Forex News

• The Euro attracts modest buying as the US Dollar struggles for fresh momentum.
• Hawkish Fed expectations and elevated Treasury yields keep the Greenback supported.
• Eurozone inflation and US Nonfarm Payrolls data are the key events this week.

EUR/USD holds modest gains on Monday during American trading hours as the US Dollar (USD) struggles to build on Friday’s strength, which followed hawkish remarks from Federal Reserve (Fed) Chair Kevin Warsh at the Jackson Hole Symposium. At the time of writing, the pair trades around 1.1595, up roughly 0.11% on the day.

The US Dollar rose about 0.55% on Friday and reached its highest level in more than a week after Warsh signalled that the Fed may need to tighten monetary policy further. He stressed that the central bank’s 2% inflation target is “firm” and said policymakers still “have work to do” unless underlying inflation moves toward the target at a sufficient pace.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.55 on Monday after reaching 99.72, its highest level since August 14. US Treasury yields also surged following Warsh’s speech, with the benchmark 10-year yield trading near 4.75% at the time of writing, its highest level since January 2025.

According to the CME FedWatch tool, markets are pricing in around a 61% chance that the Fed will raise interest rates in September, up from 38% before Warsh’s remarks.

On the Euro side, softer-than-expected preliminary German inflation data did little to alter expectations that the European Central Bank (ECB) will raise interest rates next month. Strategists at Brown Brothers Harriman note that Tuesday Eurozone inflation data should underscore lingering price pressures. In their view, “above target inflation and a firmer growth outlook give the ECB scope to normalize the policy rate towards the upper end of its estimated 1.75% to 3.00% neutral range.”

Reflecting this backdrop, BBH highlights that “the swaps curve has virtually fully priced in a 25bps ECB rate hike to 2.50% on September 10 and a total of 60bps of tightening over the next twelve months.”

At the same time, rising energy prices due to tensions in the Middle East are adding to concerns that inflation could stay above the Fed’s and ECB’s 2% targets for longer. This supports expectations of tighter monetary policy on both sides of the Atlantic.

However, the US Dollar is likely to retain the upper hand as hawkish Fed expectations, elevated Treasury yields and geopolitical tensions keep the Greenback supported in the near term. Attention now turns to this week’s US economic data, particularly Friday’s Nonfarm Payrolls (NFP) report, which could shape expectations for the September decision.

National Bank of Canada's (NBC) Taylor Schleich and Ethan Currie expect the Bank of Canada (BoC) to keep its overnight rate at 2.25% and maintain current balance sheet policy. They argue markets still overprice late-2026 hikes, with risks skewed toward a Canadian Dollar-supportive rally in Government of Canada bonds versus U.S. Treasuries. Escalating U.S. trade policy and retaliatory tariffs are seen tilting risks toward a more cautious, data-dependent stance.

BoC seen on extended hold

"The Bank of Canada is set to leave its overnight target unchanged at 2.25%, a decision widely expected by forecasters and OIS markets. This would mark the seventh consecutive hold. We don't expect any changes to balance sheet policy."

"Despite an escalating Canada-U.S. trade war, the impact on rate expectations has been relatively modest and implied odds of a late-2026 hike still hover near 65%. Investors appear to view a resolution of the conflict as likely because near-term hikes are incompatible with a prolonged trade war. We too are cautiously optimistic that cooler heads can prevail, but we don’t see the implied rate trajectory as adequately capturing the balance of risks."

"Even so, the repricing was modest and, in our view, markets still assign too much weight to near-term hikes. That leaves risks tilted toward a post-decision rate rally and GoC outperformance vs. U.S. Treasuries."

"To be clear, we don’t expect a cut. That one last March came when the policy rate was higher (3%) and the Bank was already in an established easing cycle. But citing monetary policy limitations and emphasizing data dependence could be a strategy employed this week."

"Ultimately, what followed that March 2025 meeting was a six-month pause before a cut was delivered in September. If the trade war intensifies further and the economy again stalls, we may be in for a similar response and timeline..."

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

Wee Khoon Chong at BNY reports strong Japanese macro data and resilient housing and commerce indicators, supporting the narrative that Japan has exited deflation and Bank of Japan (BoJ) normalization remains in play. US Treasury Secretary Scott Bessent describes recent Japanese Yen (JPY) moves as well‑contained, reducing expectations of imminent joint intervention while markets watch the September BoJ meeting.

