Forex News

• USD/JPY trades around 157.40 on Tuesday, virtually unchanged on the day.
• Japanese authorities step up warnings over Japanese Yen weakness, keeping the risk of intervention alive.
• Expectations of further interest-rate hikes from the Federal Reserve provide support to the US Dollar.

USD/JPY trades around 157.40 on Tuesday at the time of writing, virtually unchanged on the day. The pair remains caught between support for the US Dollar (USD) from expectations of further monetary tightening in the United States (US) and investor caution over the risk of Japanese authorities intervening to support the Japanese Yen (JPY).

Japanese Finance Minister Satsuki Katayama stepped up Tokyo's warnings over the currency's performance on Tuesday. She said that an undervalued Japanese Yen generally poses problems and indicated that she agreed with US Treasury Secretary Scott Bessent to strengthen cooperation between the two countries during their September 25 talks.

Katayama also said that Japan will continue to communicate closely with the US Treasury to ensure orderly conditions in the foreign exchange market. Her comments reinforce investor caution following a series of recent warnings from Japanese authorities over the weakness of their currency.

Japan's top currency diplomat, Atsushi Mimura, had already said on Monday that markets should take seriously the "very clear" message from Tokyo and Washington regarding Japanese Yen depreciation. The prospect of coordinated action between the two countries is therefore helping to limit gains in USD/JPY.

Markets are also awaiting data from Japan's Ministry of Finance, due on Wednesday, which will reveal the amount of any currency intervention conducted between August 27 and September 28. The figures could notably indicate whether the rate check reported on September 18 was followed by actual Japanese Yen purchases.

On the monetary policy front, the JPY is also benefiting from the tightening cycle initiated by the Bank of Japan (BoJ), which raised its policy rate to 1.25% on September 18. Investors now turn their attention to upcoming Japanese data, including the Tankan survey and Tokyo Consumer Price Index (CPI), for further clues about the possibility of additional rate hikes.

However, USD/JPY remains supported by elevated US yields and expectations of further interest-rate increases from the Federal Reserve (Fed). According to the CME FedWatch tool, markets see around a 70% chance of a 25-basis-point rate hike at the October meeting, following the rate increase delivered in September.

The tug of war between pressure from Japanese authorities to curb Japanese Yen weakness and support for the US Dollar from expectations of elevated US interest rates therefore keeps USD/JPY relatively stable around 157.40 on Tuesday.

Japan signals readiness to defend Yen as BoJ hike pace accelerates

Analysts at MUFG note that recent rhetoric from policymakers has grown more forceful, with comments at the start of this week continuing to send “a strong signal that Japan is prepared to intervene … to support the yen.” They add that officials are “encouraging speculation that Japan will also make other policy adjustments to provide more support for the yen such [as] speeding up the pace of BoJ rate hikes under pressure from the US.”

MUFG highlights that “the BoJ has already sped up the pace of hikes this month (every three months) and signalled that a faster pace of hikes is likely to continue heading into year end.” The bank expects “the next hike to be delivered in December,” while noting that “the Japanese rate market is attaching a higher-than-normal probability (~36%) to a back-to-back hike next month.” According to MUFG, these latest developments are “helping to cap further upside for USD/JPY even as the US Dollar strengthens broadly.”

USD/JPY technical analysis

In the one-hour chart, USD/JPY trades at 157.38, retaining a mildly bearish near-term bias as it holds beneath both the 200-period simple moving average (SMA) at 157.43 and the 100-period SMA at 157.89. The pair remains capped by this layered moving-average supply, while the Relative Strength Index (14) around 48.46 is close to neutral, hinting at a consolidative tone rather than impulsive selling for now.

