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ING’s Francesco Pesole highlights that recent European Central Bank commentary remains broadly hawkish, with limited pushback from the dovish camp. While this argues against aggressively selling EUR/USD at current levels, ING still sees downside risks as front-end US rates may rise further and the broader commodity and risk backdrop weighs on the Euro, with a test of 1.140 seen as a near-term risk.

ECB rhetoric versus Dollar strength

"European Central Bank members have resumed public appearances, with three policymakers delivering policy-related remarks yesterday. The tone remained broadly hawkish. Neutral-to-hawkish Gabriel Makhlouf said every meeting is a "live" one, leaving the door open to an October hike; Ante Zigman, who is considered somewhat more hawkish, stressed the resilience of growth and the need to bring inflation lower."

"Olli Rehn, one of the Governing Council's most dovish voices, was unsurprisingly more neutral but did not push back against market expectations. It confirms the dovish camp is weak at the moment."

"One notable point was that all three policymakers said there is no evidence of second-round effects. That remains somewhat inconsistent with the prevailing hawkish narrative and guidance. Even so, we do not expect any shift in tone in the near term."

"This is one reason not to chase EUR/USD lower too aggressively from current levels. At the same time, front-end USD rates could still move higher in the coming weeks, particularly around key data releases, while the broader commodity and risk backdrop continues to point to downside risks for EUR/USD."

"President Christine Lagarde speaks later today, but it is difficult to see her adding much to the message so soon after the meeting. A test of 1.140 remains the near-term risk, although our base case is for some stabilisation today."

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

• The Indian Rupee recovers strongly against the US Dollar on Friday after declining significantly this week.
• Oil prices drop as Saudi Arabia mulls alternatives to ship energy products.
• Fed’s hike and interest rate repricing are expected to keep US bond yields contained.

The Indian Rupee (INR) opens sharply higher against the US Dollar (USD) on Friday, with the USD/INR pair correcting to near 95.75 from an over seven-week high of 96.10 posted the previous day. The Indian currency capitalizes on a pause in rally in both oil prices and United States (US) Treasury Yields.

As of writing, the MCX Crude Oil contract expiring on September 21 trades at around Rs. 9,688. The oil price has corrected from its multi-month high of Rs. 10,238 posted earlier this week.

A correction in oil prices brings relief for currencies from economies, such as India, which rely heavily on oil prices to meet their energy needs.

Oil eases as Saudi supply signals improve Middle East flow outlook

Analysts at Deutsche Bank note that some improvement in the outlook for oil flows out of the Middle East has resulted in a pullback move in oil prices. They highlight that this “included news that Saudi Arabia was increasing tanker loadings in the Gulf and ramping up sales of crude from just outside the Strait of Hormuz,” as the Kingdom looks to ship more barrels through the strait following the closure of its East-West oil pipeline.

Deutsche Bank adds that the supply picture was further supported when “Bloomberg report[ed] that Saudi Arabia is aiming to restore about half of the East-West pipeline’s capacity within days and return it to full capability ‘in about six weeks.”

This has provided some relief from tight energy supply concerns, which were escalated following drone attacks by Yemen-linked Houthis on pipeline facilities near Riyadh and Medina.

US Treasury Yields correct on oil relief

Yields on US government-backed securities have cooled down a little after rallying in the past few weeks, following relief from a slight correction in oil prices. As of writing, 10-year US Treasury Yields trade close to ongoing week’s low near 4.94% after hitting a 19-year high of 5.04% on Tuesday.

Lower US bond yields result in an improvement in appeal of risk-sensitive assets, such as the Indian Rupee.

Also, market experts believe the interest rate hike move by the Federal Reserve (Fed) on Wednesday, which resulted in an improvement in central bank’s credibility, has also weighed on US Treasury Yields.

According to TD Securities, a combination of "already-hawkish Fed pricing, increased inflation-fighting credibility, and worries about higher rates impacting growth, should help keep 10-year yields contained."

