Drivers for the Week of October 19, 2026

The US dollar should recover as resilient US growth and safe-haven Treasury demand outweigh concerns about an AI-driven equity sell-off.

• AI profitability concerns triggered a synchronized correction in technology stocks and the dollar last week, while investors moved toward bonds and crude oil rose on worsening supply risks.
• A hot US September CPI reinforced the Federal Reserve’s hawkish bias, but comments from Bowman, Williams, Waller and Daly kept the probability of a 25-basis-point hike on October 28 below 20%; markets still fully price a hike to 4.00%-4.25% on December 9.
• The authors argue that weaker foreign demand for US equities would not necessarily weaken the dollar because investors could rotate into Treasuries; historically, the dollar moves with net foreign Treasury purchases and inversely to net foreign equity purchases.
• Canada’s headline CPI is expected to rise to 3.2% year on year from 3.0%, with core CPI at 2.1%; core inflation above 2% would raise the chance of a 25-basis-point Bank of Canada hike to 2.50% on October 28, currently priced at 36%.
• UK headline CPI is forecast at 3.4% versus the Bank of England’s 3.0% projection, while markets price 90% odds of a 25-basis-point hike to 4.00% on November 5; BBH considers this tightening path excessive given below-capacity growth and likely fiscal tightening.
• Other key events include New Zealand, Japan and several emerging-market inflation and policy decisions; MSCI’s consultation could reclassify Indonesia from Emerging Market to Standalone Market status, with a final decision due by June 2027.

Takeaway: BBH favors a near-term USD recovery, especially if October US PMIs confirm the country’s growth advantage, while inflation surprises and central-bank decisions will determine support for CAD, NZD, GBP, JPY and emerging-market currencies.