightly in the period from a more than three-year low. In emerging market Asia, much of the focus will be on the Indonesian rupiah following a threat from MSCI to downgrade the country’s stock market to “standalone” status last week, which triggered a 11.6% collapse in equities. The rupiah hit its weakest level in almost three months on Friday, closing at 18,000 against the dollar. The Australian dollar appreciated 0.3% to $0.6965, while its kiwi counterpart was flat at $0.5656. The British pound was flat at $1.3329. Oil prices slipped as trading resumed in Asia on Monday, with Brent crude futures down 1.7% at $108.02, after US President Donald Trump waived sanctions and tariffs on Russia that may lead to more Russian fuel exports. Fed funds futures are pricing an implied 84% probability that the Federal Reserve stays on hold at its next two-day meeting on October 28, little changed from Friday, according to the CME Group’s FedWatch tool. “This is a run up week to the Fed on October 28 and the ECB on October 29, so positioning is likely to stay light and headline risk out of France will remain high,” InTouch’s Williams added. In cryptocurrencies, bitcoin was up 1.4% at $82,067.66, while ether climbed 3.0% to $2,420.22.
STERLING SET FOR THIRD WEEKLY RISE AGAINST EUR, HITS 3-WEEK HIGH VS DOLLAR
Sterling was on track for a third consecutive weekly gain against the euro as the single currency remained under pressure following the French bond selloff at the turn of the month, with investors closely watching UK economic data and the fiscal trajectory. The pound hit its highest level against the dollar in more than three weeks on Friday and was set to snap a four-week losing streak. Britain’s economy beat forecasts in August as a further jump in the computer programming sector offered fresh evidence that AI is boosting growth. “The economy’s resilience gives the Bank of England room to raise rates without running the risk of putting additional pressure on an already weakening economy,” Thu Lan Nguyen, head of forex and commodity research at Commerzbank, said. “It also takes some pressure off the Chancellor, who remains committed to reducing the budget deficit,” she added. British finance minister John Healey said his first budget to be delivered on October 29 would include measures to offer “a bit of breathing space” to the country. The euro recently touched its lowest level of the year against the pound, suggesting markets are confident the UK government can strike a balance between maintaining fiscal discipline and supporting growth. Still, recent experience suggests investors should not underestimate the residual risks surrounding the UK’s fiscal plans. The single currency was on track for a 0.24% weekly fall versus the pound and was last down 0.12% at 84.41 pence on Friday. . It reached 84.28 pence on Wednesday, its lowest since June 2025. Sterling was set for a weekly rise of 0.66% against the dollar and was last up 0.40% at $1.3329, its highest level since September 23. Investors remained focused on the Bank of England’s rate path amid concerns that rising yields could hurt economic growth and put further pressure on public finances. Markets expect the BoE to raise rates by 25 basis points at its next meeting on November 5, according to LSEG data. BoE Governor Andrew Bailey said on Friday soaring energy prices so far appear to be having limited wider effects on British prices, but it is too soon to draw firm conclusions about how strong such second-round effects will be.
STOCKS SLIP AS DOLLAR HEADS FOR WEEKLY LOSS
Global stocks fell modestly on Friday as markets stabilized after a sharp tech-led selloff, while the dollar headed for a weekly loss. Markets have been rattled this week by concerns over higher interest rates and the debt-fuelled financing behind the AI boom, triggering a selloff in technology and chip stocks. Traders increased bets on further US rate hikes after stronger-than-expected inflation data was released on Wednesday, while investors piled in to Treasuries and other government bonds. On Wall Street, the benchmark S&P 500 and the Nasdaq finished down and notched weekly losses. The Dow fell as well after reversing early gains but still scored a weekly gain. Technology and communication services drove losses while the top gainers were utilities and energy stocks. CoreWeave’s (CRWV.O) shares shed 12% and lost about 25% this week amid increasing investor scrutiny of the financing for the massive AI infrastructure buildout. The Dow Jones Industrial Average (.DJI) fell 0.34%, the S&P 500 (.SPX) lost 1.09%, and the Nasdaq Composite (.IXIC) fell 2.1%. The MSCI World Equity Index lost 0.40% and notched a weekly. European stock indexes, hit less hard by Thursday’s selloff, gained, with the STOXX 600 adding 0.72%. London’s FTSE 100 (.FTSE) rose 0.38%. Both indexes finished the week higher. “We’re starting to see some cracks in the financing of data centers because you’re not too sure who’s going to be the winners,” said Tom Plumb, portfolio manager at Plumb Balanced Fund. “Our view is that there’s going to be some really significant winners,” he said. “But you have to be careful on the financing capability because companies don’t get into trouble because their assets don’t exceed their liabilities. They get into trouble when they have liquidity issues. Asian stocks mostly rose, and bond markets steadied, with investors reversing some of the previous session’s moves. Indonesian equities suffered their biggest drop since 1998 after index provider MSCI said the country’s market no longer merited emerging-market status and outlined plans to remove it from key indexes tracked by funds.
