Forex News
Commerzbank’s rates team expects higher oil prices and weak growth signals to shape Thursday’s European Central Bank (ECB) meeting. A July rate hike is effectively ruled out, while markets have fully priced in another 25bp move in September. Lagarde is expected to emphasise inflation risks without pre-committing, as Friday’s flash euro area PMIs may show that the recovery remains fragile.
September hike seen but not pre-committed
"The ECB will be this week's highlight on Thursday, followed by the Fed decision next week."
"Rate hikes can be confidently ruled out this month."
"However, bouncing oil prices leave another ECB rate hike in the offing for September, which is also fully priced in (+24bp)."
"While Lagarde is likely to strike a firm tone with regard to inflation risks she is unlikely to pre-commit to the September hike, as the situation remains in flux amid rising headwinds to growth."
"This week's data is likely to signal that economic recovery remains distant."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
TD Securities’ Julie Ioffe expects United Kingdom (UK) headline Consumer Price Index (CPI) to slow to 2.7% year-on-year in June, in line with consensus but below Bank of England (BoE) projections, as lower fuel prices offset sticky Services. Core CPI is seen at 2.6% and Services at 3.6%. TD highlights the inflationary pass-through from Ofgem’s July price cap increase and potential second-round wage effects as key risks for UK inflation and Bank of England policy.
Fuel-driven reprieve but services sticky
"We expect headline inflation at 2.7% y/y in June (mkt: 2.7%, BoE: 3.1%, prior: 2.8%), easing slightly from May levels as fuel prices deliver some reprieve from the levels seen in the spring. We see services inflation remaining sticky, only coming down slightly to 3.6% y/y (mkt: 3.5%; BoE: 3.6%; prior: 3.7%), due to inflationary pressures from airfares. With core goods not delivering much of a story this month, this would keep the core inflation measure at 2.6% y/y (mkt: 2.6%)."
"There will be no Ofgem adjustments to electricity and gas prices in June, making fuel the only pertinent story. There, fuel prices are likely to drop more on a m/m basis after a slight easing in April, though we expect the y/y measure to remain elevated at 21.3% y/y. Including annual electricity and gas contributions, energy inflation as a whole is likely to increase to 5.9% y/y, with further pass-through expected over the coming months."
"A key factor is the index date on which ONS collects prices. For June, the two possible dates that meet the ONS criteria are June 9th and 16th, and our forecasts use data collected on the latter. A change in collection date creates a fair downside risk on airfare prices, which would bring services to 3.5% y/y and core down with it to 2.5% y/y, to match current market consensus."
"Beyond that, concerns shift to whether wages respond to higher inflation. There, we see less of an obvious impact given the loosening of the labour market and reduced bargaining power of the worker. Should these remain at bay, the BoE is more likely to remain on a prolonged hold at its already-restrictive level of Bank Rate, rather than elect for an imminent hike."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- EUR/USD edges down to near 1.1432 as the US Dollar bounces back.
- The US Dollar rebounds despite oil prices falling back.
- Investors expect the ECB to leave interest rates unchanged in the policy announcement on Thursday.
The Euro (EUR) trades marginally lower to near 1.1432 against the US Dollar (USD) during the European trading session on Monday. The major currency pair edges down as the US Dollar recovers its early losses.
At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally higher to near 100.77.
The Greenback bounces back even as oil prices have retreated amid hopes of de-escalation in ongoing military aggression between the United States (US) and Iran. Higher oil prices de-anchor inflation projections that prompt Federal Reserve (Fed) interest rate expectations, a scenario that is favorable for the US Dollar.
This week, investors will pay close attention to the European Central Bank (ECB) monetary policy announcement on Thursday, in which policymakers are expected to leave policy rates steady. In the June policy meeting, officials raised key rates by 25 basis points (bps), but guided a meeting-by-meeting approach.
Latest remarks from ECB officials signaled that more interest rate hikes could be needed as price pressures will likely stay above the central bank’s 2% target for longer.
EUR/USD technical analysis
EUR/USD trades slightly lower at around 1.1437, holding a mildly bearish near-term tone as it remains just under the 20-period Exponential Moving Average (EMA) at 1.1441, which now caps the upside. The price action suggests a Bearish Flag formation, which is a trend-continuation pattern. As price action suggests that the prior move was on the downside before a consolidation, the odds of further decline are significantly higher.
The Relative Strength Index (RSI) at about 47 leans slightly soft and hints that upside momentum is waning while the pair trades beneath its immediate dynamic resistance.
On the topside, initial resistance is located at the 20-day EMA around 1.1441, and a sustained break above this cap would expose the channel top near 1.1516 as the next hurdle. On the downside, the lower boundary of the rising channel at 1.1393 is the first notable support, and a decisive drop through this floor would weaken the constructive channel structure and open the door for further decline towards 1.1300.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Brown Brothers Harriman’s (BBH) Elias Haddad expects New Zealand Q2 Consumer Price Index (CPI) to remain well above target, with quarterly and annual readings only slightly below the RBNZ’s own projections. Combined with a firmer domestic growth outlook, this supports additional rate hikes after July’s move to 2.50%. Swaps discount 100 bps of tightening over twelve months, taking the OCR near the top of the estimated neutral range.