On the topside, initial resistance is located at the 200-period SMA at 157.43, followed by the 100-period SMA at 157.89 and the horizontal barrier at 158.00, with a stronger cap at 159.00 if gains extend. On the downside, immediate support emerges at 156.50, ahead of a deeper structural floor at 155.50, where buyers would be expected to defend the broader uptrend if the current pullback accelerates.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

TD Securities Macro Research’s Reserve Bank of Australia (RBA) note argues that the September 25bps hike to 4.60% was a risk-management move rather than the start of a new tightening cycle. The team expects no further RBA hikes in 2026 and for policy to remain on hold through 2027.

Policy on hold, AUD seen underperforming

"We stick with our call for no further RBA hikes this year and for the Bank to be on hold for all of 2027. "

"Overall, our read of the Statement was that the RBA delivered a risk management hike without explicitly signaling a rapid follow-up hike. In this regard we differed from the market's hawkish interpretation of the Statement."

"If the RBA does not hike in November, then the option of having to hike in December would be a difficult and an uncomfortable one. The RBA would be loath to deliver this."

"While our base case is for the RBA to keep the cash rate on hold at 4.60%, there is a risk the RBA may need to reconsider hiking again at its Feb'27 meeting. This is not our central view and from a market perspective not a view worth positioning for right now, but one worth considering."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Scotiabank’s FX strategy team highlights Oil as a primary market focus, with recent gains linked to deteriorating US–Iran negotiations and President Trump’s rejection of Iran’s proposal to reopen the Strait of Hormuz. They argue that the extent and duration of rising energy prices are key for central bank policymakers, driving firmer tightening expectations across major developed economies.

Energy gains feed rate expectations

"The market’s primary focus remains centered on oil prices, as their latest gains reflect the renewed deterioration in US/Iran negotiations and President Trump’s rejection of last week’s Iranian proposal to reopen the Strait of Hormuz."

"The extent and duration of the rise in energy prices is a key consideration for central bank policymakers, and driving a continued rise in tightening expectations for major developed economy central banks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

OCBC’s Sim Moh Siong and Christopher Wong highlight that resilient US data, elevated Treasury yields and higher Oil prices are keeping the Dollar supported. They flag this week’s US labour market report as the key event, with a potential upside surprise in payrolls reinforcing Fed tightening expectations.

Fed expectations hinge on payrolls

"This week's US labour market report is the key event risk. Bloomberg consensus expects nonfarm payrolls to rise by 90,000 in September, down from 162,000 in August, while the unemployment rate is forecast to remain unchanged at 4.1%. Although Fed Chair Kevin Warsh has highlighted the four-week average of initial jobless claims as a timely indicator of labour market conditions, payrolls remain the market's preferred measure of labour market health."

"Our base case remains for a moderate USD rally into year-end. Markets are currently pricing almost four Fed rate hikes over the next year, which appears overly aggressive unless demand-driven inflation re-emerges as the dominant force behind price pressures. Wage growth and rental inflation will be critical indicators to watch."

"Our constructive USD view is tempered by two factors: ongoing gradual CNY appreciation and improving prospects for JPY strength as Japan's policy backdrop becomes more supportive. Nevertheless, the dollar could overshoot in the near term if Middle East tensions continue to lift energy prices and inflation concerns become more entrenched."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• WTI eases as Saudi Arabia and the UAE led the supply increase, boosting regional shipments to their highest levels since late February.
• Ongoing uncertainty regarding US-Iran negotiations continues to keep market volatility and geopolitical risks elevated.
• Iranian officials expressed skepticism about halting hostilities or reopening the Strait of Hormuz before November's US midterms.

West Texas Intermediate (WTI) oil has pared its recent gains from the previous day, trading around $91.10 per barrel during European hours on Tuesday. Crude oil prices have eased following a September rebound in exports from key Middle East producers. According to Kpler data reported by Reuters, shipments from the region climbed to 16.328 million barrels per day (bpd), marking their highest volume since conflict erupted between Iran and the US-Israeli alliance in late February. This uptick in supply was primarily driven by boosted production and exports from Saudi Arabia and the United Arab Emirates.

