The USD extended its dominance in October, rising against all major currencies as markets recalibrated expectations for global growth and monetary policy. Japan made history when the Liberal Democratic Party selected Takaichi Sanae as its new leader, the country’s first female prime minister. Takaichi has endorsed the LDP’s long-standing mix of easy monetary policy and aggressive fiscal stimulus, a stance that initially reassured equity markets but weighed heavily on the yen, which fell roughly 4% on the month, leading losses among the G10 currencies. Compounding the pressure, Japan’s industrial sector faces headwinds from China’s newly introduced export controls on critical components, particularly in electronics and advanced materials, underscoring the fragility of Japan’s manufacturing recovery.
By contrast, the CAD proved the most resilient among the majors, slipping only 0.65% against the USD. The loonie often outperforms in a strong USD environment thanks to Canada’s commodity exposure and relatively stable fiscal footing, which helped cushion the blow from broad USD strength.
The euro fell roughly 1.7% versus the USD in October, pressured by ongoing stagnation in the Eurozone’s core economies. German industrial output contracted for a fourth consecutive month, while inflation cooled faster than expected. The European Central Bank has effectively shifted to an on-hold stance, acknowledging that restrictive policy is biting. President Lagarde’s comments that “the disinflation process is well underway” fueled speculation that rate cuts could begin as early as Q2 2026. With no near-term catalyst for growth and a persistent trade deficit, the euro remains fundamentally heavy.
The GBP lost about 2.25% versus the USD in October, caught between an improving inflation outlook and weak domestic data. The Bank of England left rates unchanged at .0% and hinted at possible easing next year, noting that labor market softness and stagnant retail spending are eroding momentum. However, energy prices and geopolitical risk in the Middle East kept headline inflation above target, complicating the policy path. The GBP remains vulnerable near-term but could benefit later if global risk appetite improves and the dollar rally cools.
The AUD lost about 1.03% in October as weaker Chinese demand and falling iron ore prices overshadowed a solid domestic employment report. The Reserve Bank of Australia remains reluctant to ease prematurely, but markets expect rate cuts by mid-2026. The NZD underperformed, down 1.18%, as the RBNZ’s dovish tone and soft inflation print prompted expectations for policy easing sooner rather than later. Divergent yield expectations between the antipodeans have widened, leaving NZD/USD near multi-month lows.
Lastly, the Swiss franc weakened around 1.21% against the USD, a modest move considering heightened geopolitical tensions. The Swiss National Bank maintained its cautious approach, suggesting the current level of real interest rates is restrictive enough to guide inflation back to target. With haven demand muted and the USD firm, CHF drifted lower alongside other low-yielding currencies.
On the surface, the narrative for the USD’s recent strength reflected both relative resilience and global unease. While some US indicators softened, particularly retail sales and housing start, the broader picture remained one of economic divergence. The Federal Reserve cut rates by 25 basis points, but Chair Powell emphasized that monetary policy remains restrictive and that further easing is not imminent. Markets read the decision as a hawkish cut, and Treasury yields held firm, with the 10-year staying above 4.6%, keeping the USD well-supported.
Below the surface, however, the USD’s resurgence, after falling roughly 10% in the first half of the year, wasn’t driven solely by relative US outperformance. Instead, it reflects tightening global liquidity and growing stress in funding markets, a kind of financial “gridlock” that has spurred demand for USDs as the world’s reserve currency. This underlying tension is precisely why the Federal Reserve announced it will end its quantitative tightening program on December 1st, signaling awareness that balance-sheet stress, not inflation, is now the more pressing concern for global markets.
The Fed’s decision to halt quantitative tightening (QT) and prepare to become a net buyer of U.S. debt marks a significant policy pivot. In one sense, it’s a justifiable move: money market rates have become unstable, and stress has crept into the secured overnight financing rate (SOFR). The spread on SOFR has jumped to 16 basis points above the interest rate paid by the Fed on bank reserves—the widest since the liquidity tremors at the onset of the pandemic.
However, markets may be overlooking the larger story. The Fed is now aiding and abetting the monetisation of America’s deficits. While headline money supply growth appears contained, the true expansion is masked by a 15% rise in U.S. money market mutual funds over the past year, now totaling nearly $7.4 trillion. These funds are limited to purchasing only short-term U.S. Treasury debt (less than one year to maturity). The roughly $900 billion increase in such deposits over the past 12 months has effectively absorbed half of Trump’s $1.8 trillion borrowing needs. In other words, money market funds have become a crucial conduit for financing the federal deficit, blurring the line between monetary and fiscal policy.
And as the saying goes, if it looks like a duck and quacks like a duck—it’s a duck. QE, not QE; call it what you will. In practice, it’s money printing.