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New York Fed President John Williams said in an interview with The New York Times that he still expects interest rates to be lower by year-end, but emphasized that the pace and extent of easing will depend on incoming data.

When asked about the possibility of two additional 25bps reductions, Williams said that would depend on whether inflation and employment evolve broadly in line with his outlook. He expects inflation to "move up a bit to around near 3%" and unemployment to edge slightly higher, in which case “policy should evolve the way we expect.”

But he warned against complacency, noting that it would be “very damaging to the economy and the Fed’s credibility” if inflation were allowed to rise well above 2% without action.

Williams downplayed fears that President Donald Trump’s tariffs were fueling persistent inflation. He estimated the measures have lifted the price level by only 0.25 to 0.5 percentage point, adding that “underlying inflation seems to be moving gradually lower toward 2%.” He also said there were no signs of second-round effects, suggesting tariffs are having limited spillovers on broader price dynamics.

At the same time, Williams pointed to rising downside risks to employment, which he said were offsetting some of the upside risk to inflation.

Markets

Investors on both sides of the Atlantic are facing a deep eco radio silence these days. The Minutes of the September Fed meeting yesterday indicated that a large majority of governors subscribed chair Powell assessement that downside risks to the labour market warranted a scaling back monetary restriction. However, the document showed little guidance on the timing/pace of additional steps on which governors had highly divergent views. With the policy rate still above neutral, markets for now have little reason to change their positioning, pricing about two additional steps 25 bps cuts end October and in December. NY Fed President Williams puts himself on the dovish side, indicating he will support lower rates this year of the economic evolves as expected (including inflation moving up to around 3% and the unemployment rate inching up beyond its current level of 4.3%). Even so, markets understand that even his (influential) position is only one ‘dot’ in a highly dispersed map. US yields today are ‘raising’ between about 1.5-2.5 bps across the curve. The focus now turns to this evening’s $22 bln 30-y Treasury action. Yesterday’s 10-y sale only met mediocre buying interest. How much will the fiscal stability topic still affects the 30-y sale? EMU/German yields also are holding very tight ranges (0.5 -2 bp higher). The Minutes of the September ECB policy meeting as expected indicated little reason for the bank to react to short-term deviations (cf infra). Even France today isn’t able to provide some directional bias. Outgoing Prime Minister Lecornu yesterday informed President Macron that a basis of lawmakers is prepared to provide a ‘platform of stability’ to help fabricating a 2026 budget. Even so, it currently is far from clear who will be prepared/able to finalized this Herculean task. (French) bonds at least don’t aggressively front run on a positive outcome yet. The 10-y spread of French bonds over swap still trades near 84 bps, compared to peak levels of near 88/90 earlier this week. European equity markets show no clear trend (Eurostoxx unchanged, CAC40 +0.4%). US indices open mixed/little changed.

In FX markets, the dollar remains the ‘by-default’ outperformer, but also here the ‘conviction’ of the move is fading a bit. DXY surpassed 99, but struggles to hold on. Over the previous days, the dollar mainly profited from (political) uncertainty haunting the euro and the yen. EUR/USD, despite current calm on/in France, is still fighting an uphill battle (currently 1.161). A break below 1.1574 brings the 1.1392 August low on the radar. With respect the yen, we have to impression that the decline at least might slow. The pair still touched an new ST peak north of 153. However, the question gradually looms how far the yen can weaken before the BOJ will be ‘forced‘ to still raise its policy rate, whatever the ‘guidance’ from a new government.

News & Views

Portugal’s 2026 budget bill has stronger growth penciled in as well as a small surplus for the fourth consecutive year. The center-right minority government expects the economy to grow at a 2.3% clip next year, compared to an anticipated 2% in 2025. The projected budget surplus of 0.1% comes even as Portugal plans tax cuts for companies and families, allowing the public debt ratio fall further from a peak of more than 134% in 2020 to 90.2% this year and 87.8% in 2026. The bill marks once more the stark and growing contrast between the southern European periphery (remember PIGS) that used to underperform the semi-core. The likes of France and Belgium are currently facing a daunting budget task with the former not even having a stable government in place to take up the gauntlet.

"The current level of interest rates should be seen as sufficiently robust in managing shocks, in view of two-sided inflation risks and taking into account a broad range of possible scenarios.” The conclusion in the ECB’s meeting minutes was a pretty straightforward one. "Several" thought inflation was at risk of undershooting the bank's 2% target and a "few" feared for the opposite to happen. But with ECB’s Lagarde in recent comments noting that the range of risk around the inflation was narrowing, there is little reason to expect much changes to the policy rate short-term. The ECB acknowledged, however, that the current situation was likely to change materially at some point, but it it’s difficult to know when and in which direction. That makes waiting for more information the best option for the time being. ECB policymakers agreed that their June forecast was largely materializing, resulting in a rates status quo at 2% and more or less unchanged September projections.