Despite the recent price drop, oil prices could quickly rebound due to persistent uncertainty surrounding US-Iran negotiations. Iranian officials have voiced skepticism about resolving hostilities or reopening the strategic Strait of Hormuz before the US midterm elections in November, keeping geopolitical risks elevated across the region.

Diplomatic efforts remain active, however, as Iranian Foreign Minister Abbas Araqchi stated that Tehran expects a US response to its latest proposal regarding the Strait of Hormuz. US and Iranian representatives engaged in separate mediator talks recently, with upcoming discussions slated to evaluate an amended version of Iran's original offer.

Although recent meetings in New York yielded limited progress, punctuated by President Donald Trump's rejection of Tehran's initial proposal, reports indicate the US administration may still consider sanctions relief and unfreezing Iranian assets if substantial advances are made toward a nuclear agreement.

Oil stays in the spotlight as US-Iran tensions drive fresh gains

Strategists at Scotiabank note that the market’s primary focus “remains centered on oil prices,” with the latest advance in crude attributed to geopolitical developments. They highlight that the recent gains “reflect the renewed deterioration in US/Iran negotiations and President Trump’s rejection of last week’s Iranian proposal to reopen the Strait of Hormuz,” keeping energy markets firmly at the forefront of investor attention.

Scotiabank’s analysts highlight a softer Canadian Dollar, trading defensively with G10 peers. Wider US–Canada yield spreads remain a headwind as Bank of Canada (BoC) expectations firm, with October priced for 14 bps and December for 37 bps of tightening. Their fair value estimate for USDCAD stands at 1.4068.

Yield spreads keep pressure on Canadian Dollar

"The outlook for relative central bank policy remains a dominant driver and the continued widening in US-Canada yield spreads presents a meaningful headwind for the CAD."

"Rate expectations for the BoC are firming, with the October meeting priced for 14bpts of tightening and the December meeting priced for a cumulative 37bpts."

"In terms of data, this week’s release calendar is limited to the monthly GDP figures for July, expected to show a flat m/m print and a deceleration in the annual pace of growth from 2.0% to 1.4%."

"Our FV estimate for USDCAD is currently at 1.4068."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• AUD/JPY drifts lower as the AUD weakens in reaction to the RBA’s cautious rate hike on Tuesday.
• Intervention fears and hawkish BoJ bets underpin the JPY, further exerting pressure on the cross.
• The bearish fundamental backdrop backs the case for a further depreciating move for spot prices.

The AUD/JPY cross attracts fresh sellers following the post-Reserve Bank of Australia (RBA) uptick to the 110.70 region and drops to an over two-week low during the early part of the European session on Tuesday. Spot prices currently trade just below the 110.00 psychological mark, down around 0.45% for the day, and remain within striking distance of the monthly trough amid a combination of negative factors.

Traders reacted little to the RBA's 25 basis points (bps) rate hike earlier today as the decision was already priced in the market. The Australian Dollar (AUD), however, turned lower as RBA Governor Michele Bullock, speaking at the post-meeting press conference, failed to reinforce expectations that inflation developments were likely to require additional tightening. Traders were quick to trim their bets for more rate hikes, undermining the AUD and exerting pressure on the AUD/JPY cross.

Meanwhile, Japan's top currency diplomat ​Atsushi Mimura and Finance Minister Satsuki Katayama warned markets to take joint US-Japan messaging on FX depreciation seriously. In fact, US President Donald Trump conveyed his concerns about the Japanese Yen's (JPY) depreciation to Prime Minister Sanae Takaichi on the sidelines of the United Nations General Assembly. Apart from this, hawkish Bank of Japan (BoJ) bets favor JPY bulls, backing the case for a further AUD/JPY decline.

In fact, Minutes from the BoJ's July monetary policy meeting, released on Monday, revealed that policymakers debated the need for faster interest rate hikes amid growing concern over mounting inflation risks. This, in turn, lifted expectations that the BoJ will hike again as soon as October or December. In contrast, the RBA’s cautious stance could undermine the Aussie, suggesting that the path of least resistance for the AUD/JPY cross is to the downside and any attempted recovery is likely to be sold into.

