Forex News

John Velis at BNY Markets reiterates that he expects no Federal Reserve rate hikes this year, even as risks remain skewed to the upside. A weak US jobs report has reduced the implied probability of a September hike and trimmed tightening priced along the curve, but upcoming CPI and PPI releases remain central to the Fed’s rate deliberations.

No hikes view, data-dependent path

"We maintain that there will be no rate hikes from the Fed this year, even though we acknowledge that the risk is to the upside."

"Last week’s poor jobs report contributed to a slightly more dovish expectation for the funds rate. The probability of a September hike has fallen from more than 70% at the end of July to around 50-50 as of this writing."

"Further out the curve, the market has also taken out some tightening – from more than two hikes by this time next year to something below that now, closer to 1.8 by next July."

"Inflation is clearly the more important variable for the Fed to consider in its rate deliberations, and we’ll get more news on that this week with CPI and PPI to come out on Wednesday and Thursday respectively."

"Should we see some disinflation later this week, we would expect the curve to reprice more dovishly."

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

Silver prices (XAG/USD) fell on Tuesday, according to FXStreet data. Silver trades at $64.78 per troy ounce, down 2.72% from the $66.59 it cost on Monday.

Silver prices have decreased by 8.87% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 67.50 on Tuesday, up from 65.92 on Monday.

(An automation tool was used in creating this post.)

Deutsche Bank strategists highlight that Brent Oil has broken above $85, closing near $88 as the Strait of Hormuz remains shut and rhetoric between the US and Iran escalates. They notes a fourth straight Brent rally, higher 6‑month futures, and rising Euro inflation swaps, all feeding renewed speculation on more hawkish Federal Reserve (Fed) and European Central Bank (ECB) rate paths.

Oil surge revives inflation concerns

"If the eclipse offers a temporary darkening of the skies, markets found a darker cloud in the inflation outlook yesterday, as oil prices rose again amid the absence of a deal to reopen the Strait of Hormuz, fuelling fresh speculation about rate hikes."

"In fact, Brent crude (+4.99% to $87.72/bbl) rallied past $85/bbl for the first time this month, whilst the 10yr Treasury yield (+6.2bps) unwound the entirety of its decline after Friday’s payrolls with September Fed hike pricing returning to above 50% ahead of tomorrow's CPI."

"In addition, fears of a more protracted standoff were also gaining momentum, with the 6-month Brent future (+4.44%) also up to $80.24/bbl."

"So that helped to revive inflation fears on both sides of the Atlantic, with the 1yr Euro inflation swap (+12.6bps) back up to 2.39% yesterday."

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

• The Indian Rupee falls further against the US Dollar as oil prices extend the advance.
• US President Trump demands reparations for the war, as Iran did the same.
• Investors await the CPI data for July from both India and the US.

The Indian Rupee (INR) opens on a cautious note against the US Dollar (USD) on Tuesday. The USD/INR pair rises further to near 95.40 as surging oil prices due to escalating fears of a prolonged global supply disruption have weakened the Indian currency.

As of writing, the MCX Crude Oil contract expiring on August 19 trades 3.3% higher to near Rs. 8,060, the highest level seen in over a week.

Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high-oil-price environment.

Trump also demands compensation for war damages

On Monday, United States (US) President Donald Trump also demanded compensation for war casualties in the Middle East from Iran, through a post on Truth Social, in a direct answer to Iran's own call for compensation, as a key condition for reopening the Strait of Hormuz, a vital passage to almost one-fifth of global energy supply.

US President Trump added that Iran should be held "responsible for the damages and death" caused to the people of Lebanon, Syria, Yemen and Gaza.

Over the weekend, Iran’s Mohammad Bagher Zolghadr, secretary of the council, set out six conditions for the Hormuz reopening.

Both sides demanding compensation for war damages have heightened uncertainty over the truce in the near term, boosting oil prices.

India-US CPI data in focus

This week, the major trigger for the Indian Rupee and the US Dollar will be respective Consumer Price Index (CPI) data for July from their economies, which will be released on Wednesday.