Technical Analysis: USD/INR stays above 20-day EMA

In the daily chart, USD/INR trades at 95.77, keeping a constructive bullish tone as spot holds above the 20-period exponential moving average (EMA) at 95.46. The pair is extending its recovery from the mid-94.00s, and the positioning above this short-term EMA suggests underlying demand remains in place, with pullbacks likely to attract buying interest while momentum stays supportive.

On the downside, immediate support is seen at the 20-period EMA near 95.46, which underpins the short-term uptrend and marks the first level where buyers could re-emerge on any corrective move. Looking up, the September 17 high at 96.10 is the immediate support; a decisive break above the same could open the door for revisiting the all-time high near 97.00.

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

Danske Bank’s Danske Research Team highlights that the Bank of England left Bank Rate at 3.75% with a 6-3 vote, disappointing hawkish market expectations and triggering GBP weakness and lower rates. Quantitative tightening plans matched guidance, while the MPC acknowledged higher upside inflation risks but elevated uncertainty. Danske Bank keeps its forecast for no change this year and a June rate cut, with rising risk of a Q4 hike.

BoE pause weighs on Pound

"In the UK, the Bank of England kept the Bank Rate unchanged at 3.75%, in line with expectations, with a 6-3 vote as Pill, Greene and Mann again backed a hike."

"The decision was broadly as expected but given the very hawkish market pricing going into the meeting, the outcome triggered some GBP weakness and lower rates."

"The QT announcement was also close to expectations, with the remaining stock set to be unwound at an annual average pace of GBP 46bn by the end of 2034."

"Overall, the MPC acknowledged that upside risks to the inflation outlook have increased since July but also stressed that uncertainty remains very high."

"We maintain our call for unchanged Bank Rate this year and a rate cut in June. The risk is however increasingly skewed towards a hike in Q4."

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

• DXY attracts some dip-buyers and continues to draw support from the Fed’s hawkish outlook.
• The possibility of a Fed rate hike in October and December stands at 54% and 88%, respectively.
• Escalating tensions in the Middle East further benefit the safe-haven Greenback and favor bulls.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, regains positive traction on Friday and maintains its bid tone through the first half of the European session. The index remains within striking distance of the highest level since late July, though on Thursday, and currently trades around the 100.30 region. Moreover, the supportive fundamental backdrop backs the case for a further near-term appreciating move for the US Dollar (USD), which remains on track to register strong weekly gains for the first time in the previous three.

The US Federal Reserve (Fed), as was widely expected, raised interest rates for the first time since 2023 at the conclusion of the September policy meeting on Wednesday. Furthermore, the so-called dot plot revealed that Fed officials expect one more interest rate increase this year. Adding to this, Fed Chair Kevin Warsh underscored the importance of stabilizing consumer prices to grow the US economy, saying during the post-meeting press conference that inflation is too high and has been for too long. Meanwhile, oil-driven inflation risks underpin prospects for further Fed tightening.

Apart from this, escalating tensions in the Middle East turn out to be another factor underpinning the safe-haven Greenback. In fact, Iran's Islamic Revolutionary Guard Corps (IRGC) said that it struck a Togo-flagged tanker that attempted an illegal passage through the Strait of Hormuz. Moreover, US President Donald Trump said that he was approaching a major decision on whether to resume large-scale attacks on Iran. This keeps the geopolitical risk premium in play, which, in turn, validates the near-term constructive outlook for the DXY and favors bullish traders.

Dollar outlook turns as Fed repricing lifts DXY and USD forecasts

Economists at UOB Group highlight that the recent shift in Fed expectations has important implications for the Dollar. “As we now expect two further Fed rate hikes, the narrowing of US rate differentials relative to G-10 peers – which have been weighing on the DXY since late 2024 – is likely to reverse and underpin the DXY going forward,” the bank writes. Putting the evolving rate backdrop and currency dynamics together, UOB concludes that “we now see upside risks to our USD forecasts against both G-10 and Asian currencies.”