• US stock futures show mixed results as elevated oil prices sustain inflation concerns.
• Markets slid Monday as surging Treasury yields past 5% signaled further Federal Reserve rate hikes.
• Traders await key economic updates this week, including PCE inflation and Nonfarm Payrolls data.

Dow Jones futures fall by 0.16% to trade near 51,750 during European hours on Tuesday. Meanwhile, S&P 500 futures inch lower by 0.03% to trade around 7,740, while Nasdaq 100 futures gain 0.12% to trade near 30,600.

US stock futures post mixed results as ongoing uncertainty surrounding US-Iran negotiations kept oil prices elevated. These sustained energy costs have heightened market expectations that the Federal Reserve (Fed) will need to tighten monetary policy further to combat persistent inflation.

During regular US trading on Monday, major US indices closed lower across the board. The Dow Jones Industrial Average fell 0.67%, the S&P 500 declined 0.77%, and the tech-heavy Nasdaq Composite dropped 0.92%. The market downturn came as expectations of additional rate increases pushed Treasury yields to fresh multi-year highs, with both 10-year and 30-year yields climbing above 5%. Following the central bank's initial rate hike earlier this month, its first in three years, the CME FedWatch Tool indicates that money markets are currently pricing in roughly a 70% probability of another Federal Reserve rate increase in October.

Market attention now shifts toward upcoming US economic indicators for signals regarding the future path of monetary policy. Key data releases scheduled for later this week include Wednesday’s Personal Consumption Expenditures (PCE) inflation report and Friday’s Nonfarm Payrolls (NFP) report.

Equities retreat as US tech leaders underperform

According to strategists at Deutsche Bank, the recent rise in US yields and Oil prices has fed through into equity markets, with “equities on both sides of the Atlantic” coming under pressure and “the major indices generally moving lower.” In the US, they highlight that the S&P 500 “fell in a broad-based decline,” closing down “-0.77%,” with sentiment further undermined by “a larger fall for the Magnificent 7 (-1.72%),” underscoring renewed investor caution toward the market’s key growth leaders.

Scotiabank’s Global FX Strategy team, led by Shaun Osborne and Eric Theoret, notes broad Dollar strength versus most G10 currencies, with focus on Oil, US yields and the Federal Reserve rate path. The team stresses that DXY gains since early September are fundamentally driven by 2-year yield spreads.

Broad G10 defensive tone versus Dollar

"The broader tone is somewhat defensive, leaning toward mild risk aversion as US equity futures show modest losses while US bond yields remain well supported with the 10Y hitting a fresh marginal high—extending above 5.2% to reach its highest level since 2007."

"The shape of the curve is also starting to garner some attention, given the renewed flattening and its implications for the broader USD."

"For the DXY, we continue to highlight that the gains from early September have been fundamentally driven, with spot largely moving in tandem with our fair value estimate based on 2Y spreads—currently at 100.5 (vs. spot just above 101)."

"The recent gains have pushed the DXY toward the June 24 high that marked the local peak and 2026 YTD high."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

European Central Bank (ECB) Governing Council member and Governor of the National Bank of Slovakia (NBS), Peter Kazimir, said during the European trading session on Tuesday that the interest rate hike at the policy meeting earlier this month was “unavoidable”. Kazimir added that energy prices remained key factor for higher inflationary pressures.

Comments

Rate hike was unavoidable.

Energy prices remain key factor.

Key for me will be January repricing.

We need flexibility, we have enough time.

Market reaction

The Euro (EUR) was seen under pressure against the US Dollar (USD) during the release of ECB Kazimirs comments; however, the pressure seems to be coming from further appreciation in the US Dollar. As of writing, EUR/USD is down 0.21% to near 1.1345.