India inflation holds steady as DBS flags mixed food trends and benign core

Economists at DBS Group Research note that key “inflation and trade numbers are due in the second week of August,” with “headline inflation in July… largely steady at 4.4% YoY vs June.” They point out that “high frequency data on food staples point to a rise in pulses, sugar, milk and edible oils, while vegetables have stabilized,” adding that “a catch-up in rainfall in July has helped boost sowing activity.” On the price side, DBS highlights that “adjustments in domestic retail fuel products (non-subsidized LPG was up 10% YoY in July) are also likely to reflect in the utilities and fuel segments.” Even so, they expect underlying pressures to remain contained, with “core readings… benign at sub-4% in July, helped also by moderation in precious metals in the period.”

In the US, both headline and core CPI are expected to have cooled dow, with figures seen arriving lower at 3.4% and 2.5% Year-on-Year (YoY), respectively.

Signs of US inflationary pressures cooling down would ease fears of Federal Reserve (Fed) interest rate hikes further. This week, financial markets have rolled back hawkish Fed after the release of the US Nonfarm Payrolls (NFP) data for July, which showed a reduction in the overall labor force against estimates of a fresh addition of 80K workers.

Fitch affirms India at 'BBB-'; outlook stable

Leading credit-rating firm Fitch has asserted a 'BBB-' rating for the Indian economy, affirming a stable outlook despite Middle East tensions.

Key takeaways from report:

India's rating reflects its robust growth outlook and solid external finance fundamentals.

India's economy remains strong, despite headwinds from energy shock.

There are residual risks from US-Iran conflict but we do not expect durable risk to growth prospects.

Technical Analysis: USD/INR remains supported by 60-day EMA

In the daily chart, USD/INR trades at 95.40. The pair holds above the 60-day exponential moving average (EMA) at 95.26, keeping a modest bullish near-term bias as price respects this dynamic support zone.

Momentum is less conclusive, with the 14-day Relative Strength Index (RSI) hovering near 47, hinting at a consolidative tone rather than strong directional conviction, but the preservation of levels above the EMA favors mild upside while this floor holds.

On the downside, initial support is seen at the 60-day EMA at 95.26, followed by the June 26 low at 94.15. Looking up, the pair might attempt to revisit the all-time high at 97.10 if it manages a decisive recovery above 96.00.

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

ING’s Chris Turner notes that FX volatility is falling as investors appear comfortable with the Federal Reserve holding or potentially tightening rates in September. He highlights limited impact from upcoming US CPI on carry trades, but warns that higher US Treasury yields and heavy tech-sector issuance could threaten the benign backdrop. DXY is seen staying in a tight 99.50-100.00 range.

Fed risks and bond market supply

"Perhaps unsurprisingly, realised FX volatility is sinking in mid-August. The main risk event on the horizon is the Fed's policy meeting on 16 September, where the market prices exactly a 50% chance of a 25bp hike. Whether the Fed hikes or not will be determined by a few data points ahead of that meeting."

"Should tomorrow's US July CPI release nudge market pricing towards or against a September Fed hike, we doubt it would have much impact on the carry trade."

"The one wrinkle on the horizon is the bond market. Longer-dated US Treasury yields are at the top of recent ranges and the tech industry is planning a lot more issuance. Nvidia announced yesterday it would partner with six investment houses to arrange $500bn of debt financing for its customers."

"A sell-off in the bond market probably remains one of the key threats to a benign environment over the coming months."

"DXY looks set to continue trading in a 99.50-100.00 range into tomorrow's CPI release."

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

• GBP/JPY attracts some dip-buyers on Tuesday amid the underlying JPY bearish sentiment.
• Japan’s fiscal concerns and the wide UK-Japan rate gap continue to undermine the JPY.
• GBP bulls seem hesitant ahead of key UK macro data on Thursday, including the Q2 GDP.

The GBP/JPY cross recovers a modest intraday dip and climbs above the 215.00 psychological mark during the first half of the European session on Tuesday. Spot prices currently trade near an over one-week high, touched on Monday, and seem poised to appreciate further amid a broadly weaker Japanese Yen (JPY).

