SYDNEY — Global markets opened a pivotal week for central banks on Tuesday, 3 November 2026, with oil prices tumbling, the dollar hovering near a one-month low, and investors bracing for interest-rate decisions in Australia and Britain that could set the tone for borrowing costs into the end of the year. The Reserve Bank of Australia was expected to raise its cash rate later in the day, while the Bank of England is expected to follow with its first rate increase since August 2023 when it meets on Thursday, according to economists polled by Reuters.
The backdrop is a world economy that looks resilient on the surface but strained underneath. Factories in the United States, the eurozone and China kept expanding in October, fresh purchasing managers' surveys show, yet firms are paying more for energy and inputs, supply chains are under pressure, and an artificial-intelligence-led stock market sell-off has dented risk appetite. At the same time, hopes for a diplomatic breakthrough between the United States and Iran helped drive oil prices sharply lower, easing one source of inflation pressure just as central bankers weigh their next moves.
Illustration: A central bank building surrounded by stock market screens and currency symbols. This is an illustration, not a photograph of a real event.
What Happened
Brent crude futures plunged more than 7 percent on Monday in their sharpest single-day drop in months, Reuters reported, after Tehran said its contacts with the United States aimed at ending their eight-month war were continuing. Falling energy prices helped ease inflation concerns and dragged longer-dated US Treasury yields lower. The yield on the benchmark US 10-year Treasury note was steady at 4.9145 percent on Tuesday, while the 30-year bond was flat at 5.2868 percent, after both dipped to their lowest levels in nearly two months in the previous session.
The dollar index, which measures the currency against a basket of currencies including the yen and the euro, last traded a shade weaker at 101.76 after dropping to a one-month low on Monday, Reuters reported. The euro was a touch higher at 1.1185 dollars on the back of dollar weakness, while the Japanese yen was flat at 157.915 per dollar during a local holiday. Sterling strengthened 0.05 percent to 1.3414 dollars after purchasing managers' data showed British manufacturers started the final quarter of 2026 with their strongest output growth in more than two years.
Meanwhile, an AI-driven stock market slump showed little sign of slowing down, hurting risk sentiment and lending some support to the dollar, Reuters reported. Tensions around the US midterm elections, held on Tuesday, also loomed large, helping to prop up the dollar as a safe-haven play. "Oil relief is growing, but conviction elsewhere remains thin," Sim Moh Siong, an FX strategist at OCBC, said in a note quoted by Reuters. "Cheaper energy is reshaping FX dynamics, while AI concerns and US election risks reinforce our view that the USD remains supported."
Multiple central banks are scheduled to issue policy statements this week, including those in Britain, Australia, Norway and Sweden. The Reserve Bank of Australia is expected to raise the official cash rate by 25 basis points to 4.85 percent on Tuesday, which would be the highest level since December 2008, Reuters reported. The move would bring total tightening this year across five increases to 125 basis points. The Australian dollar was little changed at 0.7002 US dollars, while the New Zealand dollar was flat at 0.5617.
Economists polled by Reuters expect the Bank of England to raise its Bank Rate to 4.0 percent from 3.75 percent on Thursday, the first hike since August 2023, when inflation was still more than triple its 2 percent target. The decisions come as voters in the United States head to the polls in midterm elections, with Reuters reporting that many Americans blame tariffs and the Iran war for nagging inflation even as unemployment remains historically low.
Background
The rate-hike expectations mark a striking turn in the global monetary cycle. For much of the past two years, central banks were cutting rates or holding them steady as inflation cooled from its post-pandemic peak. In 2026, however, a prolonged conflict in the Middle East has kept fuel and food prices high, hitting consumption and business confidence in export-led economies, according to Reuters' survey coverage. The US-Israeli war with Iran, now in its eighth month, continues to stoke inflation even as it weighs on sentiment.
Factory data published on Monday underlined the tension. The Institute for Supply Management said its US manufacturing PMI increased to 55.5 in October from 54.5 in September, above a Reuters poll forecast that it would stay at 54.5. Readings above 50 indicate growth. The survey's new orders measure edged up to 55.5 from 55.3, with exports also rising, and factory employment continued to grow, though the pace slowed, with the employment measure easing to 52.4 from 52.7.
