Euro-dollar holds near 1.12
As of October 22, 2026, euro-area bond markets continued to pressure governments to present credible fiscal-consolidation plans in ongoing budget negotiations. The spread between France's 10-year OAT yield and the corresponding swap rate widened by 6 basis points on Wednesday to 148 basis points. Belgium's 10-year OLO spread also widened to 90 basis points, while Italy's comparable spread increased by 4 basis points to 104 basis points. French and Belgian bonds underperformed Italian debt, with wider sovereign spreads weighing on most euro crosses.
The euro held close to 1.12 against the dollar, a relatively firm performance given the growing pressure in European bond markets. Its next move is likely to remain tied to fiscal negotiations, energy prices and changes in expectations for Federal Reserve and European Central Bank policy.
Belgium misses interim budget deadline
Belgian Prime Minister Bart De Wever failed to secure an interim agreement early on October 22, despite expectations that a deal could be reached. Vooruit, the centre-left party in the five-party governing coalition, continues to oppose a multi-year fiscal-consolidation package worth about €10 billion. Parliament is in recess, making an agreement before the end of the month an ambitious outcome.
Until a formal deal is reached, bond markets may continue to reflect uncertainty over the consolidation process through wider spreads. The delay is increasing Belgium's financing pressure and adding another factor for investors to absorb when pricing euro-area assets and the common currency.
Energy and Middle East tensions complicate policy
Brent crude and European natural-gas prices remain close to recent highs. Brent has stayed above $110 a barrel since May, while European gas is trading near €90 per megawatt-hour, a level last seen in the high range reached since 2022.
Some of the concern over energy prices stems from concrete plans by the US and Israeli militaries to resume strikes against Iran after the US midterm elections. At the same time, non-government employees and their families have been instructed to leave areas of Saudi Arabia as attacks by Houthi forces have increased.
If energy prices remain above previous assumptions, decisions by the Federal Reserve and ECB to leave policy unchanged next week could become harder to explain publicly. Both central banks may need to provide further guidance on inflation risks.
Money markets have recently reduced expectations for a prolonged tightening cycle, pricing a lower peak in rates and a slower pace of subsequent increases. A further rise in energy prices could test that revised rate path and affect the euro through expectations for the US-European rate differential.
European stocks rebound, but chart signals remain weak
Major European equity indexes rebounded by more than 1% on Wednesday, but the Euro Stoxx 50 remains in a relatively narrow downward channel and continues to show selling pressure after rallies. The index closed at 6,207. A break above the 6,250-6,300 range would be needed to ease concerns about another leg lower and support a shift toward more sideways trading.
Major US indexes gained roughly 0.5% to 1%. The Nasdaq outperformed other major benchmarks for the first time since investors began questioning whether the expansion of artificial-intelligence infrastructure can be financed. US futures initially moved higher after Meta and Tesla reported better-than-expected results, but those gains gradually faded.
The Nasdaq tested its first major technical support near 26,000 last week, and that level has so far held. The index closed Wednesday at 26,702, still relatively close to the support area.
Asian artificial-intelligence stocks, however, saw a marked retreat. Related Hong Kong markets fell about 3% in early trading, while South Korean markets dropped roughly 4%. Regional equity volatility and concerns over AI investment risk are also factors investors are considering as they reassess exposure to risk assets and related currencies.
Bank of Korea pauses after two rate increases
The Bank of Korea kept its policy rate at 3% after two consecutive 25-basis-point increases. The decision was unanimously supported by the Monetary Policy Board and appeared to reflect an assessment of the impact of previous tightening rather than a clear end to the rate-hike cycle. The central bank continued to leave the door open to further increases.
The Bank of Korea said economic growth was running significantly faster than projected in August. At that time, it forecast growth of 3.3% in 2026 and 2.9% in 2027, while also expecting inflation next year to exceed its earlier estimate. Governor Rhee Chang-yong expressed greater concern about upside risks to growth and inflation than about downside risks during his press conference.
The central bank also cited slower AI spending, a large volume of related bond issuance and increased stock-market volatility as risks. The dollar was trading near 1,234.1 won, leaving the won close to its strongest levels in nearly two years. The Bank of Korea's continued flexibility on future rates may keep influencing expectations for dollar-won carry and interest-rate differentials.
Battery-electric vehicles gain share in the EU
The European Union passenger-car market continues to show resilience. New-car registrations were up 5.7% year to date through September and 9.3% over the past 12 months. Battery-electric vehicles accounted for 22.7% of the EU market, up from 16.1% a year earlier.
Registrations of battery-electric vehicles rose sharply in three of the four largest markets: 79.1% in France, 58.1% in Germany and 40.3% in Denmark. Together, those three markets accounted for 64% of EU battery-electric registrations. Belgium also recorded a 15.7% increase.
Hybrid vehicles remained the most popular powertrain among EU consumers, with a 36.3% market share. Registrations increased by 20.8% in Italy and 20.5% in Spain, but rose by only 0.8% in Belgium.
The combined share of petrol and diesel vehicles fell to 28.2% from 36.9% a year earlier. In Belgium, petrol-car registrations declined 5.6% year to date, while diesel registrations fell 21.3%.
The shift in vehicle powertrains primarily affects Europe's industrial base and energy demand. With energy prices elevated and euro-area fiscal pressure mounting, however, registration data also provide an additional measure of the resilience of European consumption and economic activity.