The brutal market reaction to a joint US-Japan intervention in late July turned out to be short-lived amid growing concerns about Japan's worsening fiscal conditions, aggravated by Prime Minister Sanae Takaichi's aggressive economic stimulus and tax cuts. Adding to this, the persistently wide interest rate gap between Japan and other major economies, including the UK, which has been fueling the so-called carry trade, contributes to the JPY's underperformance and acts as a tailwind for the GBP/JPY cross.

The Bank of Japan (BoJ) lifted the short-term policy rate in June to 1.00%, or the highest since 1995, while the Bank of England's (BoE) base rate is at 3.75%. This leaves a gap of around 275 basis points (bps). Furthermore, investors remain worried that Japan’s economy will remain under strain amid energy supply disruptions due to the Middle East conflict. Japan depends on the Middle East for roughly 95% of its crude oil, suggesting that the path of least resistance for the GBP/JPY cross remains to the upside.

Meanwhile, the British Pound (GBP)  struggles to attract buyers amid a modest US Dollar (USD) strength. Traders also seem reluctant ahead of the UK data dump, including the Q2 GDP report, on Thursday, which might keep a lid on any further appreciation move for the GBP/JPY cross. Nevertheless, the fundamental backdrop validates the near-term positive outlook. This, in turn, suggests that any corrective pullback could be seen as a buying opportunity and is more likely to remain limited.

• EUR/CAD drops as higher oil prices strain Eurozone economies and rekindle inflation fears.
• The commodity-linked Canadian Dollar gains as WTI price extends higher for a second consecutive day.
• Iran ruled out negotiating with President Trump, stating talks will remain frozen until his term ends in 2029.

EUR/CAD continues its losing streak for the fifth consecutive day, trading around 1.6080 during the European hours on Tuesday. The Euro (EUR) is under pressure as rising risk aversion, driven by escalating US-Iran tensions, weighs on the cross. Intensifying conflict in the Middle East has heightened fears of oil supply disruptions, adding strain to energy-dependent Eurozone economies and rekindling inflation concerns.

ECB hike odds edge higher as hawkish repricing gathers pace

Deutsche Bank’s Early Morning Reid highlights that the hawkish repricing has been particularly pronounced in Europe, with analysts noting that “at the ECB, a September hike was back up to a 90% chance, up from 85% last Friday.” This shift underscores how quickly market expectations have firmed as inflation concerns resurface.

The EUR/CAD cross depreciates as the commodity-linked Canadian Dollar (CAD) continues to gain support from higher oil prices. West Texas Intermediate (WTI) oil price remains stronger for the second successive day, trading around $83.30 per barrel at the time of writing.

Crude oil prices advance. Iran has explicitly ruled out any future negotiations with US President Donald Trump. Citing Iranian news outlets and a post on X by Majid Shakeri, an adviser to Parliament Speaker Mohammad Bagher Ghalibaf, reports indicate that Tehran intends to wait until the current US presidential term ends on January 20, 2029, before considering a return to the bargaining table. "Trump will not reach an agreement with us. We will accompany him until his term ends," Shakeri stated.

Canadian recovery seen as fragile as US tariff threat looms

Analysts at Commerzbank observe that “it almost seems as if the Canadian real economy is slowly recovering from the problems in its relationship with the US,” pointing to signs of improvement in activity. However, they caution that “this recovery is on shaky ground,” with the backdrop darkened by trade risks. Commerzbank notes that the US president “has announced new tariffs of 50% on certain Canadian goods if no agreement is reached by August 19th,” a threat that could quickly undermine the recent progress in Canada’s real economy.

Societe Generale strategists note the Japanese Yen (JPY) remains the main G10 laggard despite higher domestic yields and Bank of Japan (BoJ) tightening. With the 10-year JGB potentially rising toward 3.50% as further 75bp of BoJ hikes are expected, FX markets still show limited enthusiasm for the Yen, while USD/JPY trades above the 200-day moving average and near the 159 level.

