The Canadian Dollar (CAD) is also being influenced by developments surrounding Iran and oil. The USD/CAD pair is trading almost unchanged around 1.4035 after retreating from a one-and-a-half-month high of 1.4050, although the pair is struggling to break clearly below 1.4030. Increased risk appetite following Iran's proposal to reopen the Strait of Hormuz has helped offset the negative impact of falling oil prices on the Canadian Dollar. The proposal comes after President Trump said he was willing to meet Iranian President Pezeshkian at the UN General Assembly. Markets see these developments as a possible step toward negotiations, although the conflict is approaching its seventh month and has already contributed to higher government borrowing costs around the world and growing concerns about a global recession.

In Europe, the Euro (EUR) remains under pressure despite the improved market sentiment created by the recent decline in oil prices. EUR/USD has fallen to fresh seven-week lows below 1.1450. Political uncertainty in Germany has become another challenge for the common currency after Chancellor Friedrich Merz's CDU suffered a significant defeat in last weekend's state elections. Merz has said that he intends to remain in office until his government's planned economic reforms are completed, but the election result has raised questions about his political support. His weaker position could also make it more difficult to advance the Eurozone's EUR 2 trillion budget proposal, which includes a significant increase in defence spending.

In the United Kingdom, EUR/GBP has remained within a narrow range of 0.855-0.860 since the beginning of September. Francesco Pesole of ING notes that the latest Bank of England meeting was less hawkish than those of the European Central Bank or the Federal Reserve, but it did not completely challenge market expectations for tighter monetary policy. Markets are pricing in around a 75% probability of a Bank of England rate hike in November and around 92 basis points of additional tightening by June. However, ING economists still do not expect a rate increase, which supports their bearish outlook for the British Pound and their forecast for EUR/GBP to move toward 0.870.

For investors, central-bank policy and geopolitical developments remain the main factors to watch. ECB President Christine Lagarde is scheduled to speak at a conference organised by the central banks of Ukraine and Poland, and markets will be looking for further signals about European interest rates. The investment idea, therefore, is to focus on interest-rate differentials and central-bank signals rather than on a single currency. The Australian Dollar could receive further support if the Reserve Bank of Australia raises rates again, while the US Dollar remains supported by higher US Treasury yields and expectations of further monetary tightening by the Federal Reserve. At the same time, developments in the conflict with Iran, oil prices, the European political situation and upcoming central-bank decisions could quickly change the direction of these currency markets.