Forex News
- US PPI and CPI reports will dictate Federal Reserve monetary policy and interest rate expectations.
- Strong US jobs data has traders pricing in a sixty percent chance of a rate hike.
- The UK residential survey hit a five-month high, showing stabilizing trends despite a fragile recovery.
GBP/USD extends its winning streak for the fifth consecutive day, trading around 1.3540 during the Asian hours on Thursday.
Market participants are closely watching the upcoming US Producer Price Index (PPI) data due on Thursday and Consumer Price Index (CPI) data on Friday, as these inflation reports could provide vital hints regarding the Federal Reserve's monetary policy outlook ahead of its meeting next week.
Triggered by recent stronger US jobs data, traders have increased their bets on an interest rate hike, with the CME FedWatch Tool pricing in about 60% odds for a rate increase at the central bank's upcoming policy meeting.
Meanwhile, international housing data showed that the RICS UK Residential Market Survey house price balance improved to -28% in August 2026 from an upwardly revised -29% in July, hitting a five-month high as the market displays initial signs of stabilizing.
According to RICS, key activity indicators have become progressively less negative, though any recovery remains fragile, with property prices still projected to decline over the next three months before stabilizing on a 12-month horizon.
BoE tightening expectations firm as markets price in incremental hikes
Strategists at Scotiabank observe that, despite the recent firming in the Pound, the short end of the UK curve remains cautious on the near-term policy outlook. They note that the “short-term rates market is still pricing very little chance of a policy adjustment at next Thursday’s meeting,” but is nonetheless embedding a gradual tightening path, with “about 17bpts of tightening for November 5th and a cumulative 32bpts by December 17th.” This profile, they suggest, underscores how investors are leaning toward incremental BoE moves into year-end rather than an imminent shift in policy.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling 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, its currency will benefit 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.
- USD/CAD struggles to attract meaningful buyers on Thursday amid a mixed fundamental backdrop.
- Fed rate hike bets and geopolitical risks support the USD, while higher oil prices underpin the Loonie.
- Traders also seem hesitant and opt to wait for US inflation data before placing fresh directional bets.
The USD/CAD pair struggles to capitalize on the previous day's modest gains and consolidates just above the 1.3800 mark during the Asian session on Thursday. Traders seem hesitant and opt to wait for the release of US inflation figures before placing fresh directional bets.
The US Producer Price Index (PPI) report will be published later this Thursday, while the US Consumer Price Index (CPI) is due on Friday. The crucial data will be looked at for more cues about the Federal Reserve's (Fed) policy path, which, in turn, will play a key role in driving the US Dollar (USD) demand and provide some meaningful impetus to the USD/CAD pair.
In the meantime, traders have been pricing in a greater chance that the US central bank will raise borrowing costs at its policy meeting on September 15-16. Furthermore, inflation risks stemming from persistently higher energy prices underpin prospects for immediate Fed tightening. This, along with escalating US-Iran tensions, benefits the safe-haven Greenback.
In the latest developments surrounding the Middle East crisis, Iran attacked 10 ships near the Strait of Hormuz after the US announced it had sunk five Iranian oil tankers in the Gulf of Oman and near Kharg Island. This fuels concerns about a prolonged disruption to supplies, lifting crude oil prices to a fresh three-month top and acting as a tailwind for the USD.
Meanwhile, US bond yields remain supported as investors seem disappointed by the US Treasury's announcement that it would buy back up to $6 billion in 10-year to 20-year maturities. This contributes to the modest USD uptick, though elevated crude oil prices might continue to underpin the commodity-linked Loonie and cap any further gains for the USD/CAD pair.
USD/CAD daily chart
Technical Analysis
The USD/CAD pair maintains a bearish near-term tone beneath the 100-day Simple Moving Average (SMA) at 1.3926. The pair’s position below this longer-term average suggests rallies remain corrective for now, with the broader structure hinting at continued downside risk unless buyers can reclaim the 1.3900 mark.
On the downside, a sustained break and acceptance below the 1.3770-1.3765 region will be seen as a fresh trigger for bearish traders. This would set the stage for an extension of the recent well-established downtrend witnessed over the past two months or so.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
Bank of Japan (BoJ) policy board member Kazuyuki Masu said on Thursday that the central bank expected to continue raising interest rates given current accommodative financial conditions. However, the pace and timing of rate hike will be decided based on likelihood of achieving our baseline projections as well as risks with eye on impact of oil price moves, AI-demand and foreign exchange fluctuations.
Key quotes
Underlying inflation still below 2% but quite close to that level.
BoJ expected to continue raising interest rates given current accommodative financial conditions.
Pace, timing of rate hike will be decided based on likelihood of achieving our baseline projections as well as risks with eye on impact of oil price moves, ai-demand, FX fluctuations.
