FX volatility has calmed at the start of the week, supported by a rebound in US equities as credit market concerns ease, according to ING FX strategist Francesco Pesole.
Solid Bank Earnings and a Rebound in the Dollar
Zions Bank delivered a solid earnings report, with losses tied to fraud being the only major blemish. Despite continued scrutiny over potential credit stress, the broader market is showing signs of stabilization. The US dollar has largely shaken off last week’s banking sector worries and now sits just 0.7% below its recent high on October 10.
Rates and Credit Sentiment Linked
The rebound in markets is closely tied to a shift in Fed rate expectations, as reflected in the USD OIS curve. A hawkish repricing has driven the two-year yield up by 7 basis points, highlighting the tight connection between credit sentiment and rate outlooks.
US-China Trade Takes a Back Seat
On the trade front, little progress has been made ahead of the scheduled end-of-month meeting between President Trump and President Xi. The US did sign a rare earth supply deal with Australia, potentially strengthening its hand in negotiations with China. However, trade developments remain a secondary factor for FX markets for now, with a “wait-and-see” stance prevailing, along with cautious optimism that Trump may secure a deal with Beijing.
