Markets entered Thursday, 22 October 2026, under pressure from rising oil prices, Middle East tensions, concerns over AI-related spending and uncertainty about Federal Reserve policy, according to IC's Europe Fundamental Forecast published on its official blog. Brent crude was the clearest bullish mover in the Asian session, while Asian equities weakened. The yen remained caught between the negative effects of expensive oil imports and the potential support from tighter Bank of Japan policy.
The U.S. dollar is showing signs of stabilization after recent weakness, although IC describes its overall direction as uncertain. Lower Treasury yields and stronger competing currencies are weighing on the greenback, while expectations of a cautious but potentially hawkish Federal Reserve provide some support. U.S. unemployment claims, due at 12:30 pm GMT, are the main scheduled release for the U.S. session.
According to IC's summary of Federal Reserve communications, the FOMC raised the federal funds target range by 25 basis points to 3.75%-4.00% at its 15-16 September 2026 meeting. The decision was approved unanimously, 12-0, after rates were held at 3.50%-3.75% in July. The Fed said the move was intended to support its dual mandate and promote a more timely return of inflation to its 2% objective.
The September projections put median headline PCE inflation at 3.7% for 2026, falling to 2.3% in 2027, 2.1% in 2028 and 2.0% in 2029. Core PCE inflation is projected at 3.4% in 2026, 2.5% in 2027 and 2.2% in 2028. The median 2026 GDP growth forecast was raised to 2.3% from 2.2% in June, while the median federal funds rate projection stands at 4.1% at the end of 2026, compared with 3.8% in the June projections.
Chair Kevin Warsh has continued to stress the importance of returning inflation to 2%. The next FOMC meeting is scheduled for 27-28 October 2026. Gold is under short-term bearish pressure, IC notes, as oil-driven inflation concerns and expectations of a possible December Fed rate hike weigh on prices.
Gold recently traded near $4,121 per ounce after reaching a one-week low. Falling Treasury yields and geopolitical tensions, however, could limit losses or trigger a rebound. IC's short-term bias for gold is Medium Bearish.
The euro faces a cautious outlook. Expectations of further ECB rate increases may offer support, but French debt concerns and uncertainty about economic growth remain obstacles. IC highlights that traders should watch the speech by Governor Panetta and the consumer-confidence release, followed on Friday by eurozone PMIs and Moody's review of France.
The ECB's most recent confirmed decision, from 23 July, kept the deposit facility rate at 2.25%, the main refinancing operations rate at 2.40% and the marginal lending facility rate at 2.65%. IC notes that the ECB's outlook for October depends on the outcome of its 10 September meeting, which the source does not detail. The next ECB meeting is on 29 October 2026.
IC cites ECB data showing euro-area GDP at 4.1185 trillion euros in Q2 2026, up 1.2% quarter-on-quarter and 3.6% year-on-year. The ECB's Q3 Survey of Professional Forecasters projects headline HICP inflation at 2.7% for 2026, falling to 2.2% in 2027 and 2.0% in 2028, while core inflation is projected at 2.4% in 2026 and 2.2% in 2027. Real GDP growth is projected at only 0.6% in 2026, followed by 1.2% in 2027 and 1.3% in 2028.
This combination of weak growth and above-target inflation leaves the ECB facing a difficult policy trade-off. The central bank's APP and PEPP portfolios continue to decline because principal payments from maturing securities are no longer being reinvested. IC's bias for the euro is Medium Bearish.
The Swiss National Bank kept its policy rate unchanged at 0.00% at its 24 September meeting, citing appropriate monetary conditions. Swiss inflation rose from 0.6% in May to 0.8% in August, mainly due to higher energy prices. The SNB projects average inflation of 0.7% in 2026, 0.8% in 2027 and 0.8% in 2028, assuming the policy rate remains at 0%.
It forecasts Swiss growth of 1.5-2% in 2026 and around 1.5% in 2027. The SNB remains willing to intervene in the foreign-exchange market if necessary, particularly if exchange-rate movements become problematic. IC describes the franc's outlook as limited by a weaker trade surplus and low interest rates, with safe-haven demand as a possible support.
Its bias is Medium Bullish, and the next SNB meeting is on 10 December 2026. The pound has a moderately bullish fundamental outlook, according to IC, because UK inflation has risen more than expected. The Bank of England held Bank Rate at 3.75% at its 17 September 2026 meeting, with the MPC voting 6-3.
Three members supported a 25-basis-point increase to 4.00%. UK CPI inflation rose to 3.1% in August from 2.9% in July, remaining above the 2% target. Core CPI was 2.6%, while services inflation was 3.4%.
The BoE expects inflation to rise further over the coming quarters, with the eventual impact depending on how long energy prices remain elevated because of the ongoing Middle East conflict. Sterling has gained against both the U.S. dollar and the euro, but IC warns that the positive inflation news may already be priced in. Governor Bailey's comments and UK business surveys are on the agenda today.
The BoE is also reviewing the pace and structure of its balance-sheet reduction, including a slowing of gilt sales. The next BoE meeting is on 5 November 2026. The Canadian dollar is trading near a four-week high as markets anticipate the Bank of Canada's 28 October decision, according to IC.
At its 2 September 2026 meeting, the Bank of Canada kept its overnight rate target at 2.25%, the seventh consecutive hold at that level, with the bank rate at 2.50% and the deposit rate at 2.20%. Governor Tiff Macklem said the bank remains prepared to adjust policy if necessary to preserve price stability. Canadian GDP grew at an annualized rate of 3.3% in Q2 2026 after very weak growth in Q1.
Employment rose by 75,000 in July and the unemployment rate fell to 6.4%. Headline CPI increased to 3.0% year over year in July from 2.8% in June, largely driven by gasoline, which rose 25.7% year over year. CPI excluding gasoline was 2.2%.
The bank estimates that products directly affected by new U.S. tariffs account for around 5% of Canada's exports to the United States. IC's bias for the Canadian dollar is Medium Bullish. Oil prices are moving higher, with escalating Middle East tensions and falling U.S. crude inventories supporting the market.
Brent is trading around $110 per barrel, while WTI is near $98 in early trading. Recovering Gulf exports could limit gains, but IC identifies the risk of further attacks and shipping disruptions as the main bullish driver. IC's short-term bias for oil is Strongly Bullish.
The figures and assessments in this article are drawn from IC's Europe Fundamental Forecast of 22 October 2026, which compiles central-bank communications from the Federal Reserve, the ECB, the Swiss National Bank, the Bank of England and the Bank of Canada, along with ECB Survey of Professional Forecasters data. The short-term biases are IC's own trading assessments rather than official forecasts from any central bank.
Source: ic.com