Macro resilience and policy normalization

"Japan’s industrial production was flat m/m in July (+0.1% m/m on a seasonally adjusted basis). Shipments rose 2.2% m/m, while inventories increased by 0.5% m/m and the inventory ratio fell 1.7% m/m."

"Strong Japanese macro data keep BoJ normalization alive."

"U.S. Treasury Secretary Scott Bessent has said recent yen moves are “pretty well-contained” and not disorderly, reducing immediate expectations of another joint U.S.-Japanese intervention. He noted that the yen’s slide below 160 per dollar has drawn market attention, but framed it as manageable."

"Bessent said he expects BoJ Governor Kazuo Ueda to “do the right thing” on policy, while declining to tell Japan what to do on rates. He suggested Japan has already overcome deflation and that the era of Abenomics is ending, with the country shifting toward “Takaichi-nomics.”"

"His remarks come ahead of the BoJ’s September 17-18 meeting, where markets are watching for a possible rate hike. Bessent also plans to meet Ueda at the G20 gathering in Asheville."

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

• Silver gains 0.40% on Monday after falling sharply late last week.
• Expectations of a September rate hike remain a major headwind for the non-yielding metal.
• Renewed tensions between the United States and Iran support safe-haven demand but also fuel inflation risks.

Silver (XAG/USD) rebounds on Monday and trades around $66.70 at the time of writing, up 0.40% on the day. The main obstacle to a stronger recovery in Silver remains the shift in expectations surrounding the Federal Reserve’s (Fed) monetary policy. Fed Chair Kevin Warsh struck a more hawkish tone on Friday at the Jackson Hole Symposium, stressing that policymakers still have “work to do” if underlying inflationary pressures fail to ease sufficiently.

These comments prompted investors to significantly raise expectations for monetary tightening. According to the CME FedWatch tool, markets now see around a 61% chance of a 25-basis-point interest rate hike at the September meeting, compared with roughly 35% before Warsh’s speech. The prospect of higher interest rates for longer could weigh on Silver, which offers no yield.

The white metal nevertheless benefits from a modest pullback in the US Dollar (USD), helping support Monday’s rebound. After strengthening on Friday as markets reassessed the Fed’s rate outlook, the Greenback loses some momentum, providing some relief to precious metals denominated in US Dollars.

Geopolitical tensions in the Middle East also provide support to Silver by boosting demand for safe-haven assets. The United States (US) and Iran exchange fresh strikes after more than a month of a fragile truce. US forces attacked Iranian facilities on Larak Island on Sunday, while Tehran subsequently said it had targeted US military facilities in Jordan and the United Arab Emirates (UAE).

The escalation, however, has a mixed impact on Silver. Higher Oil prices amid mounting tensions in the Middle East increase inflation risks and could reinforce the Fed’s case for maintaining a restrictive monetary policy stance, which is a negative factor for non-yielding metals.

Attention now turns to upcoming US economic data, including the Institute for Supply Management (ISM) surveys and Friday’s August Nonfarm Payrolls (NFP) report. Persistent signs of weakness in the labor market could temper expectations for higher interest rates and support Silver, while strong data or renewed inflationary pressures could reinforce the case for monetary tightening in September.

US data in focus as Fed shifts gaze from jobs to inflation

Analysts at Rabobank highlight a busy US data slate, starting with the July JOLTS report. They note that “normally not a market mover, it could nevertheless shed more light on the recent slowdown in job growth,” offering additional context ahead of the main labour-market release later in the week.

Turning to activity indicators, Rabobank points out that “only a small fall in the US ISM manufacturing survey for August (as per the consensus) could be interpreted by the market as a sign that US, as well as global, manufacturing activity is recovering despite ongoing concerns over tensions in the Middle East.”

The bank underscores that “the US nonfarm payrolls and unemployment figures are the highlight of the day,” with “the street forecasts net job creation of 55,000 in August, following an unexpected dip in July.” However, they caution that “although the jobs report is always a market mover, Fed Chair Warsh’s comments at Jackson Hole suggest the Fed’s focus is now on the near-term path for inflation rather than the labour market,” potentially tempering the policy implications of any surprise in the headline numbers.