Daily Pivots: (S1) 1.1598; (P) 1.1631; (R1) 1.1662; More...

Intraday bias in EUR/USD remains on the downside for the moment. Fall from 1.1917 is in progress and deeper decline should be seen to 1.1390 support, or even further to 38.2% retracement of 1.0176 to 1.1917 at 1.1252. On the upside, above 1.1682 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 1.1778 resistance holds, in case of recovery.

In the bigger picture, rise from 1.0176 (2025 low) is seen as the third leg of the pattern from 0.9534 (2022 low). 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916 was already met. For now, further rally will remain in favor as long as 1.1390 support holds, and firm break of 1.2000 psychological level will carry larger bullish implications. However, firm break of 1.1390 will suggest that rise from 1.0176 has already completed and bring deeper fall to 55 W EMA (now at 1.1265) and below.

Daily Pivots: (S1) 1.3369; (P) 1.3407; (R1) 1.3442; More...

GBP/USD is still bounded in range above 1.3322 and intraday bias remains neutral. With 1.3535 resistance intact, further decline is mildly in favor. On the downside, break of 1.3322 will resume the fall from 1.3725 to 1.3140 support. On the upside, though, firm break of 1.3535 will argue that pullback from 1.3725 has already completed, and bring stronger rise to retest 1.3725/87 key resistance zone.

In the bigger picture, rise from 1.0351 (2022 low) is still seen as a corrective move. Further rally could be seen to 61.8% projection of 1.0351 to 1.3433 (2024 high) from 1.2099 (2025 low) at 1.4004. But strong resistance could be seen from 1.4248 (2021 high) to limit upside. Sustained break of 55 W EMA (now at 1.3176) will argue that a medium term top has already formed and bring deeper fall back to 1.2099.

Daily Pivots: (S1) 0.7988; (P) 0.8008; (R1) 0.8040; More…

USD/CHF's rise from 0.7828 is still in progress and intraday bias stays on the upside. Sustained trading above 55 D EMA (now at 0.8004) will suggest that rise from 0.7828 is already correcting whole fall from 0.9200. Further rally should the be seen to 0.8170 resistance and possibly above. For now, risk will stay on the upside as long as 0.7944 support holds, in case of retreat.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8332 support turned resistance holds (2023 low).

Daily Pivots: (S1) 151.96; (P) 152.48; (R1) 153.22; More...

Intraday bias in USD/JPY is turned neutral with current retreat, and some consolidations would be seen below 153.20 temporary top first. But downside should be contained above 149.95 resistance turned support to bring another rally. On the upside, above 153.20 will resume larger rise to 100% projection of 142.66 to 150.90 from 145.47 at 153.71. Firm break there will pave the way to 161.8% projection at 158.80.

In the bigger picture, current development suggests that corrective pattern from 161.94 (2024 high) has completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94 high. On the downside, break of 145.47 support will dampen this bullish view and extend the corrective pattern with another falling leg.

Daily Pivots: (S1) 177.03; (P) 177.44; (R1) 177.99; More...

Intraday bias in EUR/JPY is turned neutral first with current retreat, and some consolidations would be seen below 177.91 temporary top. Downside should be contained above 175.03 resistance turned support to bring another rally. On the upside, above 177.91 will resume larger up trend to 61.8% projection of 161.06 to 173.87 from 172.24 at 180.15 next.

In the bigger picture, up trend from 114.42 (2020 low) is resuming with break of 175.41 (2024 high). Next target is 61.8% projection of 124.37 to 175.41 from 154.77 at 186.31. Outlook will continue to stay bullish as long as 55 W EMA (now at 166.82) holds, even in case of deep pullback.

Daily Pivots: (S1) 1.7612; (P) 1.7667; (R1) 1.7703; More...

EUR/AUD's break of 1.7588 support confirms resumption of the fall from 1.8155. Such decline is seen as the third leg of the corrective pattern from 1.8554 high. Intraday bias is back on the downside for 100% projection of 1.8155 to 1.7588 from 1.7929 at 1.7362. On the upside, above 1.7672 minor resistance will turn intraday bias neutral again first.

In the bigger picture, price actions from 1.8554 medium term top are seen as a corrective pattern. Deeper fall could be seen as the pattern extends, but downside should be contained by 38.2% retracement of 1.4281 (2022 low) to 1.8554 at 1.6922 to bring rebound. Uptrend from 1.4281 is expected to resume at a later stage.

