Market Commentary – October 2025

US Data Blackout Drives Dollar Reprieve

On October 1^st, the US federal government shut down as lawmakers failed to pass legislation to fund the government past September. Through the end of the month, legislators have yet to come to agreement on funding resolutions, leaving the government’s statistical agencies, chiefly the Bureau of Labor Statistics (BLS) and Census Bureau, shuttered and indefinitely delaying pivotal US economic data. Limited data releases left market participants and the FOMC flying partially blind in October. It’s important to note that the shutdown lasting past October will likely impact the release schedule and/or quality of future data prints, particularly labor data, as the BLS has been unable to conduct its usual surveys during the period. The sole light in the data blackout was the September CPI report, which printed below expectations and provided the FOMC cover ahead of a 25bps rate cut at its end of month meeting.

The October FOMC was another contentious meeting, with policymakers again split on how to proceed. Powell expressed as such in his press conference, claiming “a further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.” Market participants read Powell’s comments as hawkish, with short-end yields picking up and stoking USD strength at month end. The Fed also announced an end to QT starting in December, a highly anticipated announcement but nonetheless salient given regional bank stress during the month, covered further down. Despite the shutdown and the FOMC continuing to ease policy, the US dollar advanced against all G10 FX over the month, as a lack of US data turned investor attention toward the rest of the world.

New Prime Minister on the Block

Yen underperformance was a major theme in October. Early in the month, Japan’s ruling LDP party held its party leadership election to replace outgoing party president and prime minister, Shigeru Ishiba. Conservative candidate Sanae Takaichi ultimately emerged victorious and was confirmed as prime minister on 21^st October. Takaichi’s victory came as a surprise and JPY weakened in the aftermath as investors feared that her pro-stimulus policies could threaten fiscal sustainability and expressed concern over the potential for increased political pressure on the BoJ to keep rates accommodative. Takaichi and the LDP courted more fiscally conservative parties to enter coalition with, somewhat softening fears of pronounced Abenomics-style stimulus under her leadership.  Nonetheless, the BoJ elected to keep rates on hold at its October meeting, citing the political transition and policy uncertainty as a factor. Yen weakness encouraged the Ministry of Finance to deliver a verbal warning near the end of the month, but market participants did not read it as a signal for impending intervention.

Fiscal Fears Guide Euro and Sterling

Alongside the US and Japan, fiscal concerns are garnering increased market attention worldwide, with France’s ongoing budget battle of particular note. The euro underperformed most of its European peers this month as France’s political gridlock eroded investor confidence in the bloc. Newly appointed prime minister, Sébastien Lecornu, resigned suddenly at the start of the month after less than four weeks in his role. Lecornu was ultimately reappointed as PM with a cabinet more palatable to the legislature, however he was quickly targeted with no confidence votes from fringe parties. Lecornu has so far survived with the help of the Socialist Party, to which he made concessions on President Macron’s signature pension reform, vowing to delay the implementation of the higher retirement age to 2027 to coincide with the next presidential election. That said, even with the support of his own centrist bloc and the Socialists, the margins for passing Lecornu’s budget are razor thin.

Fiscal uncertainties also weighed on GBP as investors anticipate the details of the upcoming Autumn budget. Elevated gilt term premiums and successive growth disappointments have opened a £20-40bn budget shortfall that Chancellor Rachel Reeves must fill at the November budget announcement. Amid political resistance to spending cuts, investors worry that heavy reliance on taxes will further dampen growth potential, embed cost pressures, and perpetuate the negative budget-growth feedback loop. A credible Autumn budget would shift some focus back on sterling’s monetary policy path. Bank of England policymakers remained in a holding pattern in October as inflation remained sticky, and several MPC members expressed a penchant for a slower easing pace.

French and UK fiscal difficulties and a flight to safety following US regional bank jitters contributed to resilient Swiss performance. A risk-off episode took place mid-month after US regional banks Zions Bancorp and Western Alliance flagged multiple bad loans in their quarterly reports, stoking fears of increasing risks in private credit markets. Although analysts characterized the event as an idiosyncratic episode, with few ramifications for the wider economy, memories of the 2023 banking crisis which consumed Silicon Valley Bank and First Republic were enough to drive haven flows into CHF and to a lesser extent JPY.

N.B.: This summary includes market events and currency movements up to end-of-October.

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