US FX WRAP: G10 FX peers gain vs. the Buck in risk-on trade

The Dollar Index was lower on Tuesday, seemingly hit by broader risk sentiment as US equities marched higher despite flattish AI names, alongside more encouraging developments out of the Middle East, although these were later denied. On the data front, US Pending Home Sales for September tumbled much more than expected, continuing to highlight the US housing market's struggles given current mortgage rates, which risk moving higher given current energy prices and their potential knock-on effect on inflation.

G10 FX peers were firmer across the board against the Dollar, as, while the aforementioned broader market conditions helped, some currency-specific catalysts also aided. The Pound, the outperformer, was supported by the better-than-expected UK unemployment figure. On the central bank front, BoE's Greene said she continues to believe the Bank should proactively lean against the risk of second-round inflation effects, adding that this risk is greater than previously thought. Cable traded between 1.3295-1.3409.

Elsewhere, sources overnight said the BoJ is likely to keep rates unchanged in October but may signal that a rate hike could come in December; the Bank may also raise its FY27 inflation forecast slightly. Overall, the report does little to shift market expectations, and at the time of writing, money markets assign only a 5% chance of a hike in October and c. 80% in December.

In Europe, the German ZEW Economic Sentiment Index for October disappointed, with the headline coming in at 28.1, below the expected 30.0 and the prior 34.7. Finally, there was little reaction in the HUF after the NBH left rates unchanged at 5.50%, as expected. In post-decision comments, the NBH said it is committed to achieving the inflation target in a sustainable manner.