Forex week in review 39/2026: hot PMIs, 2007-high yields and a stronger dollar

A week after the Fed's first hike since 2023, the market asked a simple question: is one more coming soon? The answer from the data was that the US economy was not slowing. On Wednesday, the flash US composite PMI jumped to a five-year high. By Thursday, the 10-year Treasury yield was at its highest since 2007 and the dollar index at its highest since late July. Friday brought a partial reversal as oil prices eased and Japan pushed back on yen weakness, but the week still ended with the dollar higher against every major currency in this recap, if only marginally against the yen. EUR/USD fell for a third straight week, its longest losing run since the start of the year according to Reuters.

The idea to take from this week is that data and bond markets can keep doing the central bank's work after a meeting. The Fed did not meet this week, yet the expected path of US rates rose further, because strong activity data, hot inflation signals and weak demand for Treasuries all pushed yields higher. Our guide to how economic data moves forex explains why releases that change rate expectations move currencies more than releases that merely describe the economy.

The backdrop

Last week was dominated by three central banks. The Fed raised its target range to 3.75–4.00% on a 12–0 vote, with 16 of 18 officials projecting at least one more hike this year. The Bank of England held at 3.75% with three votes for a hike, and the Bank of Japan raised its policy rate to 1.25% but the yen still fell. The dollar index closed last Friday at 100.22. Oil remained a central driver: WTI crude settled at $100.30 on Friday 18 September, according to a weekly market briefing, with the US–Iran conflict and the Strait of Hormuz still disrupting supply.

Japanese markets were closed from Monday to Wednesday for the Silver Week holidays, which thinned liquidity in Asian hours.

Day by day

Monday 21 and Tuesday 22 September

The People's Bank of China left its loan prime rates unchanged at 3.00% (one-year) and 3.50% (five-year). With Tokyo shut, the early part of the week belonged to the dollar's steady grind higher. The dollar index closed Monday at about 100.43 and Tuesday at about 100.60. EUR/USD slipped from 1.148 towards 1.1385 by late Tuesday, and AUD/USD fell from above 0.711 to around 0.703. These were not dramatic moves day by day, but they added up.

Wednesday 23 September: the PMI shock

S&P Global's flash PMIs for September showed the US composite output index rising to 58.4 from 56.0 in August, the highest in more than five years. XTB reported that the survey also showed rising cost pressures, with firms passing more costs on to customers, and noted that a reading this high has historically been associated with strong GDP growth.

Then came the bond market. XTB reported weak demand at Wednesday's 5-year note auction and said the Treasury's buyback operation had been capped at $6 billion, below what the market had expected. Both added to the selling of Treasuries. Higher yields, a hot activity survey and Fed hike bets all pointed the same way, and the dollar index closed Wednesday at about 101.10, a two-month high according to Reuters.

Gold took the hit. December gold futures fell $58, or 1.33%, to settle at 4,318.40 an ounce. Precious metals are especially sensitive to real yields: when the return on a government bond rises, an asset that pays no interest becomes relatively less attractive.

Thursday 24 September: yields at multi-decade highs

XTB reported US yields at their highest since 2007, and Reuters said the 30-year yield was at its highest since June 2004. Reuters put the dollar index up 0.15% at 101.28, after a high of 101.39, its highest since 29 July and on course for a fourth straight daily gain. EUR/USD touched $1.1358, its lowest since 28 July. The dollar rose 0.32% to 158.82 yen and reached 0.8296 Swiss francs, its highest since May 2025.

According to Reuters, CME FedWatch put the odds of at least a 25 basis point Fed hike in October at 68.6%, up from 55.4% a week earlier. New York Fed President John Williams and Philadelphia Fed President Anna Paulson both said more increases were likely to be needed. Initial jobless claims fell by 1,000 to 197,000, below the 201,000 expected in a Reuters poll.

Oil swung sharply. Reuters reported prices up almost 4% at one point after a Houthi missile attack on Saudi Arabia, before gains eased on reports that the US and Iran had discussed reopening the Strait of Hormuz.

The Swiss National Bank left its policy rate at 0%, as expected. It said inflation had risen from 0.6% in May to 0.8% in August, mainly because of higher oil product prices, and that its medium-term forecast was slightly higher partly because of the weaker franc. Its conditional forecasts put inflation at 0.7% in 2026 and 0.8% in 2027 and 2028, and it repeated that it was willing to be active in the foreign exchange market as necessary.

In Australia, NordFX reported August employment up 39,500, roughly double forecasts, but the unemployment rate rose to 4.6%, its highest since late 2021, as more people looked for work. Chinese President Xi arrived in Washington for a summit with President Trump.

Friday 25 September: a partial reversal

Reuters reported crude down more than 2% on hopes of a possible US–Iran truce, although prices stayed above $100 a barrel. The dollar index slipped 0.3% to 100.95.

The yen had its best day in weeks, gaining about 1.06% to 157.13 per dollar, after Japanese Finance Minister Satsuki Katayama said President Trump had raised concern about yen weakness at a meeting with Prime Minister Sanae Takaichi, and that she and Treasury Secretary Scott Bessent agreed the yen's undervaluation was a concern. Sterling rose 0.23% to $1.3246 after hawkish comments from Bank of England Governor Andrew Bailey, though it remained close to a three-month low.

US data were firm: new orders for capital goods rose more than expected in August, and University of Michigan consumer sentiment came in at 48.1, above the 47.6 forecast. Cleveland Fed President Beth Hammack said she was increasingly worried that years of above-target inflation could erode confidence that prices would return to target. CME FedWatch odds of an October hike stood at about 66%, Reuters reported. Moneycorp's Eugene Epstein summed up the mood: "We've had a pretty aggressive rally in the dollar over the last couple of days and maybe it's a little stretched."

