Forex News

Nordea’s Jan von Gerich expects the European Central Bank to leave policy rates unchanged at the July meeting, describing it as a pause rather than a shift in stance. Lower-than-expected June inflation and volatile Middle East developments reduce urgency for an immediate move. However, Nordea still anticipates a 25bp hike in September and sees further tightening likely thereafter.

Pause, not peace

"The Governing Council meeting concluding on 23 July is expected to leave rates unchanged, though given the renewed escalation of the war in the Middle East, another 25bp hike cannot be fully excluded."

"As no new staff forecasts will be available at this meeting, the focus will be on any signals about the next steps."

"Recent Governing Council comments suggest a hike is not seriously considered at this point, but a clear bias towards further tightening remains."

"Financial markets assign only limited odds of a move next week, while another 25bp hike is priced in with a probability of more than 90% by the September meeting."

"We no longer expect a hike next week, but instead now see the next 25bp hike in September, which is unlikely to be the last move in this cycle, though uncertainty about the outlook remains high, not least due to the situation in the Middle East."

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

TD Securities strategists see asymmetric downside risks for the British Pound (GBP) against the Euro (EUR). They argue that EUR/GBP appears notably undervalued relative to rate differentials, data surprises and equity performance. While markets expect the European Central Bank (ECB) to keep rates on hold in July, hawkish guidance for the rest of 2026 could support the Euro and push EUR/GBP back toward 0.86.

Pair seen rebounding toward 0.86

"The EUR has broadly weakened vs major global currencies except SEK and CHF over the past three months. We find the EUR likely has the biggest dislocation in EUR/GBP now."

"Market participants broadly expect the ECB to keep rates on hold at this meeting. Falling global energy prices after the US and Iran signed the MoU [Memorandum of Understanding] in June reduced the urgency for rate hikes at consecutive meetings."

"FX vol market is not pricing any risk premium for the July ECB meeting as market participants broadly expect Lagarde to maintain the data-dependent forward guidance."

"EUR/USD will likely stay muted on next week's ECB. EUR/GBP should see asymmetric upside risks in case of hawkish guidance."

"EUR/GBP should see asymmetric upside if Lagarde provides hawkish guidance for the rest of 2026 at the ECB press conference. We see room for EUR/GBP to rebound toward 0.86 again as market focus returns to macroeconomic fundamentals."

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

MUFG’s Derek Halpenny highlights that the Japanese Yen (JPY) remains near cyclical lows, but Government Pension Investment Fund (GPIF) and Japan Trusts flows already show a shift back toward JGBs. He argues that formalising the end of Abenomics-style risk-taking marks a turning point, with domestic bond allocations rising and potential further JGB buying that could ultimately support the Yen as Bank of Japan (BoJ) policy normalises.

GPIF flows point to rising JGB demand

"The yen remains close to cyclical lows and the US data yesterday along with the risk of further crude oil price rises are curtailing the appetite to sell the US dollar following the weak CPI and PPI reports. We would still argue that the lack of price action in the yen should not be viewed as the government’s push to encourage greater investment in domestic assets not being significant. We would still argue that it marks a notable turning point from the Abenomics era that encouraged investments in risker assets to boost returns – for pensions this would help restore confidence in Japan’s pension system and in turn reduce cautionary savings."

"The GPIF domestic bond composition has gone from 23.9% at the end of FY2019 (as of March 2020) to the current 26.9%. Based on the GPIF composition falling ahead of the formal reduction in 2020 from 35% to 25%, we could well see stronger demand for JGBs continuing with the potential of reaching 31% (+6% from 25% benchmark). From this latest total, even holding the value of the fund constant, a move to 31% would imply potentially an additional JPY 12trn worth of JGB buying, but more if the total fund continues to grow."

"Policy will only take you so far though and the BoJ still needs to play its role in encourage greater investments at home. The government this week added a footnote to its Economic and Fiscal Policy Plan underlining the autonomy of the BoJ as laid out in the BoJ Act. The government is now being pro-active in countering the perception of PM Takaichi pushing back on BoJ rate hikes."

"The BoJ now needs to show it is not constrained by the government and hiking in September would be the best way to do that and would go some way to helping turn the yen stronger."

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

• Silver trades around $55.50 on Friday, virtually unchanged on the day, but remains on track for a weekly loss of nearly 7%.
• Rising Middle East tensions are supporting Oil prices and reviving inflation and interest rate concerns.
• Markets continue to expect central banks to keep monetary policy restrictive for longer.

Silver (XAG/USD) trades around $55.50 at the time of writing on Friday, virtually unchanged on the day, but remains on track to post a weekly loss of nearly 7%. Despite an increasingly tense geopolitical backdrop, the white metal remains under pressure as rising interest rate expectations offset demand for safe-haven assets, with investors concerned that higher energy prices could reignite inflationary pressures.

Middle East tensions continue to support Oil prices. Reuters reported that Iran has instructed Yemen's Houthis to stand ready to close the strategic Red Sea Oil shipping route if the United States (US) strikes Iranian energy infrastructure. At the same time, several explosions have been reported across multiple Iranian cities as the confrontation between Washington and Tehran continues to escalate.