Yet the cost side of the same survey told a harder story. The gauge of prices paid for inputs eased to a still-high 75.2 from 77.9 in September, above economists' forecast of 77.5, supporting views that inflation will continue to run above the Federal Reserve's 2 percent target into 2027. Supplier deliveries inched up to 59.1 from 59.0, a reading above 50 indicating slower deliveries, meaning factories continued to pay more for inputs. The US government reported last week that the Personal Consumption Expenditures price index shot up 3.6 percent year-on-year in September.
The eurozone picture was similar. S&P Global's eurozone manufacturing PMI eased to 52.7 in October from 52.9 in September, which had been the highest reading since May 2022, but stayed above a preliminary estimate of 52.4. In Asia, factory activity continued to expand in October but growth slowed in China, Japan, South Korea and Taiwan, surveys showed, indicating that the drag from the war may be offsetting robust global demand for chips and AI-related goods. China's RatingDog General Manufacturing PMI, compiled by S&P Global, stood at 52.0 in October, just below September's 52.1, while a separate Caixin measure rose to 50.3 from 49.3, crossing back above the expansion threshold.
South Korea offered a small dose of relief: headline inflation slowed to 2.8 percent year-on-year in October from 2.9 percent in September, nearly matching a 2.85 percent Reuters poll forecast, though it remains firmly above the Bank of Korea's 2.0 percent target. Amid elevated global energy prices and rising household borrowing, the Bank of Korea is widely expected to hike rates in the coming months, with consensus forecasts putting the peak policy rate at 3.50 percent.
Illustration: An oil refinery beneath a falling price chart, symbolising the sharp drop in crude prices. This is an illustration, not a photograph of a real event.
Why It Matters
This week's decisions matter because they will test whether central banks can keep inflation under control without snuffing out growth. The US economy grew at a 3.4 percent annualized pace last quarter, its strongest performance this year, after expanding at a 2.2 percent pace in the April-June period, and domestic demand surged at its strongest pace in more than five years, according to government data cited by Reuters. Business investment rose at an annualized 12.7 percent pace last quarter, powered by AI-related spending. That strength gives central banks room to tighten, but it also means higher rates will bite harder on mortgages and business loans.
In the United States, the combination of 30-year mortgage rates above 7 percent and a shortage of housing supply has already put home purchases out of reach for many buyers, Reuters reported. Consumer prices and average hourly earnings have both risen about 5.5 percent since January 2025, according to Bureau of Labor Statistics data, leaving households feeling squeezed even as the headline economy grows. Consumer surveys show the mood has generally deteriorated since President Donald Trump's second term began in January 2025, although one widely tracked confidence measure perked up in October while the University of Michigan's sentiment index registered a near-record low.
For Australia, a hike to 4.85 percent would take borrowing costs to their highest in nearly 18 years, with direct consequences for mortgage holders and for a housing market already under strain. For Britain, a first hike since August 2023 would signal that the Bank of England now sees persistent inflation as the bigger risk, even as manufacturers report their best output growth in more than two years. For the rest of the world, the direction of the dollar matters: a weaker dollar eases debt burdens for emerging markets, while a stronger one tightens global financial conditions.
The oil plunge, if it holds, could change the calculus. Cheaper energy feeds quickly into transport and food costs, and the drop in long-dated Treasury yields already shows markets pricing in slightly less inflation pressure. But analysts cautioned that the relief depends on diplomacy holding: a breakdown in US-Iran contacts could send crude sharply higher again, reversing the easing in yields and putting central banks back on the defensive.
The week also carries a political charge. US voters were deciding on Tuesday whether the Democratic Party can regain control of Congress from President Trump's Republican Party, Reuters reported, with the economy at the front of voters' minds. The Federal Reserve last Wednesday left its benchmark overnight interest rate in the 3.75-4.00 percent range while acknowledging that inflation "remains elevated," and economists expect the central bank to raise borrowing costs again in December. The International Monetary Fund has projected that Asia's economic growth will moderate next year and warned of heightening risks from the Iran war-induced energy shock and a potential correction in the AI boom.
