Forex News

• EUR/USD trades flat on Friday but stays on track for modest weekly gains.
• Softer US and Eurozone inflation data have reduced expectations of near-term rate hikes.
• Markets still expect further tightening from both the ECB and the Fed later this year.

EUR/USD trades flat on Friday as traders reassess the inflationary impact of surging Oil prices amid escalating tensions in the Middle East, which have disrupted energy supplies through the Strait of Hormuz. At the time of writing, the pair trades around 1.1438 and is on track to end the week with modest gains.

Oil prices have surged around 12% this week, reinforcing expectations that major central banks may need to keep monetary policy tighter for longer to contain inflation. However, softer-than-expected June inflation data from both the United States and the Eurozone have reduced expectations of a near-term interest rate hike.

The European Central Bank (ECB) is widely expected to leave interest rates unchanged at 2.25% at next week's policy meeting, following a 25-basis-point (bps) rate hike in June.

Even so, another ECB rate hike later this year remains possible as inflation risks stay tilted to the upside, with traders fully pricing in a September increase.

In the United States, traders have scaled back expectations of a near-term Federal Reserve (Fed) rate hike, but markets still price in roughly a 75% chance of an increase by December, according to the CME FedWatch Tool.

Fed officials continue to stress the need to bring inflation sustainably back to the 2% target while noting that the labor market appears to have stabilized. This suggests that the central bank could raise interest rates later this year if inflation proves more persistent.

As a result, the US Dollar has regained some ground after falling earlier this week, with hawkish Fed expectations and geopolitical tensions lending support. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades flat around 100.76 after hitting a more than three-week low of 100.35 on Wednesday.

Data released on Friday showed the preliminary University of Michigan Consumer Sentiment Index rose to 54.4 in July from 49.5 in June, beating the market forecast of 51. One-year Consumer Inflation Expectations from the University of Michigan eased to 4.2% from 4.6%, while the five-year measure held unchanged at 3.3%.

• WTI jumps above $80 as Iran retaliation risks intensify.
• UoM sentiment improves, while inflation expectations ease modestly.
• Burnham transition and UK data shape Sterling’s next move.

The Pound Sterling retreats during the North American session, down 0.22% against the Greenback, as geopolitical tensions remained high, triggering a jump in Oil prices and heightening fears of a reacceleration of inflation. The GBP/USD trades at 1.3449 after peaking near 1.3480.

GBP/USD eases as Middle East tensions lift Dollar demand

Hostilities in the Middle East continued with the US attacking Iranian infrastructure, according to Iran’s army spokesperson, who warned that attacks on Oil facilities could trigger retaliation, saying that “either all countries in the region can export oil or no one can.” As tensions rose, Oil prices jumped, with WTI, the US crude Oil benchmark, gaining over 1.50% to $80.78 per barrel.

US economic data revealed that Consumer Sentiment improved due to the dip in gasoline prices at the pump, according to the University of Michigan (UoM): The survey revealed that the index rose from 50.7 to 54 in July. Meanwhile, inflation expectations for one year dipped from 4.6% in June to 4.2%, and for five years, were steady at 3.3%.

Meanwhile, expectations that the Federal Reserve (Fed) would tighten monetary policy had tempered, following US inflation data on the consumer and producer side. Both readings showed a modest cooldown, but Iran’s war escalation has kept WTI up 13% so far this month.

Money markets had priced in a nearly 61% chance of a Fed rate hike at the October 28 meeting, according to Prime Terminal data. For the July meeting, the central bank is expected to hold rates unchanged, with odds standing at 76%.

In the UK, Andy Burnham is set to become the new Prime Minister next week. Rumours that he would pick Shabana Mahmood as the Chancellor of the Exchequer were cheered by investors, as the Pound holds onto weekly gains of 0.4%.

Next week, US & UK data

The UK economic schedule will feature the coronation of PM Andy Burnham, the release of employment and inflation data, along with Retail Sales. Across the pond, the US economic docket will feature jobs data and S&P Global Flash PMIs, as Federal Reserve officials entered their blackout period ahead of the July 29 policy meeting.

GBP/USD Price Forecast: Technical outlook

In the daily chart, GBP/USD trades at 1.3451, with a mildly bullish near‑term bias as spot holds above the latest reading of the simple moving average triple at 1.3381. The pair is advancing within the broader structure, but remains capped by a descending resistance trend line coming in around 1.3487, while the former upward support trend line has turned into an additional barrier near 1.3498. A constructive tone is supported by the Relative Strength Index (14) hovering around 56.9, hinting at steady buying interest rather than overbought conditions.