Higher JGB yields not supporting JPY

"A quiet session overnight cemented the position of the JPY as the main laggard in G10 ten days into August, a vastly different trajectory compared to this time in 2024, when following unilateral dollar sales by Japan’s MoF, the currency was head and shoulders above the rest of G10 and scoring a 3% gain vs the dollar."

"With another 75bp of tightening potentially to come by the BoJ by this time next year according to SG economists, we’re looking realistically at a 10y yield of around 3.50%, above the Bund."

"The prospect of a positive premium for 10y Japanese over German yields is not sufficient however not to convince the FX markets of the attractiveness of the Yen."

"EUR/JPY trades within 2.3% of all-time highs after clawing back 2.4% from the coordinated intervention low two weeks ago."

"USD/JPY recovered above the 200dma and is back above 159 handle on dip buying."

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

• EUR/GBP consolidates near two-week lows below 0.8550.
• The stalled US-Iran peace plan and higher Oil prices are adding pressure on the Euro
• Confirmation below the 0.8550 support area would bring 0.8530 and 0.8510 targets into focus.

The Euro (EUR) extends losses for the second consecutive day against the British Pound (GBP) on Tuesday, weighed by a cautious market mood as hopes of a swift end to Iran’s war wane and Oil prices climb. The EUR USD pair remains capped below 0.8550 after hitting two-week lows at 0.8536 on Monday.

In the absence of key macroeconomic releases in the UK or the Eurozone, geopolitical tensions are the main market driver on Tuesday. In that sense, Strategists at Rabobank caution that, although the Eurozone's economy seems to have weathered the higher energy prices and supply disruptions from the closure of the Strait of Hormuz, the breakdown of the US-Iran peace agreement "clearly implies downside risks to growth and upside inflation concerns,” posing a heavy weight on the Euro.

Technical Analysis: Bears remain in control while below 0.8550

EUR/GBP broke the ascending channel in late July, and confirmed a bearish reversal this week after slipping below a previous support at the 0.8550 area, which is now holding bulls. Momentum indicators endorse the bearish view, with the 4-hour Relative Strength Index (14) hovering in the mid-30s and the Moving Average Convergence Divergence (MACD) at slightly negative levels.

Initial support emerges at 0.8530 (July 24 low) and below here, a previous resistance area, around 0.8510. On the topside, the mentioned 0.8550 area should be broken to bring price action back to the previous ranges and shift the focus back to Monday's highs, at 0.8566 and the August 5 and 6 highs, near 0.8580.

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

TD Securities’ Prashant Newnaha and Alex Loo note that the Reserve Bank of Australia left the cash rate at 4.35% in a unanimous decision, with the Statement and updated forecasts sounding less hawkish than expected. However, Governor Bullock emphasized that another hike remains possible if upside inflation risks materialize, leaving the Australian Dollar sensitive to incoming data and RBA communications.

Hawkish hold with upside inflation risks

"The RBA kept the cash rate on hold at 4.35% as expected in a unanimous decision. The Statement read less hawkishly than anticipated and the revised forecasts imply a less hawkish stance too. However, the Press Conference took on a hawkish tone with the Governor stressing a number of times that another hike is a possibility, a risk to our call for a prolonged RBA hold."

"However, the Statement and the forecasts published today suggest a rate hike is not the Bank's central forecast, implying the bar for a follow-up RBA hike this year has been lifted."

"As stated above, the RBA's forecasts don't speak to another hike and the Bank does not appear to have the appetite to hike preemptively either."

"Clearly the RBA is not out of the woods. The Bank's trimmed mean CPI forecasts for Q3 and Q4 imply 0.8% q/q prints for both quarters. While the Statement and the forecasts don't signal alarm, the Governor was at pains to state where the risks lie for inflation, and they are to the upside."

"Indeed, if the RBA's 4.35% cash rate did not get the job done on inflation previously and the Minutes of the June meeting noted estimates of the real neutral rate have risen over preceding years (in addition to observations detailed above), then the RBA may not have the wiggle room it needs to get inflation back to target in a reasonable time frame."

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