Rabobank strategists expect the Bank of Canada (BoC) to keep its overnight rate at 2.25% at the September 2 meeting and through 2027, despite markets pricing in around 17bp of tightening by year-end. They highlight strong Q2 Gross Domestic Product (GDP) growth supported by exports, escalating US–Canada trade tensions, elevated headline Consumer Price Index (CPI) inflation amid energy and trade-related risks, and argues that monetary policy is already at its terminal rate.

Rates steady despite inflation risks

"We expect the Bank of Canada to hold the overnight rate at 2.25% on September 2, with no hikes or cuts forecast through 2027. Meanwhile, market pricing implies investors are positioned for 17bp worth of hikes by year end."

"Indeed, we believe that if tariffs stay roughly where they currently are, this could drag on Canadian GDP by 0.3-0.4ppt through the end of next year."

"While the Bank has emphasized its commitment to preventing inflation from metastasizing to the rest of the economy and creating prolonged price pressures, underlying economic trends are still subdued by the ongoing productivity crisis. We believe that, once again, the Bank has its hands tied."

"As geopolitical troubles remain front and centre, with new and higher tariffs from the US and Canada being enforced against each other and the Strait of Hormuz still closed to traffic, we are maintaining our stance that the Bank of Canada is at its terminal rate of 2.25% and do not forecast hikes or cuts through year end."

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

• Gold finds some stability after falling to its lowest level since August 19.
• Higher-for-longer interest-rate expectations remain the main hurdle for the non-yielding metal.
• XAU/USD needs to reclaim the 200-day SMA to ease the latest bearish pressure.

Gold (XAU/USD) trades flat on Monday after opening the week lower and briefly falling below $4,400, its lowest level since August 19, during Asian trading hours. The metal lacks strong upside momentum as hawkish Federal Reserve (Fed) expectations keep buyers cautious. At the time of writing, XAU/USD trades around $4,436 after reaching a more than three-month high of $4,697 last week.

The Yellow metal fell about 3.20% on Friday following Fed Chair Kevin Warsh’s speech at the Jackson Hole Symposium. Markets viewed Warsh’s remarks as hawkish, reviving expectations that the central bank could raise interest rates as soon as September and pushing the US Dollar (USD) and short-term US Treasury yields sharply higher.

Analysts at Rabobank point out that Warsh made clear that he is “open to further rate hikes unless underlying inflation began to improve convincingly,” underscoring that “we must be convinced that underlying inflation is moving toward our target clearly and at a sufficient pace. Otherwise, we still have work to do.”

According to the CME FedWatch tool, markets are now pricing in around a 61% chance of a September rate hike, up from roughly 38% before Warsh’s speech. A higher interest-rate environment reduces the attractiveness of Gold because the metal offers no yield.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.58, easing from 99.72, its highest level since August 14. The modest pullback in the Greenback lends some support to Gold, although US Treasury yields remain elevated near recent highs, with the benchmark 10-year yield climbing to around 4.75%, its highest level since January 2025.

Gold is still on track to gain around 10% in August, largely driven by the US Treasury’s announcement that it would double liquidity-support buybacks of longer-dated government bonds.

Meanwhile, higher Oil prices continue to add upside risks to inflation as tensions in the Middle East intensify. Iran said it attacked US bases in Jordan and US military targets at Al Minhad Air Base in the United Arab Emirates after US forces bombed two rocket launchers on Iran’s Larak Island. US President Donald Trump told Fox News that Washington would respond to Iran’s attack on US forces.

West Texas Intermediate (WTI) Oil jumps around 3% on Monday, trading near $85.60 per barrel at the time of writing.

In the near term, expectations that the Fed's interest rates will stay higher for longer remain a key hurdle for Gold’s recovery, even as central-bank buying and geopolitical tensions provide underlying support. Upcoming US economic data will be closely watched for fresh clues about the Fed’s monetary policy path, with the ISM Purchasing Managers Index (PMI) surveys and Nonfarm Payrolls (NFP) report among the key risk events this week.