Most important thing is to avoid underlying inflation from overshooting sharply from 2%.
Rise in fuel, chemical goods prices could be one-off shock but may have broader impact on prices via distribution costs.
Market reaction
At the time of writing, the USD/JPY pair is up 0.05% on the day at 153.60.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
- AUD/USD softens to around 0.7215 in Thursday’s early Asian session.
- Traders await key US inflation data this week that would provide clues to the Fed’s monetary policy.
- RBA’s Hunter said further tightening may be needed to curb inflation.
The AUD/USD pair declines to near 0.7215 during the early Asian trading hours on Thursday. Markets turn cautious as traders brace for the release of the US inflation data later this week. Additionally, rising tensions in the Middle East could weigh on riskier currencies such as the Australian Dollar (AUD) against the US Dollar (USD).
Traders raise their bets on an interest rate hike by the Federal Reserve (Fed) following the recent stronger US jobs data. The market is pricing in about 60% odds of an interest rate hike at the central bank’s policy meeting next week, according to the CME FedWatch Tool.
Market participants will take more clues from the upcoming Producer Price Index (PPI) data due on Thursday and Consumer Price Index (CPI) data on Friday. These inflation reports could offer some hints about the monetary policy outlook of the Fed ahead of its meeting next week.
“A hot CPI print would all but seal a September hike and underpin a firmer dollar,” said Elias Haddad at Brown Brothers Harriman & Co. “A cooler reading would strengthen the case for a hold and leave the dollar vulnerable to a dovish Fed repricing.”
Hawkish signals from Reserve Bank of Australia (RBA) officials could provide some support to the Aussie. RBA Assistant Governor Sarah Hunter said on Tuesday that the central bank may need to raise interest rates again if inflation proves more persistent than expected, keeping alive the prospect of another hike at its September meeting.
RBA hawkish tilt aligns with US policy preferences
Analysts at Rabobank note that the Reserve Bank of Australia has turned more overtly hawkish after RBA official Hauser delivered what they describe as a “hawkish speech,” which has “markets thinking of hikes this month and in November.” They add that this shift is “very much what the US Treasury would like to see – plus a lot more action on non-housing parts of the economy,” underscoring how a more restrictive RBA stance, particularly beyond the housing sector, dovetails with US policy preferences and supports a firmer near-term outlook for the Aussie.
Technical Analysis: AUD/USD maintains a constructive outlook above the 100-day SMA
In the daily chart, AUD/USD holds above the 20-day simple moving average (SMA) and comfortably over the 100-day SMA, which together suggest a constructive near-term bias. Price is pressing the upper half of the Bollinger envelope, while the Relative Strength Index (RSI) at about 67 stays just below overbought territory, hinting that bullish momentum remains firm but may be nearing stretched conditions.
On the downside, initial support emerges at the Bollinger mid-line around 0.7165, with the lower Bollinger band and the 100-day SMA close to 0.7080forming a secondary demand area if a deeper pullback unfolds. On the topside, the immediate hurdle is the Bollinger upper band at approximately 0.7250; a sustained break above this barrier would open the door for an extension of the current advance, while failure here could see the pair ease back toward the aforementioned supports.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
- USD/JPY edges higher during the Asian session on Thursday, though the upside seems capped.
- Fed rate hike bets and US-Iran tensions lend support to the USD ahead of the US inflation data.
- A more hawkish BoJ repricing might continue to underpin the JPY and cap gains for spot prices.
The USD/JPY pair edges higher during the Asian session on Thursday and trades just above mid-153.00s amid bears turn cautious ahead of US inflation figures. Spot prices, however, remain close to a seven-month low, touched earlier this week, as an aggressive repricing for a more hawkish Bank of Japan (BoJ) continues to underpin the Japanese Yen (JPY).
In fact, traders now seem to have fully priced in a 25-basis-point (bps) interest rate hike by the BoJ at its upcoming September 17–18 policy meeting and are assigning a high probability of a follow-up move in December. Expectations gained traction after BoJ's prominent hawkish members – Hajime Takata and Naoki Tamura – recently pushed for faster and more nimble rate hikes to counter rising inflation. Adding to this, a combination of revised economic growth and strong wage gains bolstered the central bank’s normalization path, supporting the JPY and capping the USD/JPY pair.
The US Dollar (USD), on the other hand, recovers slightly from a nearly three-week low, touched on Wednesday, as bears turn cautious ahead of the release of the US Producer Price Index (PPI), due later today. This will be followed by the US Consumer Price Index (CPI) on Friday, which will be looked at for more cues about the Federal Reserve's (Fed) future policy path. In the meantime, bets that the US central bank will raise borrowing costs later this month, amid inflation risks due to higher energy prices, along with escalating US-Iran tensions, support the USD and the USD/JPY pair.
