Friday was a positioning day more than a news day. The dollar finished the week roughly where it started the session: slightly firmer after Thursday's three-week low, with traders unwilling to take big views ahead of next week's Federal Reserve and Bank of Japan meetings. Oil remained the background noise, elevated after the recent attacks on Saudi energy infrastructure, and it keeps feeding the idea that inflation will stay sticky and policy will stay tight.
The yen was the most interesting mover. USD/JPY dipped to around a one-month low early in the Asian session after Japanese core inflation ran hotter than the central bank's target, which strengthens the case for another BoJ hike. It then recovered part of that move as the dollar steadied. Gold went the other way: it hovered near three-month lows and was on track for a weekly loss of more than 3%, because higher oil pushes up rate expectations and a higher-for-longer rate path raises the cost of holding a metal that pays nothing. Sterling and the euro were mostly range-bound against the dollar, and the Canadian dollar kept some of its recent strength as the gap between expected Fed and Bank of Canada paths drew attention. Sources disagreed on exact closing levels for several pairs, so treat the direction as the story, not the decimals.
The idea worth understanding here is how oil acts on currencies through rate expectations rather than directly. A spike in crude hurts energy importers like Japan and the euro area through their trade balances, but it also lifts inflation expectations everywhere, and that changes what central banks are likely to do. Markets are still pricing a meaningful chance of a Fed hike by year-end even though a hold next week is widely expected. So the currency reaction depends on whether a central bank is seen as behind the curve or ahead of it. The yen can rally on a hot Japanese CPI print and still be pushed around by oil, because the two forces pull in opposite directions. When drivers conflict like this, ranges and sharp reversals are common, and position size matters more than conviction.
On deck for the coming week:
- Fed policy decision on Wednesday, with the focus on the statement's language about inflation and oil, not the hold itself.
- Bank of Japan meeting at the end of the week, with the hot inflation data raising the stakes for guidance on further hikes.
- US advance Q3 GDP and the PCE price index next Thursday.
- US midterm elections on November 3, which can colour the rate outlook beyond this week.
Event weeks tend to bring thinner liquidity beforehand and wider spreads around the releases. Know your risk before the numbers, not after.