On the topside, initial resistance is located at the downward trend‑line break price at 1.3487, followed by the overhead former support trend line near 1.3498, where a daily close above would open the door to a more decisive continuation of the recovery. On the downside, immediate support is seen at the 1.3451 area, with stronger underlying demand aligning with the simple moving average triple around 1.3381; a slide back through this latter zone would suggest the bullish bias is fading and expose the pair to deeper corrective pressure.

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

• WTI Oil prices rise sharply as fresh US strikes on Iran fuel fears of prolonged supply disruptions.
• Threats to close the Strait of Hormuz and the Bab el-Mandeb Strait increase concerns over global energy supplies.
• Commerzbank analysts say a blockade of these strategic shipping routes could drive Oil prices even higher.

West Texas Intermediate (WTI) trades around $81.10 at the time of writing on Friday, up 2.76% on the day, and is heading for a weekly gain of more than 13% as geopolitical tensions in the Middle East continue to escalate.

The conflict intensified after the United States (US) launched another wave of strikes against Iranian military facilities. According to the US Central Command (CENTCOM), the operations are intended to further degrade Iran's military capabilities, while US forces continue their operations around the Strait of Hormuz.

In response, the Islamic Revolutionary Guard Corps (IRGC) stated that no Oil or Gas exports will pass through the Strait of Hormuz as long as US strikes continue. The IRGC also warned of stronger retaliation against the United States and countries hosting US military bases. Earlier in the day, Iran also threatened to close the Red Sea, while Qatar said it intercepted a missile attack.

These developments have reinforced concerns over global energy flows. International Energy Agency (IEA) Executive Director Fatih Birol warned that if Oil shipments through the Strait of Hormuz do not resume soon, global energy security could become a major concern.

Commodity analysts at Commerzbank also highlighted that geopolitical risks continue to support the Oil market. The bank said that a potential blockade of the Bab el-Mandeb Strait, another strategic shipping route for regional exports, could push Oil prices even higher. Commerzbank added that Chinese Crude Oil imports could also increase in the coming weeks as cargoes that successfully transited the Strait of Hormuz arrive at Chinese ports.

• AUD/USD recovers near 0.6980 after an initial Friday decline as the US Dollar weakens following mixed US economic data.
• US Housing Starts and Consumer Sentiment beat expectations, while Building Permits and Industrial Production disappointed.
• Fed’s Hammack warned that inflation remains broad-based and persistently high, but her remarks failed to provide lasting support to the Greenback.

AUD/USD trades higher near 0.6980 on Friday, recovering from an initial decline as the US Dollar (USD) loses ground following a mixed batch of United States (US) economic data. Stronger Housing Starts and Consumer Sentiment were offset by weaker Building Permits and subdued Industrial Production prints.

US Housing Starts increased to an annualized 1.43 million in June, beating expectations of 1.31 million and rising from 1.20 million previously. However, Building Permits declined to 1.37 million MoM, below the 1.40 million forecast and the previous 1.41 million. Building Permits are down 3.0% on an annual basis.

US Industrial Production rose only 0.1% MoM, missing expectations for a 0.2% increase and matching the previous reading. Meanwhile, the preliminary University of Michigan Consumer Sentiment Index improved to 54.4 in July from 49.5, exceeding the market forecast of 51.0. The Consumer Expectations Index also climbed to 54.0 from 50.7.

Federal Reserve (Fed) Bank of Cleveland President Beth Hammack maintained a cautious stance, saying inflation remains broad-based and persistently elevated. She noted that businesses are facing pressures from energy, insurance, supply-chain disruptions and the expansion of artificial intelligence (AI) data centers.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.6982. The pair is sandwiched between the 20-period Simple Moving Average (SMA) at 0.6988, acting as immediate overhead resistance, and the 100-period SMA at 0.6934. This provides broader trend support, leaving the near-term bias neutral. The latest 14-period Relative Strength Index (RSI) around 52 suggests mildly constructive momentum but not enough to offset the nearby resistance cluster just above the market.

On the topside, initial resistance is seen at the horizontal barrier at 0.6986, followed closely by the 20-period SMA at 0.6988, with a more significant cap emerging at 0.7001. On the downside, nearby support is clustered at 0.6977 and 0.6974, while deeper structural support aligns with the 100-period SMA at 0.6934, which would come into view if sellers regain control.