Pair by pair

EUR/USD: third weekly fall

EUR/USD opened at 1.1484 and closed at 1.1392, down 0.80%, with a low of 1.1364. Since the start of Jackson Hole week, five weeks ago, the pair has fallen from 1.1680 to below 1.14. The ECB has hiked once in that time and the Fed once, but the market has priced more further hikes for the Fed. If you are using moving averages to define the trend, this is the kind of steady, low-drama decline they are designed to capture; see trend following and moving averages for how they work and where they fail.

GBP/USD: down more than 1%

Cable opened at 1.3390 and closed at 1.3246, down 1.08%, after touching 1.3206 on Thursday. The pair has now fallen in four of the five weeks covered by this series of recaps.

USD/JPY: round trip

USD/JPY opened at 157.06, reached 159.04 midweek as US yields rose, and closed at 157.19, almost unchanged. Friday's 1% yen rally on official comments is the kind of move that can wipe out a week of gains in hours. When a government has spent heavily defending a currency, as Japan did in July and August, verbal warnings carry weight.

AUD/USD: the week's weakest

AUD/USD opened at 0.7126 and closed at 0.7026, down 1.40%, after a low of 0.7007. Higher US yields narrowed the Australian dollar's interest rate advantage, and a rising unemployment rate at home did not help.

USD/CHF and USD/CAD

USD/CHF rose from 0.8223 to 0.8283, up 0.73%. The SNB's 0% policy rate means the franc offers no yield at all, so it struggles when other central banks are hiking. USD/CAD rose from 1.3990 to 1.4141, up 1.08%.

Gold

Comex gold futures opened at 4,413 and closed at 4,321.20, down 2.08%, as higher yields weighed for most of the week.

A worked example: what a rising yield does to a carry position

Here is an illustrative example of why rising US yields pull money into the dollar, using made-up but realistic round numbers. Suppose a trader can earn 4.0% a year on short-dated US government debt and 1.25% on yen deposits. The interest rate gap is 2.75 percentage points. On a position worth 100,000 dollars, that gap is worth about 2,750 dollars a year, or roughly 7.50 dollars a day, before any costs.

If US short-term yields rise by 0.25 percentage points, the gap becomes 3.0 points and the daily carry rises to about 8.20 dollars. That does not sound like much, but large funds run positions many times that size, and the change in carry nudges them towards dollars. On a retail CFD account the same logic shows up in the overnight swap charged or credited by your broker, usually with a markup; our guide to swap and overnight financing explains how to read it.

The catch is that a single day's currency move can be far larger than months of carry. On Friday USD/JPY fell about 1%, which on a 100,000-dollar position is roughly 1,000 dollars, or more than four months of carry in the example above. That asymmetry is why carry trades can unwind violently, as they did in early September.

The month in context

Over the five weeks covered by our recaps since Jackson Hole, the pattern has been consistent: the dollar strengthened whenever the expected path of US rates rose, and weakened only when another central bank's expected path rose faster (the yen in early September). Recap links for the full story: Jackson Hole week, the yen breaks 160, the ECB hikes and the central bank week.

What this week teaches

1. The data keep voting between meetings. The Fed did not meet, but the PMI, a weak auction and Fed speakers moved rate expectations as much as a meeting might have.
2. Watch the bond market, not just the calendar. Auctions and buyback operations are scheduled events that most retail traders ignore. This week they helped push yields to multi-decade highs.
3. Trends can be quiet. EUR/USD fell for three straight weeks without a single dramatic day. A slow trend can do more damage to a stubborn counter-trend position than one volatile session.
4. Official words still move the yen. A single comment from Japan's finance minister reversed much of the week's USD/JPY gain in hours. Placing stops with this in mind is covered in where to put a stop-loss.
5. Respect the leverage. AUD/USD fell 1.4% in a week. At the ESMA retail cap of 30:1 for major pairs, that is a 42% loss on the margin of a fully leveraged position. Most retail CFD accounts lose money, and our guide on why most retail CFD traders lose explains what the disclosures show.

Scheduled next week (28 September – 2 October)

Events on the calendar for the coming week, listed for planning only:

• Tuesday 29 September: Reserve Bank of Australia policy decision, followed by Governor Michele Bullock's press conference.
• Wednesday 30 September: US personal income and outlays for August, including PCE inflation and an annual revision to the national accounts. Japan's Ministry of Finance publishes its monthly intervention figures. Month-end and quarter-end flows.
• Thursday 1 October: US ISM manufacturing PMI for September. Mainland Chinese markets close for the National Day holiday.
• Friday 2 October: US employment report for September (non-farm payrolls, unemployment, average hourly earnings). Euro-area flash HICP inflation for September.

Quarter-end can distort prices for reasons that have nothing to do with fundamentals, as portfolios are rebalanced; our guide to using an economic calendar covers how to plan around both scheduled data and calendar effects.

Sources

• Reuters via Investing.com: dollar falls as oil cools but set for weekly gain; yen rallies (25 Sep 2026)
• Reuters via Global Banking & Finance: dollar perched at two-month high as hot PMI fuels inflation fears (24 Sep 2026)
• XTB: bond yields highest since 2007 (24 Sep 2026)
• InvestingLive: S&P Global composite PMI for September 58.4
• Swiss National Bank: monetary policy assessment (24 Sep 2026)
• NordFX: Market Pulse (24 Sep 2026)
• Morgan Downey's Commodity News (24 Sep 2026)
• Thrive in Markets: economic calendar, week of 21 September 2026
• Thrive in Markets: economic calendar, week of 28 September 2026
• BEA: Personal Income and Outlays, August 2026
• Yahoo Finance historical price data (major FX pairs, gold futures, dollar index)