Above-target CPI expected to support the NZD
"Headline CPI is expected at 1.4% q/q (RBNZ projection: 1.6%) vs. 0.9% in Q1 to be up 4.0% y/y (RBNZ projection: 4.2%) vs. 3.1% in Q1."
"Above target inflation and a more favorable domestic growth outlook argue for additional RBNZ rate hikes which is NZD supportive."
"The swaps curve price in 50bps hikes by year-end and a total of 100bps of tightening over the next twelve months to 3.50% - near the top of the RBNZ estimated neutral range (2.20%-4.10%)."
"At its last July 8 meeting, the RBNZ raised the Official Cash rate (OCR) 25bps to 2.50%, the first hike in three years, and indicated that “further OCR increases appear likely at upcoming meetings.”."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- AUD/USD bounces up strongly on Monday and returns above 0.7000.
- Rumours of efforts to de-escalate Iran's conflict have soothed investors' fears of an all-out war.
- The US Dollar remains on its back foot amid fading hopes of immediate Fed rate hikes.
The Australian Dollar (AUD) appreciates against the US Dollar (USD) on Monday, as comments from Iranian Foreign Minister Esmaeil Baghaei offered a glimmer of hope for de-escalation in Iran and pushed Oil prices down from one-month highs. The AUD/USD pair has jumped above 0.35% on the day, returning above 0.7000 and potentially printing a bullish engulfing candle in the daily chart.
US launched a series of attacks in Iran for the ninth consecutive day on Monday in retaliation for US soldiers killed in Iranian attacks this weekend. Concerns of an all-out war, however, have been eased by Iranian Foreign Minister’s comments, suggesting that mediators keep working to resume peace talks.
The US Dollar, on the other hand, has opened the week on a weak footing, still weighed by the soft US inflation figures released last week. June's Consumer Price Index (CPI) and later Producer Price Index (PPI) numbers showed a larger-than-expected cooling on price pressures, dampening investors’ expectations of a Federal Reserve (Fed) rate hike in July,
In Australia, the central bank hit the pause button in June following three rate hikes earlier this year and hinted at a “wait-and-see” stance in the coming months to assess the economic impact of monetary tightening. The resumption of hostilities in Iran and the rebound in oil prices, however, are likely to add pressure on the bank to hike rates for a fourth time this year.
Against this background, it will be interesting to see how long interest rate expectations can keep the geopolitical uncertainty in the background to support the Aussie's near-term bullish trend. Australian Employment and business activity figures, due on Thursday, might help to answer that question.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
According to a senior Iranian official, mediators have proposed a 10-day cessation of strikes to find ways to revive the interim deal between the United States (US) and Iran. This is in connection with earlier headlines, in which Esmaeil Baghaei Hamaneh, a spokesperson for the Ministry of Foreign Affairs of Iran, confirmed receiving proposals of diplomatic efforts from several intermediaries.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Rabobank says renewed U.S.-Iran tensions, Russia-Ukraine strikes and CPC loading disruptions have lifted crude and refining margins sharply. Brent briefly topped $90, while severe diesel-market tightness is feeding through to export policy and U.S. pump prices.
Geopolitical shocks drive crude repricing
"The escalation between the U.S. and Iran following the collapse of the interim peace deal, as well as intensifying strikes between Ukraine and Russia, drove price rallies across crude oil, refined products, natural gas, and European power markets over the past week."
"Brent crude oil surged from $83/bbl on July 13 to $88/bbl this morning (at the time of writing), briefly topping $90 overnight, the highest level since mid-June, before paring gains. WTI moved from $78 to $82/bbl over the same period, a rise of approximately 5%."
"The rally was driven by Hormuz shipping disruptions, intensified strikes over the weekend, the CPC terminal suspension, and renewed fears of a broader supply crunch as global stockpiles remain at record lows. Diesel markets continue to signal record tightness."
"The ICE gasoil crack spread widened to $65/bbl and hit a record high for three consecutive days last week, while the U.S. 3-2-1 crack spread also reached a record high of $70/bbl. This squeeze reflects a dual supply shock: Ukrainian drone strikes have sharply curtailed Russian diesel exports, while Hormuz disruptions have choked Middle Eastern flows."
"India responded by raising its diesel export levy to 15.5 rupees/liter and its jet fuel export levy to 14.5 rupees/liter, respectively, to retain domestic supply, while U.S. retail gasoline climbed back above $4/gal."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- The Indian Rupee drops against the US Dollar due to consistent FII outflow.
- Oil prices fall back amid hopes of US-Iran war de-escalation.
- Iran confirms it has received proposals from several mediators.
The Indian Rupee (INR) trades slightly lower against the US Dollar (USD) in late trading hours on Monday. The USD/INR pair is mildly higher to near 96.46 at the time of writing as the consistent outflow of foreign funds from the Indian stock market is hurting the Indian currency. The pair struggles to make a comeback even as oil prices have fallen back significantly after a strong opening.