Technical analysis: Momentum weakens after rejection near $4,700

XAU/USD maintains a slightly bearish near-term bias following the latest leg lower, with the metal falling back below the 200-day Simple Moving Average (SMA) at $4,529. The Relative Strength Index (RSI) on the daily chart has eased from overbought territory to around 55, pointing to fading bullish momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) has slipped marginally below its signal line, adding to signs of weakening upside pressure.

On the downside, initial support is located at the 100-day SMA at $4,370, followed by the 50-day SMA at $4,211. A sustained break below these levels could expose the horizontal floor near $4,000. On the upside, the 200-day SMA at $4,529 acts as immediate resistance, followed by the horizontal barrier at $4,700.

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

• GBP/JPY edges lower as the Japanese Yen strengthens across the board.
• Intervention fears and expectations of a September BoJ rate hike support the Yen.
• The Pound Sterling lacks a fresh catalyst as UK markets close for the Summer Bank Holiday.

GBP/JPY trades on the back foot on Monday as the Japanese Yen (JPY) strengthens against its major peers. The Pound Sterling (GBP), meanwhile, lacks a fresh domestic catalyst as UK markets remain closed for the Summer Bank Holiday. At the time of writing, the cross trades around 216.40, retreating from an intraday high near 216.85.

The Yen attracts buyers after USD/JPY briefly moved above the psychologically important 160.00 mark, a level that has previously prompted Japanese authorities to intervene in the foreign exchange market. Finance Ministry data released on Friday showed that Japan spent a record ¥15.4 trillion, around $96.5 billion, supporting the Yen between July 30 and August 26, after USD/JPY surged to a 40-year high near 164.00.

Meanwhile, hawkish Bank of Japan (BoJ) expectations also lend some support to the Yen. Still, the broader outlook remains fragile as Japan’s expansionary fiscal policies, large government debt and relatively low interest rates continue to pose headwinds for the currency.

OCBC FX strategists note that “a September move would break from the BoJ's pattern in the current tightening cycle, where rate increases have typically come about every six months,” with the last hike delivered in June. They caution that “even so, it will be difficult for the BoJ to out-hawk market expectations,” given how aggressively the rates curve is already positioned. Japan's rates market is “already pricing a roughly 85% chance of a September hike, alongside a faster pace of tightening thereafter,” with current pricing implying “the policy rate rising from 1.00% to 1.75% by July 2027.”

Against that backdrop, OCBC argues that “given the constraints on how quickly and how far the BoJ can raise rates, additional measures may still be needed to counter more persistent JPY depreciation pressures.” In their view, “one option could be policies aimed at encouraging the repatriation of overseas assets,” as “future JPY gains may require policy support that goes beyond the pace and extent of rate increases.”

On the UK side, the Bank of England (BoE) is widely expected to leave interest rates unchanged in the coming months, even as inflation stays above its 2% target. At its latest meeting, most policymakers judged that the tightening in financial conditions since the Middle East war began was providing sufficient protection against inflation risks stemming from higher energy prices.

Looking ahead, the economic calendar is relatively light on both sides this week. Data released earlier on Monday showed that Japanese Retail Trade rose 4% YoY in July, above the 3% forecast, while Large Retailer Sales increased 1.4%, rebounding from a 1% decline previously.

OCBC FX Strategist Sim Moh Siong and Christopher Wong note that Fed Chair Warsh’s Jackson Hole speech eased debasement concerns and supported the Dollar, with Gold lower and the US yield curve flatter. They say structural worries about Fed credibility have diminished, shifting focus back to US cyclical data ahead of the September FOMC, where markets now price modest tightening but OCBC still expects no hike.

Fed stance keeps Dollar supported

"Debasement concerns faded following Fed Chair Warsh's Jackson Hole speech, with the USD strengthening, gold falling and the US yield curve flattening. Despite recent improvements in inflation data, Warsh stressed that inflation remains too high and remains the Fed's primary concern. He reaffirmed the Fed's commitment to achieving its 2% PCE inflation target and emphasised that short-term interest rates remain the Fed's primary policy tool for fulfilling its dual mandate."

"The FX market's recent focus on structural USD headwinds, driven by policy uncertainty surrounding the Treasury's surprise EUR/JPY intervention and expanded buyback announcement, had challenged our modestly bullish USD view. However, Warsh's Jackson Hole speech has reduced concerns that Fed credibility could become a lasting drag on the USD."

