The dollar weakened, and the euro and pound took advantage. The market largely ignored European inflation and US data, focusing instead on comments from New York Federal Reserve president John Williams. He allowed for one more rate hike this year but saw no need to tighten in 2027. Expectations for further rate rises eased, US bond yields fell slightly, and dollar pressure eased. EUR/USD and GBP/USD moved higher.

Contrast with Monday is notable. Then the dollar strengthened after Beth Hammack's hawkish remarks; yesterday Williams sounded markedly milder. Williams has been consistent — on September 2 he said the inflation trend is slowly moving down and tariff effects are fading — and the market favored that view. For now the market trades Fed-policy expectations rather than individual data prints, so don't expect strong moves from German or US figures alone.

Germany's final CPI matched forecasts: September consumer prices rose 0.6% month-on-month and 3.3% year-on-year (HICP same). Annual inflation accelerated from 2.9% in August to 3.3% in September, mainly due to energy — a supportive factor for the euro because high energy prices give the European Central Bank reason not to cut rates. But the number surprised no one, so it prompted no direct reaction.

No major UK data were released yesterday, so the pound moved with the dollar. The dollar's weakness after Williams was the main driver for GBP/USD.

Today's euro focus is ECB President Christine Lagarde's speech, plus German PPI data. PPI leads CPI: if producers push prices higher, that passes through to consumers later and gives the ECB another argument against easing. Together with yesterday's 3.3% German CPI, these data show how broad price pressures remain. Lagarde previously warned that the Middle East conflict and events around Ukraine are pushing energy prices up and will likely keep inflation above target into early 2027. If she repeats that tone, markets will read it as confirmation that the 2.50% deposit rate won't be cut soon. Markets currently price a pause on October 29 and a final hike in December to 2.75%, so hawkish words from Lagarde would strengthen the December scenario and support the euro. A dovish or cautious tone could let the euro's rebound fade.

For the pound, two key drivers loom today. With no UK data in the morning, focus shifts to Bank of England governor Andrew Bailey and Monetary Policy Committee member Huw Pill. Central-bank comments shape rate expectations, and British asset profitability and demand for the pound depend on them. A hawkish tone would support a bullish impulse for GBP/USD.

Pill is especially important: in July he voted with Megan Greene and Catherine Mann for immediate tightening and is among the committee's hawks. Markets will look for confirmation of that stance. In September, Bailey spoke about central-bank independence, and the pound did not react strongly; today he must provide clearer guidance on inflation, and the market will decide how seriously to take him based on that signal.

Momentum

For the euro, the range between breakout points is 29 pips, from 1.1187 to 1.1216. A breakout above 1.1216 opens the road to 1.1244 and then 1.1275. That scenario requires several things to align in the euro's favor: a hawkish Lagarde and US inflation that does not exceed forecasts; otherwise, the dollar will seize the initiative. A break below 1.1187 leads to 1.1155 and 1.1126, and I treat it as a fallback if US data come in stronger than expected. Levels moved higher after yesterday's rise, but the overall logic remains unchanged. Don't rush until price closes outside the range.

For the pound, the range is slightly narrower, 24 pips from 1.3258 to 1.3282. A breakout above 1.3282 can reach 1.3307 and 1.3341; for that, the pound needs a hawkish Bailey or Pill. The first target is 25 pips away and the second 34, so the move can be quick if it works. A break below 1.3258 leads to 1.3238 and 1.3218, with strong US inflation as the main potential trigger. I prefer to wait for the reaction to the UK officials' remarks before taking either scenario seriously.

Mean Reversion

For the euro, there are two reversion reference points: 1.1217 and 1.1195. The upper one sits just one pip above the breakout point of 1.1216, so exercise special caution. One pip is normal market noise, and on the first touch you cannot tell whether a breakout has begun or it is a brief overshoot. If price passes 1.1217, reaches 1.1244, and closes convincingly above, that is a confirmed breakout, and you can't sell there. If instead it pokes above 1.1216 and quickly returns below, the reversion trade works, and I would consider selling with a stop above 1.1244. It is wiser to skip the first reaction in this zone. The lower reference 1.1195 lies inside the range, 8 pips above 1.1187 and 21 pips below 1.1216. If price pulls back to it and quickly reverses up, buyers get a reversion idea, with a stop conveniently placed below 1.1187. But if price fails to hold and falls below 1.1187, that is a downside breakout, and buying is not allowed.

For the pound, the upper reference 1.3283 stands one pip above the breakout point 1.3282, so the situation is the same as for the euro. I will look for short positions if the pair rises above 1.3282, fails to hold, and returns below that level — for example, on cautious words from Bailey. In that case, a stop above 1.3307 is logical. The lower reference 1.3253 lies 5 pips below the breakout point 1.3258 and 15 pips above the first target 1.3238. If price breaks below 1.3258, quickly returns above, and re-enters the range, that gives a buying idea with a stop below 1.3238. But five pips is a very tight gap, so this signal can easily be mistaken for the start of a real downside breakout. You can distinguish them only by whether price closes beyond the level.