DXY daily chart

Technical Analysis

The DXY holds a constructive bullish bias above the 100-day Exponential Moving Average (EMA) and has reclaimed the 50.0% Fibonacci retracement. Any further move up could face immediate resistance at the 61.8% Fibo. retracement at 100.57, ahead of a stronger barrier at the 78.6% retracement near 101.12, while the cycle high at 101.82 marks a key medium-term cap.

On the downside, initial support is provided by the 50.0% retracement at 100.18, followed by the 100-day EMA at 99.69 and the 38.2% retracement at 99.80. Deeper demand levels emerge at 99.32 and then the structural low around 98.55.

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

• GBP/USD rises to near 1.3372 as the British Pound gains after upbeat UK Retail Sales data.
• UK Retail Sales rose by 0.5% MoM in August.
• The BoE leaves interest rates unchanged at 3.75% with 6-3 vote split, as expected.

The British Pound (GBP) is up 0.1% at around 1.3372 against the US Dollar (USD) during the European trading session on Friday. The GBP/USD pair gains as the British currency rises, following the release of the surprisingly upbeat United Kingdom (UK) Retail Sales data for August.

The Office for National Statistics (ONS) has reported that Retail Sales grew by 0.5% Month-on-Month (MoM) after declining at a same pace. The data was expected to contract by 0.2%.

While the British currency has reacted positively to the Retail Sales data, it underperformed the entire data-packed and Bank of England (BoE) policy week.

What happened at the BoE policy meeting

The BoE opted to keep Bank Rate unchanged at 3.75% in a 6–3 vote, as expected, while acknowledging a more challenging inflation backdrop. The UK central bank said that it expects Consumer Price Index (CPI) to rise to around 3.75% in the last quarter this year and slightly above 4% in early 2027 in the wake of higher energy prices. The BoE sees little evidence of material second-round effects of inflation in wages and prices.

Meanwhile, the US Dollar trades firmly on hawkish repricing of Federal Reserve’s (Fed) interest rate expectations. In the European trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, posts a fresh six-week high at 100.38.

GBP/USD Technical Analysis

GBP/USD trades at 1.3366, keeping a bearish near-term tone as spot is well below the 20-period Exponential Moving Average (EMA) at 1.3484 and close to the downtrend resistance line coming in around 1.3372.

The location of price beneath these key overhead levels suggests rallies remain vulnerable, while the Relative Strength Index (14) at 32.4 hovers just above oversold territory, hinting that selling pressure is still dominant but nearing exhaustion rather than outright collapse.

On the topside, initial resistance is defined by the broken downtrend line at 1.3372, with a more significant cap at the 20-period EMA clustered near 1.3484, where fresh supply could emerge if the pair attempts a corrective bounce. Looking down, the pair could decline to near 1.3300 if it fails to hold the September 17 low at 1.3336.

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

• Oil prices dip to levels near $95, on track for their first weekly decline in the last three weeks.
• News of an alternative route for Saudi Oil exports has allowed for some relief on prices.
• The uncertain situation in the Middle East is keeping crude prices from retreating further.

The US benchmark West Texas Intermediate (WTI) Oil is heading for its first weekly decline in the last three weeks, as prices near the $95 level after hitting fresh four-month highs at 102.07 last Tuesday. Hopes that Saudi Arabia will increase its supply and a call from China to Iran to rein in Houthis have provided some relief to prices, although the uncertainty in the Middle East is keeping dips limited so far.

News that Saudi Arabia has found an alternative route through Oman to supply crude to Asian countries has eased some concerns about supply disruptions. These fears escalated last week after a drone attack damaged the West-East pipeline transporting Oil to the Red Sea port of Yanbu, which was used to skip the blockade of the Strait of Hormuz.