"Markets now price around 15bp of tightening for the September FOMC meeting, up from just 8bp before Warsh's speech. While Warsh's remarks suggest a September rate hike is possible if August CPI surprises on the upside, our base case remains that the Fed stays on hold. Nevertheless, a resilient labour market, sticky inflation and the Fed's determination to preserve its inflation-fighting credibility should maintain a hawkish policy bias and keep the USD supported."

"Asian FX may start the week on a softer footing after the USD rebounded following Warsh’s Jackson Hole remarks. While the speech is not a pre-commitment to a Sep hike, it reinforced the Fed’s inflation-fighting credibility and kept further tightening in play if inflation fails to ease meaningfully. A firmer USD can be a headwind for Asian FX, but not sufficient to erase differentiation across the region."

"USD dips may also prove more restrained for now, with USD bears likely needing softer US data to rebuild conviction. Focus turns to incoming US labour and inflation data ahead of the Sept FOMC."

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

BNY’s Wee Khoon Chong notes Oil prices are underpinned by renewed U.S.–Iran tensions near the Strait of Hormuz and President Trump’s claim of a deal granting U.S. majority control over Venezuela’s vast reserves. Chong stresses elevated energy costs, tighter global crude flows and limited detail on legal terms, suggesting uncertainty around implementation and market impact.

Hormuz tensions and Venezuelan reserves

"The U.S. says it has struck Iranian rocket launchers that were preparing to send mines into the Strait of Hormuz, in its first military action against Iran in more than a month. U.S. Central Command said forces are monitoring the area closely and remain ready to protect commerce through the waterway, which carries a large share of global oil and LNG flows."

"Risk sentiment has deteriorated following Fed Chair Kevin Warsh’s hawkish Jackson Hole message, while renewed U.S.-Iran exchanges near the Strait of Hormuz have added to geopolitical risk. Weak Chinese PMI data have provided another growth headwind."

"President Trump has announced that the U.S. has struck a deal with Venezuela to secure majority control of more than 65 billion barrels of oil reserves. He said the agreement would come at “no cost” to U.S. taxpayers and claimed it would strengthen bilateral ties while helping to lower gasoline prices."

"The announcement comes amid elevated energy costs and tighter global crude flows, with prices at U.S. gas pumps around $4.09/gallon and WTI up sharply since the war with Iran began. The statement provided no details on legal terms, timing or implementation, and no official government document was included in the provided context."

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

Rabobank’s Elwin de Groot discusses Fed Chair Kevin Warsh’s Jackson Hole speech and its impact on US rates. He notes that Warsh signalled dissatisfaction with recent inflation and openness to further hikes, lifting near-term rate expectations while lowering longer-term premia. He still expects the FOMC to stay on hold in 2026, but sees renewed upside risks to their forecasts.

Warsh boosts hike expectations, data key

"Fed Chair Kevin Warsh appeared to rebuild some of his credibility as an inflation fighter in his first speech at the annual Jackson Hole Symposium, stressing that the Federal Reserve still has “work to do” to return inflation to its 2% target. The message marked an important shift from the communication strategy he had followed since taking office."

"More importantly, for the first time since becoming Chair, he explicitly expressed dissatisfaction with recent inflation developments and signalled that he was open to further rate hikes unless underlying inflation began to improve convincingly."

"Markets accordingly priced a greater probability of additional rate increases. Yet longer-dated Treasury yields fell, suggesting that investors saw Warsh’s remarks as reducing policy uncertainty and reinforcing the Fed’s commitment to restore price stability. Put differently, the reaction combined a slightly more hawkish near-term policy outlook with lower longer-term inflation and policy-risk premia."

"So Warsh’s prepared remarks seemed designed to lift rate-hike expectations, rebalance the September debate towards the hawks and rebuild his inflation-fighting credibility after July’s “all talk, no action” criticism. Yet this creates a difficult balancing act, as the White House may oppose a hike so close to November’s midterms."

"Even so, Warsh delivered an important signal: the Fed is not relying on tighter financial conditions alone and remains willing to tighten further if underlying inflation stalls. The next round of data – especially the 4 September employment report and 11 September CPI – could therefore prove crucial for the Committee’s swing voters."

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