This week, we will be looking closely at US economic data to see if it supports high interest rates or allows the Federal Reserve to relax policy. The current economic situation is tricky—employment is dipping, but inflation and borrowing costs are still quite high. This mix could lead to some market ups and downs until the next decision is made.
This week, the market will concentrate on the US Consumer Price Index (CPI) inflation report set for Wednesday, which is critical for evaluating the economic trajectory. Weaker data might heighten fears regarding economic growth, while stronger data could support the notion that interest rates should remain high.
Complicating matters further are rising oil prices and concerns surrounding the US bond market, both of which have fuelled inflation anxieties. As of Friday, October 9, the yield on the 10-year Treasury reached approximately 5.243 percent, following a recent peak of around 5.34 percent, the highest since 2002. The upcoming September CPI report on Wednesday, October 14, will be a significant benchmark.
In the oil market, if supply disruptions persist and geopolitical tensions stay high without a credible resolution, Brent crude could rise above its closing price of $104.34.
The important factor to distinguish is whether oil prices are climbing due to actual losses in physical supply or if traders are factoring in the risk of a larger disruption.
Recent reports indicate attacks on tankers and energy infrastructure, as well as constrained flows through the Gulf waters and the Strait of Hormuz.
Therefore, a sustained increase above $105 might bolster the case for prices reaching $108- $110. However, it’s essential not to assume that oil prices will automatically rise just because the news is negative, as markets can adjust when the news is less harmful than anticipated.
What could halt this upward trend? A diplomatic breakthrough remains feasible, especially since Iran appears to be considering a proposal that could reopen the Strait of Hormuz.
Persistently high oil prices could sustain elevated inflation and pressure US Treasury yields. The main concern is what happens to oil prices if the Strait of Hormuz remains closed for an additional two to four weeks. The critical question becomes, if no breakthrough occurs, what will happen next? Undoubtedly, oil prices would rise.
In the foreign exchange market, the Japanese yen may continue to weaken despite the Bank of Japan expressing concern, as mere verbal warnings cannot mitigate the ongoing interest-rate disadvantage or the strong demand for dollars.
The BOJ has options, yet each comes with trade-offs. Raising interest rates could support yen, but it might also dampen domestic demand and increase borrowing costs. Intervention could help slow down a downward trend, but maintaining an upward trajectory would be challenging if the fundamental reasons for decline persist.
The 154–155 level is thus a key area to monitor for potential support.
If US yields stay high and the BOJ does not signal a more aggressive policy stance, the pair could retest 160.
At that point, there is still a risk of intervention around the 160 mark, a psychologically significant level where Japanese authorities might step in again, potentially causing a rapid decline.
However, moving toward the 155 or below would likely require more than just verbal warnings.
For the yen to gain strength, actual intervention coupled with a tightening signal from the BOJ would be necessary, or there would need to be a significant drop in US yields. Thus, the USD remains strengthened by the interest-rate differential and Japan’s energy-import costs against the yen.
Right now, gold is in a tricky spot due to inflation and interest rates because rising oil prices are increasing inflation risks.
While gold can benefit from concerns about inflation and safe haven buying, higher US Treasury yields and a stronger dollar could put downward pressure on it. Therefore, gold appears to be caught between safe haven demand and the drag of climbing US yields.
The euro faces a challenging mix of high energy costs, sluggish economic momentum, fiscal uncertainty in France, and political instability in Spain. These pressures are mutually reinforcing, while the US dollar gains from relatively high Treasury yields.
France’s debt situation and political uncertainty are also weighing on market sentiment. The economic challenge for the European Central Bank (ECB) is that rising oil prices, which is pushing inflation, but further tightening of monetary policy could harm growth.
This means that EUR/USD is influenced by energy prices, worries surrounding French fiscal matters, and the robustness of the US dollar.
Similarly, the Bank of England is grappling with a tough situation. Rising energy costs may push inflation closer to 4 percent, strengthening the case for interest hikes, yet tighter policies and higher borrowing costs could also hinder growth. Therefore, I would remain cautious regarding the Pound Sterling against the dollar as long as oil and US yields stay high.
A weaker dollar could provide some relief, but a sustained recovery for the Pound would require stabilization in UK bond yields and a reassessment of the government’s fiscal strategy.
Across these four markets, a shared driving force is starting to appear, the oil shock and the movement of global bond yields.
Given current conditions, US 10-year Treasury yields are likely to remain elevated next week, with a possibility of another increase before any prolonged decline.
The main factors to watch will be US inflation, crude oil prices, and expectations for further tightening by the Federal Reserve.
WEEKLY OUTLOOK - Oct 12-16
#GOLD @ $ 4194.50- This week, gold needs to overcome the resistance at $4250 in order to reach $4320. If it is unable to rise above this level, there is a risk of a decline. On the downside, a drop below $4075 could lead to a movement towards $4010.
#EURO @ 1.1202- Unless the Euro clears 1.2900, it could test 1.1325, and potentially drop to 1.1150 or the 1.1090–1.1100 range.
#GBP @ 1.3233- Pound Sterling will have to surpass 1.3320 for further gains. A fall below 1.3130, risks for 1.3090
#JPY @ 158.33- The $/JPY pair needs to surpass 159.30 in order to reach the 159.90-00 level. If it breaks below 157.80, it will pave the way for a move towards 156.50.
Copyright Business Recorder, 2026
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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