POUND RISES AGAINST WEAKER DOLLAR, UK GDP UNEXPECTEDLY RISES
Sterling was headed for its biggest daily rise against the dollar since mid-August on Thursday as the greenback weakened and data showed that Britain’s economy unexpectedly grew in August. The pound was last up 0.5% to $1.3253, helped by a 0.15% slip in the dollar . A drop in US Treasury yields and stock market jitters weighed on the greenback in a “risk-off” environment, with traders navigating the macroeconomic backdrop and interest rate expectations. The euro was also buoyed by the dollar’s dip, leaving sterling steady against the common currency at 84.60 pence per euro. In domestic news, data from the Office for National Statistics reported a 0.1% increase in Britain’s gross domestic product in August, as a further jump in the computer programming sector offered fresh evidence that AI was boosting growth. A Reuters poll of economists had forecast a 0.1% drop. Sanjay Raja, chief UK economist at Deutsche Bank, noted, however, that “there are signs that the engine of the UK economy is slowing from its torrid pace in the first half of the year,” pointing to declines in some sectors. “Undoubtedly, there may be some hiccups to come in the run-up to year-end, especially as energy prices continue to bite household incomes, and higher rates continue to drag on spending and investment. The good news? The UK’s resilience story continues. It’s hard to overstate how strong the UK performance has been all year,” he said. Sanjay Raja, chief UK economist at Deutsche Bank, noted, however, that “there are signs that the engine of the UK economy is slowing from its torrid pace in the first half of the year,” pointing to declines in some sectors. “Undoubtedly, there may be some hiccups to come in the run-up to year-end, especially as energy prices continue to bite household incomes, and higher rates continue to drag on spending and investment. The good news? The UK’s resilience story continues. It’s hard to overstate how strong the UK performance has been all year,” he said. The data comes not long before the UK budget later this month, which will be the first for British finance minister John Healey. Healey on Thursday said the budget would include measures to reinforce the resilience of Britain’s economy to the Iran war energy price shock and offer “a bit of breathing space” to the country. He also reiterated that the budget will meet fiscal rules. Meanwhile, Bank of England Deputy Governor Sarah Breeden said on Thursday that cost-cutting by British companies in response to the energy price shock caused by the Iran war would make it easier for the central bank to contain inflation. Her comments echoed those from BoE Governor Andrew Bailey earlier this week. Unlike other major central banks like the European Central Bank and Federal Reserve, the BoE has not hiked interest rates this year. Money markets are, however, pricing in at least one 25-basis point increase from the BoE by year-end.
DOLLAR RECEDES FROM 18-MONTH HIGH AS BOND RALLY TEMPERA IMPACT OF HOT INFLATION DATA
The dollar retreated from an 18-month peak on Thursday as investors looked past strong US inflation and spending data to focus on a shakeout in the securities of AI data center firms. US producer prices rose by the most in 4-1/2 years in September as goods and services costs increased, adding to evidence that inflation pressures are spreading beyond energy. Retail sales rose more than expected last month, lifted by higher gasoline prices, while weekly jobless claims marginally increased, pointing to resilient consumer demand and a stable labor market. But government bonds rallied and the dollar pulled back, reflecting cautious remarks from Federal Reserve officials that further cooled expectations for an October interest-rate hike. “We have a narrative that is dollar negative based on the idea that inflation at this level and this quick pace is unsustainable,” said Juan Perez, director of trading at Monex USA in Washington. “Regardless of no good news on the war front or the equity picture looking pessimistic, the market is anti-USD after a heavy dose of strengthening in the last four weeks. … The economic stagnation seems to be having more influence in (the) mind of traders.” The dollar index , which measures the US currency against a basket of peers, fell 0.45% to 101.99, having hit an 18-month high on Wednesday after US inflation figures came in stronger than expected. That helped the euro bounce 0.56% from an 18-month trough to $1.1218, putting it on track for its biggest daily gain in nearly two months. Sterling strengthened 0.64% to $1.3275 after data showed Britain’s economy unexpectedly grew 0.1% in August. Markets grew choppy after Wednesday’s hot US CPI reading initially bolstered bets on higher-for-longer Fed rates, while renewed concerns over AI companies’ heavy debt burdens fuelled safe-haven flows into Treasuries. “The selloff in chip stocks offers support to bonds, helping keep yields in check despite the inflationary signals,” said Uto Shinohara, senior investment strategist at Mesirow Currency Management. Traders now see a 73% chance that the Fed will leave rates unchanged at its October 27-28 meeting, compared with 53% a month ago, CME Group’s FedWatch Tool showed. The expected likelihood of a hike rose sharply after the CPI report, but bets eased after Fed officials including Vice Chair for Supervision Michelle Bowmanand San Francisco Fed President Mary Daly said the central bank could wait for more clarity before the meeting. continue “If yields struggle to extend higher and dollar rallies continue to attract sellers, it will strengthen our conviction that the inflation news is largely absorbed, leaving the balance of risks tilted in favor of risk assets,” said Joel Kruger, a market strategist at LMAX Group in London. Investors will also watch remarks from Fed officials including Chair Kevin Warsh at IMF-World Bank annual meetings in Bangkok on Friday for clues on the US central bank’s next move. The Australian dollar weakened 0.77% to $0.6919, after local employment unexpectedly slid in September, while the Japanese yen strengthened 0.15% to 158.08 per dollar. “With the Fed entering its blackout period shortly and no tier-one data releases remaining before the meeting, market direction will likely remain driven by geopolitical uncertainty surrounding Russia/Ukraine and Iran, alongside developments in the AI story,” said Shinohara.
