Forex News

Rabobank’s FX Strategy team reviews Bank of Japan policy, noting that the slow rate-hike pace reflects exceptional shocks such as tariffs, war and domestic political changes. Governor Ueda’s speeches emphasize continued rate increases as activity and prices improve, while higher Oil prices and AI-related demand offset each other. BoJ bond-buying tapering has heightened market focus on fiscal risks and JGB supply.

Rate path, tapering and growth drivers

"Despite this, BoJ Governor Ueda has maintained an optimistic outlook with respect to the progress of positive wage setting behaviour amongst Japanese firms and the momentum that this creates in driving underlying CPI inflation sustainably towards the 2% target."

"In his Christmas Day speech last year, Ueda stated that “in accordance with improvement in economic activity and prices, (the BoJ) will continue to raise the policy interest rate and adjust the degree of monetary accommodation.” In his address last month, Ueda spoke about the temporary depressive impact of higher oil prices on the Japanese economy."

"However, he also referred to the relief that has stemmed from the use of government strategic oil reserves and the AI related demand that is underpinning growth. The combination of these factors has allowed exports and production in Japan to remain broadly flat despite the headwinds coming from higher energy prices and US tariff related uncertainties."

"That said, interest rate differentials are not the only factor weighing on the JPY. The BoJ has been tapering its bond buying programme since 2024 and allowing the size of its balance sheet to fall. This factor has exposed the market to more fiscal concerns and worries about the PM’s expansionary reputation."

"This suggests that more reassurances from the government about the impact of its budget on JGBs are needed."

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

TD Securities strategists expect modest US Dollar (USD) strength in Q3 2026 as positioning has room to rebuild. However, they see limited sustained upside, with the USD reverting to a traditional safe-haven profile and a more range-bound spot trend, and forecast about a 2% Dollar decline in the second half of 2026.

Safe-haven profile with capped upside

"We expect the Fed to remain on an extended hold. The bar for the Fed to hike is lower, but the FOMC committee likely needs to see more evidence of continued strength in inflation and the labor market before embarking on a hiking path. And in an environment where the Fed starts hiking due to supply-side inflation concerns, other global central banks, including the ECB, are likely hiking as well."

"USD positioning is long but not extremely stretched, leaving room for further buildup in the long dollar trade if uncertainty around oil prices, geopolitics and the Fed path linger on. We expect some lingering bullish USD momentum in Q3 with positioning in AUD, CNH and BRL (closer to election) having more room to correct with the long USD trade. We prefer to express the view of any USD upside via long USD/CNH forwards."

"Despite the structurally higher FX vol regime, the lack of USD spot trend breakout and Fed staying on hold will likely put a lid on how much FX vol could rise in 2026. We see limited USD upside in 2026 as the USD rally in Q2 largely occurred in US trading hours and corresponds with increased Fed hike pricing. To the extent that we believe markets will price out rate hikes for the year, the USD's gain in US trading hours from Q2 would reverse course."

"As we wrote earlier, the USD has regained some of its historically negative correlation with US equities, and global investors' interest in hedging US investments has pared back. The Fed is also unlikely to reduce hedging costs with more rate cuts in 2026, as US y/y inflation will stay elevated until end of the year due to base effects. As a result, while we are forecasting a modest 2% USD decline in second half of the year, more range-bound USD spot trend will serve as a headwind for FX vol breakouts."

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

• EUR/USD trades around 1.1415 on Wednesday, up 0.15% on the day, and remains capped below 1.1420.
• Escalating tensions between the United States and Iran continue to support demand for the US Dollar as a safe-haven asset.
• ING says expectations for further European Central Bank tightening continue to provide support for the Euro.

EUR/USD trades around 1.1415 at the time of writing on Wednesday, up 0.15% on the day, but its recovery remains limited after failing to break above 1.1420. The pair maintains a cautious tone as rising geopolitical tensions in the Middle East continue to fuel demand for safe-haven assets, limiting the US Dollar (USD) downside.

Investor concerns intensified after another escalation between Washington and Tehran. The United States (US) launched fresh strikes against Iranian targets, while US President Donald Trump warned that any Iranian attack on a vessel in the Strait of Hormuz would trigger US strikes against key Iranian infrastructure, including bridges and power plants. These developments continue to weigh on market sentiment and reinforce risk aversion.

