Dollar Firms as Euro Breaks Lower and Yen Slips Ahead of a Packed Central-Bank Week

Tuesday reversed Monday’s mood. The dollar index, which had eased to 101.64 at the start of the week, held near a one-week high around 102.04 on Tuesday, as technology shares revived risk appetite. Anthropic’s IPO filing and Meta’s $95 billion equity plan rekindled the artificial-intelligence trade that had spooked markets last week. As that fear faded, so did last week’s rush into safe havens.

The euro is the weakest link, and its weakness is French rather than European. EUR/USD traded around 1.1165 to 1.1168, a near two-week low and down about 1.4% this month, after breaking below a triangle pattern and below 1.1192. The driver is the French bond market: the premium France pays over German debt widened to about 167 basis points, up from 92 at the ECB’s September meeting and its highest since the 2011 sovereign debt crisis. The ECB is still expected to hold its deposit rate at 2.50% on Thursday, and President Christine Lagarde has said the fix for France’s finances must come from fiscal policy at home. Traders are not selling the euro because they expect an ECB cut; they are selling it because a domestic fiscal problem has no central-bank answer yet.

The yen tells a different version of the same risk-on story. USD/JPY traded around 157.66 to 157.73, about 0.1% to 0.16% weaker, moving further from the one-month high it touched last week on AI-driven haven demand. That retreat does not mean the Bank of Japan has turned dovish: it is set to hold rates at 1.25% when its meeting ends on Friday but signal readiness to keep raising borrowing costs, after a key gauge of Japanese service-sector inflation rose 3.7% in September from a year earlier. Markets price slightly better-than-even odds of a December hike, so the yen’s slip looks like positioning being unwound before the meeting, not a verdict on it, which is why a hawkish note from Governor Ueda on Friday could still send it rebounding.

Sterling and the New Zealand dollar show why this week cannot be read as a single dollar trade. GBP/USD slipped to 1.3333, below the 1.3356 floor of its recent range, ahead of Chancellor John Healey’s first Budget on Wednesday. The Financial Times reported Healey will give the National Wealth Fund and the British Business Bank a £20.4 billion capital boost over five years, though it adds to borrowing. With markets treating a quarter-point Bank of England hike to 4% on November 5 as almost certain, sterling’s support depends on the Budget not shaking that view. The kiwi moved the other way, rising 0.4% to 0.5702, as markets widely expect New Zealand’s central bank to lift its rate a quarter point to 3.0% on Wednesday, with Canada also expected to raise.

Why this matters is the sequence, not any single decision. The Federal Reserve is expected to skip a hike when its meeting ends on Wednesday, yet CME FedWatch put the chance of at least one hike by December at about 73% on Monday, so guidance will matter more than the hold. Thursday brings the ECB decision plus US third-quarter GDP and September PCE inflation, and Friday brings the Bank of Japan. Treat 102.43 above and 101.54 below for the dollar index, 1.1150 below and 1.1192 above for EUR/USD, and 1.3295 below for sterling as tripwires rather than predictions. If all three banks hold, the next repricing will come from what they say about December. Readers tracking those levels can use our forex section for how policy expectations move pairs, and the forex tools for pip and position-size planning around volatile weeks. (Not financial advice.)