As of writing, the MCX Crude Oil contract expiring on July 20 trades flat around Rs. 7,950. The oil price opened 2.6% higher at around Rs. 8,150, the highest level seen in over a month.
Currencies of economies such as India, which rely heavily on oil imports to meet their energy needs, tend to rebound when oil prices start retreating.
Oil prices fall back on hopes of Middle East war de-escalation
During the day, Esmaeil Baghaei Hamaneh, a spokesperson for Iran's Ministry of Foreign Affairs, said that several mediators have attempted diplomatic efforts for a ceasefire with the US. This has boosted confidence among investors that the process of negotiations between the US and Iran is not dead.
Earlier in the day, the WTI Oil price opened strongly after news on the weekend that Iran's Islamic Revolutionary Guard Corps (IRGC) struck two oil tankers, which were attempting to transit the southern route of the Strait of Hormuz, a vital passage to almost one-fifth of the global energy supply. The Iranian military stated that the passage will not be safe for petrochemical products or a 'single drop of oil and gas' transit as long as US actions in the region continue. This raised fears that shipowners would be more scared of attempting transit through the Hormuz.
FIIs extend selling spree for straight fifth trading day
Foreign Institutional Investors (FIIs) have turned out to be net sellers in the past few trading days. Recent surging oil prices due to renewed Middle East conflict appear to have dented the sentiment of overseas investors toward the Indian stock market again.
Last week, FIIs remained net sellers on all trading days and offloaded their stake worth Rs. 9,119.76 crore.
Fed to leave interest rates steady next week
The US Dollar gives back its opening gains and turns lower as investors remain confident that the Federal Reserve (Fed) will hold interest rates steady in the policy meeting next week. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades slightly lower to near 100.70.
As per the CME FedWatch tool, the odds of the Fed leaving interest rates unchanged in the July meeting are 85.6%, up from 65.8% recorded last week. Soft US Consumer Price Index (CPI) data for June led traders to reconsider Fed interest rate hike expectations.
Technical Analysis: USD/INR remains firm above 20-day EMA
USD/INR trades higher at around 96.44, holding a bullish near-term bias as spot trades above the 20-day exponential moving average (EMA) at 95.66, keeping the recent advance technically supported.
The Relative Strength Index (RSI) at 64.31 stays in positive territory but below overbought on the daily chart, suggesting upward momentum remains constructive without signaling exhaustion yet.
On the downside, initial support is located at the 20-day EMA near 95.66, where a break would hint at a deeper corrective phase toward prior price congestion levels not visible in the current indicator set. Looking up, the pair aims to revisit the all-time high around 97.10.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
BNY’s Geoff Yu reports that the Reserve Bank of India (RBI) has intervened onshore and offshore to support the Indian Rupee (INR) as USD/INR trades close to its all‑time high. Authorities are also easing rules to attract foreign currency inflows, but stronger importer US Dollar (USD) demand and higher Oil prices are offsetting these efforts. Bond yields have risen alongside currency pressure.
FX intervention and policy tweaks in focus
"The RBI has intervened in foreign exchange markets to support the rupee after it slipped toward a record low, selling dollars both onshore and offshore as oil prices surged and pressured sentiment."
"Authorities have also tried to attract foreign currency inflows by easing rules for domestic bond investment and encouraging dollar deposits from non-resident Indians, but the recent measures have not fully offset stronger importer demand for dollars and higher crude driven external pressure."
"The currency fell as 0.2% to 96.4575 per dollar, close to the all-time low of 96.965 reached in late May, while benchmark 10y government bond yields rose 4 basis points to 6.82%."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
ING’s Chris Turner notes that deteriorating Gulf headlines and higher energy prices are keeping the Dollar supported, even if US Dollar Index (DXY) remains about 1% below its June peak. Softer United States (US) Consumer Price Index (CPI) and Producer Price Index (PPI) have trimmed the hawkish Federal Reserve narrative, but limited Fed easing is priced. Turner expects USD/JPY to grind higher and DXY to hold near 100.50 before pushing toward 101.30.
Energy shock underpins Dollar resilience
"It is a familiar theme now, but deteriorating news flow from the Gulf is keeping energy prices, short-dated yields and the dollar all relatively well bid."
"It is slightly surprising not to see the dollar a little stronger. The DXY dollar index is still about 1% off its June highs. This probably owes to last week's soft June US CPI and PPI data, which has taken some of the sting out of the hawkish Federal Reserve story."
"Markets now only price about 40bp of Fed easing over the next nine months compared to the 55-60bp of tightening priced for the eurozone and the UK. However, higher energy prices mean that the Fed will have to remain alert, and in this environment we struggle to see that any investors already owning dollars will be inclined to sell."
"Instead, we can probably see pairs like USD/JPY push a little higher. It looks like Japanese authorities have opted not to intervene during today's Marine Day public holiday, and it would not be a surprise to see USD/JPY briefly break above 162.75/85 over coming sessions on the assumption that the Bank of Japan is a no-show on intervention."
"Overall, we expect DXY to continue to find support near 100.50 and push back to the 101.30 area."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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