Beyond that, Reuters reported on Thursday that China has privately asked Iran to rein in Yemen’s Houthis as the Iran-backed militias seized critical coastal areas in the Red Sea last week and threatened to block the Bab el-Mandeb waterway, adding pressure on the already strained global crude supply.

Uncertainty in the Middle East keeps Crude Prices supported

The Chinese foreign ministry affirmed on Thursday that China does not want regional tensions to spill over Yemen and the Red Sea, but a series of reciprocal attacks between Saudi Arabia and the Houthis are pointing in that direction, while the US-Iran war enters a grey area.

Meanwhile, the Strait of Hormuz remains practically closed, and the UK Maritime Trade Operations (UKMTO) reported an attack on a vessel 16 nautical miles northeast of Oman’s Khasab.

MUFG’s Derek Halpenny notes that the Bank of Japan’s 25bp hike to 1.25% fell short of hawkish market pricing, triggering an initial Yen sell-off as expectations for larger moves proved overdone. BoJ language on real rates shifted from “negative” to “low”, while guidance still points to accommodative conditions and further gradual tightening. MUFG sees scope for USD/JPY to grind higher short term if Dollar sentiment stays favourable.

BoJ hike underwhelms hawkish pricing

"We mentioned here yesterday that we felt the bar was low for the BoJ failing to meet the level of hawkish pricing in the rates market and that is what has unfolded today with the initial reaction to the decision to hike by 25bps to 1.25% underlining the risks that the BoJ could well fail to meet expectations of nearly 100bps (incl today’s hike) of tightening over the coming twelve months."

"Secondly, the BoJ removed the description in the statement that real interest rates were “negative, mainly in the short-to-medium term zone” to “remained at low levels, mainly in the short-to-medium term zone”. This is really just the BoJ acknowledging facts – the move up in front-end rates has been notable (2yr JGB yield is 35bps higher since the last BoJ meeting) and with inflation currently below the 2.0% target the description of “low” rather than “negative” makes sense."

"That was underlined by the fact that the BoJ maintained its view that “accommodative financial conditions are expected to be maintained” and therefore the bank “will continue to raise the policy interest rate and adjust the degree of monetary accommodation”."

"Perhaps most importantly he has stated that the “stage for policy conduct has changed” which would suggest the possibility for an altered pace of tightening ahead although Ueda did then add that the BoJ has no particular pace in mind."

"Hence, some giveback from recent yen strength makes sense to us over the short-term. If broader US dollar sentiment remains favourable, USD/JPY has scope to grind further higher from here over the short-term."

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

United Overseas Bank’s (UOB) Quek Ser Leang notes USD/CHF remains in a consolidation phase after a sharp rally, with intraday trading expected between 0.8225 and 0.8265. He stays positive over the 1–3 week horizon but says it is still too early to confirm a break above 0.8300, while a move below 0.8185 would negate this view.

Dollar consolidates below key resistance

"24-HOUR VIEW: Following the sharp rally in USD that reached a high of 0.8265 two days ago, we indicated yesterday that “the sharp rally appears to be overdone, and USD is unlikely to rise much further.” We highlighted that USD “is more likely to consolidate between 0.8225 and 0.8275.” USD then traded within a 0.8220/0.8262 range, closing slightly lower by 0.12% at 0.8243. The price action is likely an ongoing consolidation phase. Today, USD is likely to trade between 0.8225 and 0.8265."

"1-3 WEEKS VIEW: We turned positive on USD one week ago. Yesterday (17 Sep, spot at 0.8250), we stated that “while momentum remains strong, it is too early to tell whether it is sufficient for USD to break above 0.8300.” Our view remains unchanged. Overall, only a breach of 0.8185 (no change in ‘strong support’ level) would indicate that 0.8300 is not coming into view."

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

European Central Bank (ECB) President Christine Lagarde said during the European trading session on Friday that the decision on interest rates by the central bank will be meeting by meeting. Like other ECB officials, Lagarde also said that she doesn’t see any signs of second-round inflation effects yet.