What Happens Next
The Reserve Bank of Australia's decision lands first, on Tuesday, and markets will parse its statement for any signal about whether this is the last hike of the year or the start of a longer tightening stretch. The Bank of England follows on Thursday, with Norway's and Sweden's central banks also issuing statements this week. Traders will watch whether policymakers sound more worried about inflation or about growth, and whether they leave the door open to further moves.
On the data front, the week brings employment reports from New Zealand, Canada and the United States, with the US October nonfarm payrolls report due on Friday. Canada's labour market weakened in September, with employment falling by 68,000 jobs for a second consecutive month, while the US added just 29,000 jobs in September with unemployment steady at 4.2 percent, according to earlier releases. Stronger-than-expected jobs data would reinforce the case for tighter policy; weaker data would argue for caution.
Oil traders will watch the US-Iran contacts closely, as well as a meeting of oil producers on 29 November where 2027 production quotas are due to be discussed, after core OPEC+ members decided to keep December crude production targets unchanged. Any sign that diplomacy is faltering could quickly reverse Monday's plunge. Equity investors, meanwhile, will be watching whether the AI-led sell-off stabilises: the Nasdaq has now fallen around 10 percent from its recent peak, according to market reporting, and a further slide could tighten financial conditions even without central-bank action.
Illustration: A modern factory floor with robotic arms and shipping containers, symbolising resilient global manufacturing. This is an illustration, not a photograph of a real event.
For households and businesses, the practical effects will arrive gradually: mortgage repricing in Australia and Britain, borrowing costs for firms, and the exchange-rate pass-through to import prices. If central banks hike as expected and oil stays lower, the world could get the rare combination of tighter money and easing headline inflation. If either leg fails, the final weeks of 2026 could prove bumpier than markets currently expect.
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FAQ
Why are the Reserve Bank of Australia and the Bank of England expected to raise rates this week?
Economists polled by Reuters expect the RBA to lift its cash rate by 25 basis points to 4.85 percent on Tuesday and the Bank of England to raise its Bank Rate to 4.0 percent from 3.75 percent on Thursday, because inflation remains above target in both countries despite cooling in some measures, and recent factory and PMI data show economies still growing.
Why did oil prices fall so sharply on Monday?
Brent crude plunged more than 7 percent in its sharpest single-day drop in months after Tehran said its contacts with the United States aimed at ending their eight-month war were continuing, easing fears of supply disruption and pulling energy prices and long-dated Treasury yields lower.
What does a weaker dollar mean for the global economy?
A weaker dollar generally eases the burden of dollar-denominated debt for emerging markets and can support commodity prices, but it also raises import costs for the United States. On Tuesday the dollar index traded at 101.76 after hitting a one-month low, with the euro at 1.1185 dollars and the yen at 157.915 per dollar.
Is global manufacturing growing or shrinking?
It is growing, but more slowly and with higher costs. The US ISM manufacturing PMI rose to 55.5 in October, the eurozone PMI stood at 52.7, and China's manufacturing PMI was 52.0, all above the 50 threshold that separates expansion from contraction, while input-price gauges remained elevated.
What should markets watch next?
The RBA decision on Tuesday, the Bank of England decision on Thursday, statements from Norway's and Sweden's central banks, employment reports from New Zealand, Canada and the United States through Friday, and any further news on US-Iran contacts and oil prices.
Sources
- Reuters, "Dollar under pressure as oil prices slump, Australia rate decision awaited," 3 November 2026.
- Reuters, "US manufacturing picks up in October; input prices stay high," 2 November 2026.
- Reuters, "Manufacturing solid but strain of energy costs, supply disruptions starts to show," 2 November 2026.
- Reuters, "South Korea October headline inflation moderates ahead of expected rate hike," 3 November 2026.
- Reuters, "US voters in a sour economic mood heading into midterm elections," 2 November 2026.
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