Forex News
- EUR/USD edges higher to around 1.1425 in Wednesday’s early Asian session.
- US CPI increased 3.5% YoY in June, cooler than expected.
- Traders boost ECB rate-hike bets after oil price surge.
The EUR/USD pair gains ground to near 1.1425 during the early Asian trading hours on Wednesday. The US Dollar (USD) weakens against the Euro (EUR) as softer-than-expected US inflation data temporarily eased pressure on the Federal Reserve (Fed). Traders will take more cues from the US Producer Price Index (PPI) report, which is due on Wednesday.
US inflation, as measured by the US Consumer Price Index (CPI), declined to 3.5% YoY in June, down from the three-year high of 4.2% set in May, according to the US Bureau of Labor Statistics (BLS) on Tuesday. This figure came in softer than the market expectations of 3.8%. On a monthly basis, the headline CPI dropped by 0.4% in June, compared to a rise of 0.5% in May.
Meanwhile, the core CPI, which excludes volatile food and energy prices, was unchanged on a monthly basis, and it was up 2.6% on a yearly basis, compared to the 2.9% increase seen in May and the market expectation of 2.8%.
The chance of a July rate hike dropped to 16% from 42% on Monday, according to the CME FedWatch tool, although the probability of a rate increase this year was more robust at 80%, down from 89% on Monday.
Fed Chairman Kevin Warsh said on Tuesday that slowing inflation in June doesn’t mean it’s mission accomplished. On Monday, Fed Governor Christopher Waller said that rates may need to rise "in the near term" if data shows inflation remaining well above the central bank's 2% target.
Across the pond, traders boosted wagers on faster European Central Bank (ECB) interest-rate hikes after surging oil prices reignited inflation fears. Markets expect the ECB to raise the interest rates by 25 basis points (bps) in September, with another hike by year-end all but certain, according to Bloomberg.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the 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.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
US President Donald Trump said that Iran retains some resilience but is largely depleted. He emphasized that he will preserve energy objectives in Iran until the end, Fox News reported on Tuesday.
Trump further stated that the US conducted discussions with Iran on Tuesday, adding that Washington urged Tehran to reach an agreement.
The US President said in an interview on Fox News that strikes will continue until he says it's enough. They [Iran] have some fight left but they don’t have much,” said Trump.
Meanwhile, Iran's Mehr news agency reported that the Hormozgan governorate confirmed a projectile strike near Hajiabad in southern Iran. The US military said that Iran deliberately targeted civilians in the region by attacking seven commercial vessels.
Market reaction
At the time of writing, the West Texas Intermediate (WTI) is up 1.65% on the day at $79.11.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- Gold price jumps to near $4,050 in Wednesday’s early Asian session.
- US CPI inflation slowed more than expected in June.
- The US launched an ‘additional round of strikes’ against Iran.
Gold price (XAU/USD) rises to around $4,050 during the early Asian session on Wednesday. The precious metal rebounds as softer-than-expected US inflation data boosted hopes of the US Federal Reserve (Fed) adopting a less hawkish stance.
Data released by the US Bureau of Labor Statistics (BLS) on Tuesday showed that the US Consumer Price Index (CPI) inflation eased to 3.5% YoY in June from the three-year high it set at 4.2% in May. This figure came in below the market consensus of 3.8%. On a monthly basis, the headline CPI declined by 0.4% in June, versus a rise of 0.5% in May.
The core CPI, which excludes volatile food and energy prices, was unchanged on a monthly basis, and it was up 2.6% on a yearly basis, compared to the 2.9% increase seen in May and the market expectation of 2.8%. After the softer inflation data, traders exited bets that the Fed would hike rates at its July 28-29 meeting, supporting the yellow metal.
"Gold gallops higher on a surprisingly subdued CPI report that saw headline dive lower but more importantly, core unchanged versus 0.2%. This should drop rate hike expectations sharply at least for the July and September meetings," said Tai Wong, an independent metals trader.
Nonetheless, oil-driven inflation concerns could prompt the US central banks to keep interest rates elevated for longer, weighing on non-yielding assets such as gold. US Central Command (CENTCOM) forces said it has “begun launching an additional round of strikes against Iran to continue degrading Iranian capabilities used to attack commercial shipping in the Strait of Hormuz.”
Iran’s Foreign Ministry spokesperson, Esmaeil Baghaei, stated that the US military’s attack on a ranger post in Hormozgan is “the latest example of America’s heinous war crimes."
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Rabobank's Michael Every reports that Chancellor Merz has called for dialogue with China on monetary and FX policy, arguing CNY is 20–30% undervalued and should float more freely. Every notes China will not accept a Plaza Accord-style deal, and stresses that China’s growing trade surplus with the EU may push Europe toward US-style high tariffs.
Europe challenges China’s FX stance
"Chancellor Merz just called for a dialogue with China on its monetary and FX policy, saying that the EU could not win, no matter how innovative or good the bloc may be, against a competitor that artificially manipulates its currency."
"He argued that CNY is 20-30% undervalued and needs to be allowed to float more freely so that it can appreciate to a fairer level."
"To be clear, there is no world in which China will allow, or Europe is in any way able to impose, a new Plaza Accord on China: it is not going to happen."
"Yet the surging Chinese trade surplus with the EU, which is now larger than with the US and is close to doubling since 2020, must be addressed by October (by magic; or Chinese pledges of purchases of EU soybeans; or of Airbus aircraft when Beijing is also winking at Boeing?) or Europe says it will be forced to follow the US high tariff path after many years of patronising eyerolling at how disruptive such atavistic tactics are."
"China trade data today saw its imports up 36% y-o-y vs. 26.1% expected and exports up 27% vs. 19%: we will have to wait for the breakdown of the EU numbers, but they are unlikely to show what Brussels wants to see."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Standard Chartered economists Carol Liao and Hunter Chan note that China’s fiscal support softened in Q2 2026 after strong Q1 activity, leading to a sharp slowdown in infrastructure FAI similar to H2-2025. They expect the government to accelerate infrastructure spending and local government special bond issuance in H2-2026, using existing quotas and potentially front-loading 2027 issuance if exports or housing weaken further.
Fiscal pace and infrastructure outlook
"The China government’s fiscal support softened in Q2 after a strong start to the year. In April-May, overall broad spending fell 5.7% y/y even as broad revenue growth accelerated to 2.2% y/y, shrinking the broad deficit to a three-year low. While subsidies to households are evenly distributed through the year, investment spending seems to have moderated, markedly reducing infrastructure FAI, in a pattern similar to H2-2025."
"The government might have fine-tuned the pace of fiscal implementation intentionally. Q1 activity exceeded market expectations, supported by front-loaded fiscal support and strong exports. In April-May, general public budget spending fell 2.4% y/y, despite the 6.6% y/y rise in revenue."
"Under the government funds budget, local government special bond (LGSB) issuance slowed notably in Q2. Land sales revenue continued to deteriorate in Q2, constraining local governments’ spending capability; LGSB funding could have partly offset this drag if issuance had not slowed."
"We expect fiscal support to re-accelerate in H2, particularly through infrastructure investment. Given comfortable fiscal room in H2, we expect the government to accelerate issuance to fully utilise the existing quota before considering further stimulus."
"If exports weaken unexpectedly or the housing downturn exerts a greater drag on local government funding in Q3, policymakers could respond by front-loading the 2027 LGSB issuance quota or authorising additional local government bond issuance from the previously unused debt quota."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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