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

Scotiabank’s Shaun Osborne and Eric Theoret notes GBP/USD is lower on the day and well off its one-year high reached on optimism that incoming PM Burnham will pursue market-friendly policies. Despite late-week slippage, that view remains. The new government is expected to allow new North Sea drilling and bring Thames Water back under public control, while trend oscillators stay bullish and analysts look for firm support near 1.34.

Political shift and technical support at 1.34

"Sterling is down on the day and well off the 1-year peak seen earlier this week around optimism that Burnham—who takes over as PM next week—will follow market friendly policies. Despite the pound’s late week slippage, that outlook appears to remain intact."

"The Burnham government looks poised to strike out in a different direction than Starmer’s. Reports suggest that he will permit new drilling permits for oil and gas in the North Sea (Labour under Starmer veered away from boosting North Sea energy) and will announce plans to take the troubled Thames Water utility back under public control (Starmer preferred a private sector solution). President Trump will like the “drill, baby drill” look to the new government, at least."

"Neutral/bullish—Solid gains in the GBP Wednesday have partially reversed over the balance of the week. Trend oscillators lean bullish on the intraday, daily and weekly DMIs which should help sustain the broader trend higher going forward."

"We look for firm support on dips to the 1.34 zone."

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

• USD/JPY holds near four-decade highs as the Japanese Yen remains under pressure.
• Higher Oil prices and a wide US-Japan rate gap differential continue to weigh on the Yen.
• Hawkish Fed expectations help the US Dollar regain momentum.

USD/JPY trades flat on Friday, holding near four-decade highs as the Japanese Yen struggles to attract buyers amid persistent headwinds, including higher Oil prices, Japan’s wide interest-rate gap with other major economies and a resilient US Dollar (USD).

The Yen found brief support after Japanese Prime Minister Sanae Takaichi echoed Finance Minister Satsuki Katayama's call to encourage greater investment in Japanese financial assets by households and pension funds.

Analysts at BBH noted that Japan is one of the world’s largest net creditors, with net foreign assets totaling roughly $3.6 trillion in the first quarter, equivalent to about 83% of Gross Domestic Product (GDP). As a result, even modest portfolio repatriation could generate meaningful demand for the Japanese Yen and Japanese government bonds (JGBs).

Meanwhile, attention stays on escalating tensions in the Middle East, which have pushed Oil prices higher and reignited inflation concerns. Rising energy costs also weigh on the Yen by increasing Japan's energy import bill.

Higher Oil prices keep hawkish Fed expectations intact, helping the US Dollar regain its footing after softer-than-expected US inflation data released earlier this week prompted traders to scale back bets on a near-term interest rate hike. According to the CME FedWatch Tool, markets currently price in around a 73% chance that the Fed will raise interest rates by December.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades flat around 100.75 after hitting a more than three-week low of 100.35 on Wednesday.

Cleveland Fed President Beth Hammack said on Friday, “Inflation is too high,” while noting that the labour market is around her estimate of maximum employment. Hammack added that the Fed’s nowcast shows core Personal Consumption Expenditures (PCE) inflation at 3.3% after incorporating this week’s data.

Royal Bank of Canada (RBC) economists Nathan Janzen and Abbey Xu expect Canada’s June Consumer Price Index to show headline inflation easing to 2.8% year-over-year from 3.2% in May, mainly on lower energy prices. Core measures excluding food and energy are seen holding near 1.6%, with the Bank of Canada likely staying on hold through 2026 as inflation gradually returns toward its 2% target.

Headline softens while core stays steady

"We expect headline inflation eased to 2.8% year-over-year, down from 3.2% in May."

"Outside of more volatile components, inflation pressures are expected to remain broadly stable."

"We expect inflation excluding food and energy to hold close to 1.6% y/y, little changed from May, while the BoC's preferred core inflation measures are likely to remain consistent with inflation running near the 2% target."

"Recent inflation reports have continued to point to a divergence between headline and underlying inflation with headline readings boosted by elevated energy prices, while broader price pressures have stayed comparatively contained."

"This is in line with both the BoC's latest projections and our base case forecasts, which assume inflation will gradually return toward the 2% target over the forecast horizon while the central bank remains on hold through 2026."

