Currency markets subdued ahead of busy central bank week

By Jiaxing Li

HONG KONG, Oct 26 (Reuters) - Major currencies traded in tight ranges on Monday at the start of a busy week of central bank decisions and corporate earnings, while a pullback in oil prices and Treasury yields weighed on the dollar.

Oil prices eased, with Brent crude futures down nearly 2% at $114.50 a barrel after surging to a six-month high last week, following a Reuters report that Qatari mediators were in Tehran on Sunday as part of an effort to de-escalate regional tensions in coordination with the US.

Meanwhile, US Treasuries largely held onto gains from a recent safe-haven rally, as a tech-led selloff over concerns about AI spurred a rotation out of risk assets even as elevated oil prices kept inflation worries alive.

Yields on US 10-year notes were last down to 4.967% while those on 30-year notes were at 5.299%, hovering near one-month lows.

"For the time being, it seems to point to the US bond market being in the driving seat for broader dollar performance," said Ray Attrill, head of FX strategy at National Australia Bank.

"The market is sort of responding to the fall we've seen in Treasury yields and the fact that yield differentials between the US and other kind of G10 majors are compressing. I think that's taken a little bit of the heat out of the US dollar."

The euro rose 0.15% against the greenback to $1.1218, amid relief that France was spared a Moody's downgrade despite social unrest. Sterling strengthened 0.1% to $1.3379.

The dollar index, which measures the US currency against a basket of peers, was little changed at 101.65.

The Australian dollar was flat at $0.7031 and New Zealand's kiwi traded 0.05% stronger at $0.5701.

The Japanese yen was steady at 156.92 per dollar.

Corporate earnings reports from hyperscalers Alphabet, Microsoft and Amazon will also test the fragile AI-led market rally and broader risk appetite.

CENTRAL BANK DECISIONS IN FOCUS

Five major central banks will announce closely watched policy decisions later in the week. The US Federal Reserve, the European Central Bank and the Bank of Japan are all expected to hold rates steady despite inflation pressures, while leaving room for December hikes.

New Zealand and Canada's central banks are expected to raise rates this week.

"Forward guidance could matter more than the decisions themselves," said Chris Weston, head of research at Pepperstone, in a note.

"The decisions themselves may be largely discounted. The real issue that could move the dial in short-term rates ... is how policymakers shape expectations for subsequent meetings and whether markets need to reprice the forward rates curve."

Investors will also be paying attention to a packed US economic calendar — including the October consumer confidence report, the PCE price index and jobless claims — which could provide additional clues on the outlook for Fed policy.

Elsewhere, spot gold was slightly higher, trading at $4,014 per ounce. [GOL/]

In cryptocurrencies, bitcoin was down 0.3% at $80,134.29, while ether was 0.9% lower at $2,323.34.

(Reporting by Jiaxing Li in Hong Kong; Editing by Thomas Derpinghaus and Kevin Buckland)