In the latest developments surrounding the Middle East crisis, Iran said it has attacked 10 ships near the Strait of Hormuz after the US announced it had sunk five Iranian oil tankers in the Gulf of Oman and near Kharg Island. Iran also fired missiles at US forces stationed at the Al-Azraq base in Jordan. Meanwhile, US President Donald Trump claimed the war on Iran would end immediately after the US midterm elections in November. This keeps a lid on the geopolitical risk premium in play and might hold back USD bulls from placing aggressive bets, which, in turn, could cap the USD/JPY pair.
USD/JPY daily chart
Technical Analysis
The USD/JPY pair remains under clear bearish pressure as it holds well below the 155.30-155.20 horizontal support breakpoint. On the downside, acceptance below 153.00 would be seen as a fresh trigger for bearish traders and pave the way for deeper losses as spot prices search for a more durable floor.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
The People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead on Thursday at 6.7766 compared to the previous day's fix of 6.7769 and 6.7074 Reuters estimate.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
- Oil supply risks could drive prices amid rising US-Iran tensions.
- US President Trump expects the conflict and high gasoline prices to persist past November.
- Houthi strikes on Saudi energy facilities have temporarily suspended regional operations.
West Texas Intermediate (WTI) oil price depreciates after three days of gains, trading around $93.90 during Asian hours on Thursday. However, oil prices may soon regain ground as an intensifying conflict between the United States and Iran raises serious concerns over potential disruptions to energy supplies from the Middle East. Signaling that a resolution is far off.
Iran stated that it is ready for a more intense conflict, vowing to resist the US naval blockade and warning that it will step up attacks if American forces continue their strikes on Iranian territory.
Meanwhile, US President Donald Trump predicted that the conflict will likely persist past the November midterm elections, noting that significant relief in gasoline prices is unlikely before then and signaling limited prospects for near-term de-escalation.
Hostilities have rapidly escalated over the past week following roughly a month of relative calm, with both nations stepping up attacks. The geopolitical crisis further broadened after Iran-backed Houthi militants launched strikes on several energy facilities in Saudi Arabia, which prompted the temporary suspension of some operations in the region.
Oil bid as conflict-driven supply risks keep market tight
According to strategists at TD Securities, crude prices continue to push higher as geopolitical tensions show little sign of easing, with "crude rallies with seemingly no end to conflict in sight." They argue that "another round of escalation and an apparent preference for limited attacks and economic squeeze as opposed to deal-making leaves the energy market on a continued tightening trajectory," reinforcing the view that ongoing conflict dynamics are keeping supply risks elevated and the balance of risks for Oil skewed to the upside.
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.
A Reuters poll showed the Bank of Japan (BoJ) will hike interest rates to 1.25% at its September policy meeting and then to 1.75% in the second quarter (Q2) of 2027, earlier than previously expected, amid persistent concerns over broadening price pressures and Japanese Yen (JPY) weakness.
82% of economists said the joint US-Japan Yen-buying intervention to stem the JPY's slide to 40-year lows and remarks by Treasury Secretary Scott Bessent on BoJ policy had "significantly" or "somewhat" lowered political barriers for rate hikes.
September 1-8 survey showed all but two of 68 economists expected the BoJ to raise rates on September 18, up from 57% in a previous poll. More than one-third, 24 of 66 economists, anticipated the Japanese central bank would follow with another hike to 1.50% in either October or December, roughly double the share in August.
Beyond this year, 89% of analysts, 57 of 64, see the policy rate reaching at least 1.50% by the end of March next year, up from 65% last month. Around 62% saw the interest rate reaching at least 1.75% by the end of Q2 2027, three months earlier than predicted in August's poll.
Market reaction
At the time of writing, the USD/JPY pair is up 0.05% on the day at 153.60.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
- EUR/USD flatlines near 1.1635 in Thursday’s early Asian session.
- ECB is widely expected to hike interest rates at its September policy meeting on Thursday.
- The US August PPI inflation data will take center stage later on Thursday.
The EUR/USD pair holds steady around 1.1635 during the early Asian trading hours on Thursday. Traders prefer to wait on the sidelines ahead of the European Central Bank (ECB) policy meeting and the release of the US August Producer Price Index (PPI) later in the day.
The ECB is likely to raise interest rates on Thursday for the second time this year, driven by surging energy prices due to the ongoing US-Iran conflict. Traders have fully priced in a 25 basis points (bps) move to 2.5% as the latest data shows Eurozone inflation rose back above 3% in August.