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

Scotiabank’s Shaun Osborne and Eric Theoret note the US Dollar (USD) is broadly firmer as risk aversion dominates, with equities weaker and Oil higher. The US Dollar Index' (DXY) broader drift from late June highs has stalled around 100.5 support, but late-week price action still threatens a bearish weekly close. They argue OIS pricing for a year-end Fed hike remains too rich, implying USD downside as swaps reprice.

Risk-off flows and Fed repricing

"Overall movement across asset classes this morning reflects a classic “risk off” swing in trading. The equity screens are a sea of red on renewed concerns about the tech/chip cycle and escalating US/Iran attacks. Bonds are mostly firmer across core markets, with Treasurys outperforming modestly."

"The broader drift in the DXY from the late June high has extended this week around the weak inflation data but DXY support around the 100.5 point has effectively held. Late-week trading has been a bit more positive for the USD, but the DXY still risks closing the week on a bearish technical note—which will point to more losses ahead—unless it can rally significantly over the balance of the session."

"Generally, we continue to think that OIS pricing for a Fed hike by year-end is too rich. The USD will ease as the swaps curve reprices."

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

• The Swiss Franc remains supported by rising geopolitical tensions in the Middle East despite stronger US consumer confidence.
• The University of Michigan Consumer Sentiment Index improved more than expected in July, while one-year inflation expectations eased.
• Markets continue to price in a cautious Federal Reserve outlook following softer US inflation data earlier this week.

USD/CHF trades around 0.8070 at the time of writing on Friday, down 0.22% on the day. The pair remains under pressure as safe-haven demand for the Swiss Franc (CHF) offsets modest support for the US Dollar (USD) following stronger-than-expected US consumer sentiment data.

The preliminary University of Michigan Consumer Sentiment Index rose to 54.4 in July from 49.5 in June, exceeding market expectations. The Current Conditions Index climbed to 54.9 from 47.7, while the Expectations Index improved to 54 from 50.7, pointing to improving confidence among US households. Inflation expectations were mixed, with the one-year outlook easing to 4.2% from 4.6%, while the five-year forecast remained unchanged at 3.3%, reinforcing signs that price pressure is gradually moderating. Following the release, the US Dollar Index (DXY) remained modestly supported around 100.80 after Thursday's rebound.

However, the Greenback continues to face headwinds after this week's softer-than-expected US Consumer Price Index (CPI) and an unexpected decline in the Producer Price Index (PPI). These data have led markets to rule out a near-term interest rate hike by the Federal Reserve (Fed), although expectations remain divided over the possibility of a move in September.

Meanwhile, geopolitical tensions continue to support the Swiss Franc. Reuters reported on Thursday that Iran has instructed Yemen's Houthi rebels to prepare to close the strategic Red Sea Oil route if the United States (US) attacks Iranian infrastructure. The Tasnim news agency also reported explosions in Bandar Abbas, Qeshm and Ahvaz, while additional blasts were heard in Kuwait and as far away as Basra. At the same time, Iran's Islamic Revolutionary Guard Corps warned of further retaliation against the United States and countries hosting US military bases, maintaining demand for traditional safe-haven assets.

In Switzerland, the Swiss National Bank (SNB) kept its policy rate unchanged at 0% during its June meeting while acknowledging that geopolitical tensions had increased near-term inflation risks. Nevertheless, OCBC analysts believe the Swiss Franc's upside remains constrained, arguing that the SNB's willingness to intervene in the foreign exchange market continues to limit the currency's safe-haven appeal. According to the bank, Switzerland's low interest rate environment should continue to weigh on the Swiss Franc despite the worsening geopolitical backdrop.

Commerzbank’s commodity team highlights renewed geopolitical risks for Oil as Iran again threatens to block the Strait of Bab al-Mandab, a key route for Saudi exports rerouted from the Strait of Hormuz. Brent has already gained nearly 12% since last Friday, and the bank warns that a blockade would likely push Oil prices higher still.

Geopolitics keep Brent supported

"The recent exchange of military strikes over the past few days has caused oil and gas prices, in particular, to rise significantly."

"Should a blockade of the Strait of Bab al-Mandab occur in the wake of further escalation, the price of oil in particular is likely to rise further."

"Crude oil processing could rise again in July following the lifting of the export ban on oil products."

"Furthermore, crude oil imports are also likely to increase again this month as the oil tankers that were able to pass through the Strait of Hormuz in June reach Chinese ports."

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