These risks to global energy supplies are fueling concerns over another wave of inflation. Against this backdrop, investors believe major central banks could be forced to keep interest rates higher for longer, a scenario that weighs on non-yielding precious metals such as Silver.

In the United States, the latest economic data has reinforced this view. Weekly Initial Jobless Claims came in at 208K, below expectations, while the Philadelphia Federal Reserve (Fed) Manufacturing Index rose to its highest level since November 2021, highlighting the resilience of the US economy.

Several Fed officials have also maintained a cautious stance. Fed of Dallas President Lorie Logan said progress on inflation remains insufficient and that monetary tightening could still be necessary. Meanwhile, Fed Vice Chair Philip Jefferson said he would be open to raising interest rates if inflation fails to continue slowing down.

This combination of geopolitical tensions, rising Oil prices and expectations for a more restrictive monetary policy continues to limit Silver's appeal, even as safe-haven demand remains supported.

OCBC Bank strategists Sim Moh Siong and Christopher Wong highlight that the US Dollar (USD) remains supported by its yield advantage and safe-haven status, with FX moves still fitting the USD smile framework. They expect modest USD appreciation by year-end, but notes near-term upside is likely incremental without fresh catalysts, keeping carry trades attractive as funding choices become more important.

Yield support and safe-haven demand

"The USD remains the highest-yielding safe-haven currency in the G10 complex. Near-term FX price action is likely to continue reflecting the "USD smile" framework, under which the greenback tends to outperform when markets price either stronger US growth and higher rates or a rise in global risk aversion."

"While we continue to expect modest USD appreciation by year-end, near-term upside is likely to remain capped without a fresh catalyst. Such an environment should remain supportive of carry strategies, although performance will depend increasingly on the choice of funding currencies."

"Meanwhile, Fed rhetoric continues to lean hawkish. Dallas Fed President Logan argued that "modestly higher interest rates" would provide a better balance of risks around the Fed's dual mandate, adding that a "modest restriction" now would be preferable to a "severe restriction" later."

"That dynamic was evident overnight. While US yields later surrendered part of their gains, the USD remained supported as investors turned more defensive amid renewed Middle East tensions and concerns over a broader unwind in AI-related infrastructure trades."

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

• The Indian Rupee gains slightly, following the RBI’s intervention.
• Fears of further decline in the global oil supply would keep INR’s upside limited.
• Easing hawkish Fed bets will likely keep the US Dollar under pressure.

The Indian Rupee (INR) trades marginally higher against the US Dollar (USD) while entering the weekend. The USD/INR pair ticks down to near 96.30 as the Indian currency rises, following Reserve Bank of India’s intervention.

According to a Reuters report, the Indian central bank likely intervened to limit the Indian Rupee's fall. The report also showed that the central bank has been intervening almost daily in ​both the spot and non-deliverable forward markets to support the currency; however, the ​scale of intervention has been relatively measured considering the intensity of the pressure on the rupee.

However, the support regained by the Indian currency after underperforming the entire week could prove to be short-lived amid fears of further escalation in global energy supply disruption.

In the opening trade, the MCX Crude Oil contract expiring on July 20 is up 1.16% to near Rs. 7,700, close to its monthly high of Rs. 7,832 posted on Tuesday.

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.

Iran threatens the closure of Red Sea if US attacks Iranian infrastructure

Earlier in the day, Iran asked Yemen’s Houthi militia to stand ready to close the Red Sea oil route if the United States (US) strikes Iranian power infrastructure, Reuters reported. Such a scenario would trim the already-low global oil supply, which could further accelerate fears of high inflation globally.

The threat from Iran is a response to remarks from US President Donald Trump, in an interview with Fox News, in which he said that military forces would be authorized to attack Iranian bridges and power plants if the nation doesn’t come to the table for negotiations.

US Dollar gains on risk-off mood

An improvement in the demand for safe-haven assets amid intensifying military aggression between the US and Iran has boosted the appeal of the US Dollar. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% higher to near 100.80.

However, the Greenback will likely conclude the week on a negative note, as traders have trimmed Federal Reserve (Fed) interest rate hike bets, following the release of the soft US Consumer Price Index (CPI) report of June on Tuesday.

According to the CME FedWatch tool, the odds of the Fed delivering an interest rate hike in the meeting later this month have dropped significantly to 10.2% from 24.6% recorded a week ago.

India's growth fundamentals remain strong despite headwinds

Earlier in the day, RBI Governor Sanjay Malhotra said in an interview with Doordarshan that India's fundamentals remain strong, and the economic expansion will remain intact at a higher pace despite geopolitical tensions. RBI's Malhotra warned that ongoing tensions in the Middle East and the prospects of a weak monsoon season are seen as key risks for the economy.

Technical Analysis: USD/INR sees more upside towards 97.10

USD/INR trades at around 96.30, maintaining a bullish near-term bias as it holds above the 20-day Exponential Moving Average (EMA) at 95.55. The pair extends its advance after reclaiming the short-term trend indicator, while the Relative Strength Index (14) at 62.99 stays in positive territory, hinting that upside momentum remains constructive but not yet overbought.

On the downside, immediate support is seen at the 20-day EMA at 95.55, which reinforces the underlying bullish structure as long as it holds. Looking up, the all-time high at around 97.10 will be the key barrier for the pair.

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