Meanwhile, Oil prices continue their sharp rally, gaining more than 25% since tensions in the region escalated. The surge in energy prices is a headwind for the Eurozone economy, which remains highly sensitive to higher energy costs, limiting the Euro's (EUR) upside potential.

Despite this backdrop, the common currency continues to find support from expectations surrounding the European Central Bank (ECB) monetary policy meeting scheduled for Thursday. The ECB is widely expected to leave interest rates unchanged, although markets continue to price in additional policy tightening in the coming months if energy-driven inflationary pressures persist.

Euro holds firm as ECB expectations offset energy rebound

Analysts at ING note that EUR/USD has "been performing relatively well despite the rebound in energy prices that has seen natural gas prices retesting the March highs of EUR60/MWh." They argue that "interest rate differentials have probably had a say here, with higher oil prices seeing investors price a more aggressive tightening response from the European Central Bank than the Federal Reserve."

Looking ahead, ING says that, "barring a near-term move towards another cease-fire between the US and Iran, our bias remains for EUR/USD to drift back to 1.1380 and then take its cue from tomorrow's ECB meeting." However, the bank cautions that, "as our team points out in their ECB cheat sheet, it is hard to see the market pricing in even higher ECB rates, regardless of the language delivered at tomorrow's ECB meeting and press conference."

The US Dollar, however, remains supported by safe-haven demand. The US Dollar Index (DXY) holds above 101.00 after recovering part of its earlier daily losses. Investors continue to favor the Greenback as geopolitical risks intensify, even though recent US inflation data has reduced expectations that the Federal Reserve (Fed) could tighten monetary policy in the coming months.

• Gold extends its rebound as bargain hunters return following recent weakness.
• Higher-for-longer Fed expectations remain a headwind for Gold.
• Technically, XAU/USD holds above the 21-day SMA with resistance near $4,200.

Gold (XAU/USD) climbs to a two-week high on Wednesday as bargain hunters step in near the $4,000 mark, while traders weigh Middle East risks and the Federal Reserve’s (Fed) monetary policy outlook.

At the time of writing, XAU/USD trades around $4,122, up 1.1% on the day.

While fresh buying interest lifts Bullion, the broader fundamental backdrop has changed little. The United States carried out an 11th straight night of strikes on Iran, while Tehran responded with fresh attacks targeting Bahrain, Kuwait and Jordan.

The tit-for-tat attacks are disrupting energy supplies through the Strait of Hormuz, pushing Oil prices higher again and adding to inflation concerns.

West Texas Intermediate (WTI) trades around $86.50, its highest level since June 11.

Rising inflation risks support expectations that the Fed will keep interest rates higher for longer and may even consider raising them as it seeks to bring inflation back to its 2% target.

Higher borrowing costs make interest-bearing assets more attractive, reducing the appeal of the non-yielding metal. Meanwhile, a firm US Dollar (USD) and elevated US Treasury yields also make it harder for the commodity to build on its recent rebound.

This suggests Gold may struggle to stage a stronger recovery until inflation concerns ease and Fed rate hike bets cool.

In the near term, the metal is likely to trade within a range as traders brace for the July 28-29 Federal Open Market Committee (FOMC) meeting. According to the CME FedWatch Tool, the probability of a July rate hike has climbed to 28% from 10% a week ago, while the odds of a September hike stand at 69%.

The US economic calendar offers little on Wednesday, leaving traders focused on developments in the Middle East. US Secretary of State Marco Rubio said Washington would reduce Iran’s ability to target shipping whenever possible and warned that a nuclear-armed Iran was intolerable.

Technical analysis: XAU/USD attempts a recovery as RSI and MACD improve

XAU/USD maintains a capped tone, holding below the long-term 200-day Simple Moving Average (SMA) at $4,496 and the 100-day SMA at $4,501. The metal is, however, supported by the 21-day SMA at $4,065, hinting at near-term stabilization above this short-term trend marker.

The Relative Strength Index (RSI) on the daily chart is neutral at 50, while the Moving Average Convergence Divergence (MACD) indicator has turned slightly positive, suggesting improving momentum that has yet to overcome the prevailing overhead supply.

On the topside, initial resistance is seen at the horizontal barrier near $4,200, followed by a stronger cap at $4,400 before the broader bearish structure defined by the 200-day SMA at $4,496 and the 100-day SMA at $4,501.