"A September hike looks all but locked in," said Alessia Berardi, head of global macroeconomics at the Amundi Investment Institute. "Inflation remains elevated and should stay sticky over the next few months before easing toward the second half of next year,” Berardi added.
Traders will closely monitor the US PPI inflation data on Thursday for more clues about the US interest rate path. The headline PPI is expected to show a rise of 5.3% YoY in August, versus 4.7% prior. Meanwhile, the core PPI is projected to show an increase of 4.6% in August, compared to 4.2% in July. Any signs of hotter inflation in the US could boost the US Dollar (USD) and create a headwind for the major pair in the near term.
Euro steadies as ECB expectations firm on higher oil
Strategists at Scotiabank note that the Euro is treading water in early North American trade, with the EUR “entering Wednesday’s NA session unchanged vs. the USD following an overnight push to a fresh one week high.” They argue that “fundamentals remain supportive as ECB rate expectations firm in response to the latest rally in oil prices, reflecting the ECB’s greater sensitivity to energy price risks in the current environment.”
Looking ahead to this week’s policy decision, Scotiabank highlights that “a 25bpt rate hike is fully expected at Thursday’s meeting, and another 25bpts has been priced in for December.” The bank’s strategists “anticipate a hawkish hike tomorrow, as President Lagarde unveils the latest forecast and signals ongoing concern about upside risk,” reinforcing the market’s conviction in a continued tightening bias.
Technical Analysis: EUR/USD keeps a mildly bullish vibe in the near term
In the daily chart, EUR/USD holds a mildly bullish near-term bias as price hovers just above the Bollinger middle band, effectively the 20-day simple moving average (SMA), while also remaining comfortably over the 100-day SMA near 1.1560. This configuration suggests that dips are being supported within the recent consolidation envelope, with the Relative Strength Index (14) around 58 hinting at steady, though not extreme, upside momentum within the prevailing range.
On the topside, immediate resistance emerges at the Bollinger upper band around 1.1700, where prior attempts have tended to stall, and a clear break above this ceiling would open the way for a more decisive extension of the recovery. On the downside, initial support is seen at the Bollinger middle band near 1.1625, followed by the 100-day SMA around 1.1560 and the lower Bollinger band close to 1.1555, a clustered zone that should act as a key floor while the broader constructive tone persists.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
- Gold price rebounds to around $4,400 in Thursday’s early Asian session.
- Markets are currently pricing in around a 60% chance of an interest rate hike at next week’s Fed meeting.
- Traders await the US August PPI data on Thursday ahead of the CPI inflation report.
Gold price (XAU/USD) recovers to near $4,400, snapping the three-day losing streak during the early Asian session on Thursday. The precious metal gains ground amid a weaker US Dollar (USD). Traders will closely monitor the key US inflation data later this week, which could provide fresh clues on the Federal Reserve’s (Fed) next interest rate decision.
Reuters reported on Wednesday that Iran said it had attacked 10 ships near the Strait of Hormuz after the US sank five Iranian oil tankers, in the biggest wave of attacks on shipping by both sides since the start of the six-month-old war.
Renewed tensions in the Middle East and rising oil prices have raised inflation concerns and strengthened the case for the US central bank to hike rates at its policy meeting next week. Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.
Traders brace for the US Producer Price Index (PPI) due on Thursday and Consumer Price Index (CPI) inflation data on Friday. These reports could offer some hints on whether the Fed will hike interest rates to contain price pressures.
The market is pricing in about a 60% chance of an interest rate hike at the central bank’s policy meeting next week, according to the CME FedWatch Tool.
Gold stays data sensitive as US inflation looms large
According to TD Securities, “a stronger jobs report initially weighed on gold,” but subsequent “less hawkish Fedspeak and currency interventions then cooled the narrative,” underlining that the market now has “an elevated sensitivity to incoming data and headlines.” The bank argues that “inflation data is the next big catalyst,” warning that “an upside surprise would embolden Fed pricing and weigh on the yellow metal,” whereas “less worrisome inflation could ultimately be the first catalyst to see the next wave of discretionary positioning start to enter the market.”
Technical Analysis: Gold remains bullish above the 100-day SMA
In the daily chart, XAU/USD holds above the 100-day moving average (MA), keeping a constructive near-term bias while price consolidates between the Bollinger Bands’ lower band and the middle band resistance. The Relative Strength Index (14) at 50.65 is neutral, suggesting momentum has cooled after recent gains but not yet reversed decisively.
On the topside, initial resistance is located at the Bollinger middle band around $4,465, with a break higher exposing the upper band near $4,675 as the next hurdle. On the downside, immediate protection emerges from the 100-day MA at $4,345, ahead of stronger structural support at the Bollinger lower band around $4,255, where buyers would be expected to reappear on deeper pullbacks.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
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