Remarks

Growth is a bit more promising than we thought.

We'll decide on rates meeting by meeting.

Not seeing second-round effects yet.

Market reaction

Nothing appears in comments that is not known by financial markets, the highly likely reason why the Euro (EUR) has not reacted meaningfully. As of writing, EUR/USD is marginally higher to near 1.1485.

Lagarde keeps Euro bears cautious as growth outlook improves

FXS Speechtracker shows a weaker impact today, with the 4.4/10 score falling notably below Lagarde’s historic 5.7/10 baseline. The comment that growth is “a bit more promising than we thought” nudges the tone mildly hawkish, as it reduces the urgency for aggressive easing and keeps Euro downside somewhat contained.

However, the “meeting by meeting” guidance and the admission of not seeing second-round effects yet point to a cautious, data-dependent stance rather than a clear tightening bias. Overall, the speech leans slightly hawkish versus expectations, but the subdued score suggests markets see limited new information, keeping Euro moves more tactical than trend-changing.

• Euro trades calm near 1.1485 against the US Dollar.
• Investors look beyond latest hawkish interest rate decision by both the ECB and the Fed.
• The Fed’s dot has lifted interest rate forecast significantly.

The Euro (EUR) trades in a tight range at around 1.1485 against the US Dollar (USD) during the European trading session on Friday. The major currency pair turns sideways after posting a fresh six-week low near 1.1456 as investors look beyond hawkish interest rate decisions by both the European Central Bank (ECB) and the Federal Reserve (Fed).

Last week, the ECB raised its key policy rates by 25 basis points (bps), as expected, in an attempt to counter rising inflationary pressures. The ECB still sees risks to inflation remaining to the upside, but not significant evidence of second-round inflation effects. However, financial markets have raised ECB interest rate hike expectations amid higher energy prices.

Strategists at UOB Group highlight the sharp repricing at the front end of European curve, noting that, as reported by Bloomberg, "money markets are now fully pricing four 25-bps rate increases by the ECB over the next 12 months.

This week, the US Dollar outperformed as the Fed broke the five-meeting hold streak and raised interest rates by 25 basis points (bps) to 3.75%-4.00% range. The Fed was expected to do so as the August Consumer Price Index (CPI) report showed signs of stickiness in inflationary pressures.

The Fed also acknowledged price pressures remaining higher for long and signaled atleast one more interest rate hike this year.

Fed dot plot shifts higher as UOB flags more hawkish rate path

Analysts at UOB Group highlight that the latest FOMC “updated Dot Plot and Summary of Economic Projections point to a more hawkish policy trajectory.” They note that, based on the median view, “the Dot Plot now indicates fed funds rate at 4.1% end-2026 (previously was 3.8%, in the Jun FOMC) and then staying there for 2027 (previously was 3.6%, i.e. expecting a rate cut in 2027 in the Jun FOMC), and to 3.9% at end-2028 (previously was 3.4%, in the Jun FOMC) before the FFTR hits a longer-run level of around 3.2% (up from 3.1% in the Jun FOMC).” UOB argues that this profile underscores a clear shift toward a more persistent higher-for-longer stance in US rates.

EUR/USD Technical Analysis

In the daily chart, EUR/USD trades at 1.1485, keeping a bearish near‑term tone as spot holds beneath the 20-period Exponential Moving Average (EMA) at 1.1564. The pair’s inability to reclaim this short-term EMA suggests that rallies remain capped for now, while the Relative Strength Index (RSI) at 36.8 stays just above oversold territory, hinting at lingering downside pressure but with some scope for consolidation rather than an immediate collapse.

On the topside, initial resistance is located at the 20-period EMA at 1.1564, and a sustained break above this barrier would be needed to ease the current bearish bias and allow for a more meaningful recovery. Looking down, the six-week low near 1.1460 is the key support level.

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