Euro came under renewed selling pressure today, particularly in crosses, as investors reacted nervously to deepening political uncertainty in France. President Emmanuel Macron’s search for a new prime minister dominated headlines. His office confirmed that he would appoint a replacement “within 48 hours,” after outgoing Prime Minister Sebastien Lecornu spent two days in futile talks to resolve what has become France’s worst political crisis in decades. Macron’s next pick would be his sixth prime minister in less than two years, highlighting the instability that has plagued his administration.

The abrupt resignation of Lecornu—after just 27 days in office—surprised markets, which had largely assumed that the next step in France’s political drama would be a snap parliamentary election. Instead, the prospect of yet another reshuffle with no clear end to the legislative gridlock has rekindled investor anxiety about France’s fiscal direction and reform capacity.

Meanwhile the ECB’s September meeting accounts, released overnight, reaffirmed that the central bank is firmly on hold and in no rush to adjust interest rates. Importantly, the minutes also made clear that “moderate fluctuations of inflation around the target” should not prompt a policy adjustment — effectively confirming that the ECB sees little reason to move in the near term. The reiteration of patience was already priced in by markets, and provided no meaningful support to the Euro, which continues to trade on political headlines rather than monetary expectations.

Elsewhere, currency market performance this week remains broadly consistent. Yen continues to lead losses, pressured by risk-on sentiment and doubts over further BoJ tightening. The Euro ranks second worst, with the Kiwi close behind following the RBNZ’s dovish 50bps cut. In contrast, Aussie and Loonie remain top performers. Dollar holds firm in the upper tier. Sterling and the Swiss Franc are trading mixed in the middle.

In Europe, at the time of writing, FTSE is down -0.18%. DAX is up 0.53%. CAC is up 0.50%. UK 10-year yield is up 0.016 at 4.737. Germany 10-year yield is up 0.01 at 2.692. Earlier in Asia, Nikkei rose 1.77%. Hong Kong HSI fell -0.29%. China Shanghai SSE rose 1.32%. Singapore Strait Times fell -0.35%. Japan 10-year JGB yield fell -0.007 to 1.697.

ECB minutes show comfort with current policy, high value in waiting

Minutes of the ECB’s September 10–11 meeting revealed broad agreement among policymakers that there was “no immediate pressure” to adjust interest rates. Officials noted that recent data confirmed inflation is “in a good place” while the domestic economy remains “resilient,” risks to growth now seen as “more balanced.”

The ECB recognized that the environment remains more uncertain than usual. The situation was likely to “change materially at some point” but the timing and direction were still unclear. The minutes noted the “high option value” of waiting for more evidence before altering policy, given two-sided inflation risks and the potential for unexpected shocks. The current rate level was described as “sufficiently robust” to manage a range of outcomes.

It also stressed that monetary policy should not be recalibrated for “moderate fluctuations of inflation around the target,” but only when a “significant deviation” is expected over the medium term. Though, while large, sustained deviations from target—like those seen over the past decade—are rare, monetary policy will still be ready to deliver “cyclical responses” to demand shocks.

BoE’s Mann: Inflation scarring still weighing on consumption, justifies policy restraint for longer

BoE policymaker Catherine Mann cautioned in a speech today that monetary policy must remain restrictive despite signs of weak consumption, arguing that high inflation has scarred UK consumers and continues to suppress spending.

“If the consumption gap was my only concern, reducing the restrictiveness of monetary policy would be appropriate,” she said. “However, in light of elevated inflation and expectations, maintaining restrictiveness for longer would be appropriate.”

Mann said the Bank’s analysis points to two drivers of the consumption gap: first, inflation and consumer scarring, and second, the channels through which monetary policy affects consumption.

The former, she explained, is a legacy of the rapid price surge that eroded purchasing power and altered household behavior. “High inflation itself is behind income uncertainty and weak consumption growth,” she said. “Monetary policy needs to continue to focus on reducing inflation” so households can return to a sustainable spending pattern.

For the second, she emphasized that higher rates have already exerted a material drag on demand, and the tightening effect is already waning. “Monetary policy has indeed loosened,” Mann said, adding that its impact on consumption has peaked.

EUR/AUD Mid-Day Outlook

Daily Pivots: (S1) 1.7612; (P) 1.7667; (R1) 1.7703; More...

EUR/AUD's break of 1.7588 support confirms resumption of the fall from 1.8155. Such decline is seen as the third leg of the corrective pattern from 1.8554 high. Intraday bias is back on the downside for 100% projection of 1.8155 to 1.7588 from 1.7929 at 1.7362. On the upside, above 1.7672 minor resistance will turn intraday bias neutral again first.

In the bigger picture, price actions from 1.8554 medium term top are seen as a corrective pattern. Deeper fall could be seen as the pattern extends, but downside should be contained by 38.2% retracement of 1.4281 (2022 low) to 1.8554 at 1.6922 to bring rebound. Uptrend from 1.4281 is expected to resume at a later stage.