On the downside, immediate support emerges around the 21-day SMA at $4,065, followed by the horizontal floor at $4,000. A decisive break below this level could trigger deeper losses.

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

BNY’s Geoff Yu notes that Bank of Japan (BoJ) officials are reported open to raising rates faster than economists expected as Japanese Yen (JPY) weakness lifts inflation risks. Policy is still seen unchanged on July 31 after the benchmark rate was raised to 1%, but markets now price a meaningful chance of another hike by October, supporting USD/JPY volatility around 163.

Yen policy expectations shift higher

"BoJ officials are reported to be open to raising rates faster than many economists expected, as yen weakness adds upside risks to inflation and could encourage firms to lift prices further."

"The central bank is still widely expected to keep policy unchanged at its July 31 meeting, after increasing the benchmark rate to a 31-year high of 1% at last month’s meeting. However, officials may act earlier than December if needed."

"Policymakers reportedly see underlying inflation nearing the 2% target and are shifting their focus toward keeping price growth anchored, while markets are now pricing in a meaningful chance of another hike by October."

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

US President Donald Trump issued a fresh warning to Iran on Wednesday, threatening strikes on the country’s infrastructure if Tehran targets vessels in the Strait of Hormuz.

In a post on Truth Social, Trump wrote: “From this point forward, any time the Islamic Republic of Iran shoots at a ship in the Strait of Hormuz, whether it be by missile, rocket, drone, or any other device or weapon, the United States will bomb and destroy one bridge or power plant, including those located next to, or in, the capital city of Tehran.”

Market reaction

The US Dollar (USD) briefly strengthened following Trump's remarks, while West Texas Intermediate (WTI) crude Oil extended its gains. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 101.11, down 0.08% on the day. WTI trades near $86.50, up 2.75%, its highest level since June 11.

• WTI climbs to its highest level since June 11 as Middle East supply risks intensify.
• WTI challenges the 100-day SMA after a strong recovery from July lows.
• Positive RSI and MACD readings reinforce the bullish bias.

WTI extends its rebound on Wednesday as rising tensions in the Middle East disrupt Oil flows through the Strait of Hormuz and the Red Sea. At the time of writing, WTI trades around $86.20 after reaching an intraday high of $87.83, its highest level since June 11.

The US military carried out an eleventh consecutive night of strikes against Iran, while Tehran responded with fresh attacks targeting Bahrain, Kuwait and Jordan. Meanwhile, three tankers carrying Saudi Crude reportedly reversed course in the Red Sea following threats from the Iran-backed Houthis.

From a technical perspective, WTI staged a sharp recovery after retesting the pre-war level near $67 earlier this month. The price then reclaimed the 200-day Simple Moving Average (SMA) around $74 and is now testing the 100-day SMA near $88.

Momentum continues to favor the upside. The Relative Strength Index (RSI 14) has climbed to 66.61, approaching overbought territory, while the Moving Average Convergence Divergence (MACD) remains in positive territory, with the MACD line above the signal line and a widening positive histogram, hinting at persistent upside pressure.

On the downside, initial support is seen at the $80.00 psychological level, followed by the 200-day Simple Moving Average (SMA) at $74. A deeper pullback could bring the pre-war support zone near $67.00 back into focus.

On the upside, the 100-day SMA at $88 is the first resistance level. A decisive break above it could pave the way for a move toward the horizontal resistance zone around $95.00.

Nomura strategists analyse the latest United Kingdom (UK) June inflation data, noting headline Consumer Price Index (CPI) fell to 2.6% as the Bank of England expected, but core and services inflation stayed sticky. They attribute this to falling food prices offset by strength in information processing equipment and hotel/catering, and highlights a sharp rise in upstream services prices, especially transport and storage.

Headline falls but core stays sticky

"While UK headline inflation fell by 0.2pp between May and June, as the BoE had expected, core and services inflation proved more resilient than the consensus view."

"This morning's UK June inflation numbers were all above our forecasts, but the headline rate fell 0.2pp to 2.6% – which was below consensus."

"Services inflation only fell a tenth, to 3.6%, versus consensus forecasts of a 0.2pp drop and our view of a 0.3pp fall."

"Core inflation turned out to be unchanged at 2.6% in June."

"In short, this is not as good a set of figures as we had expected but there are really only two major components that were responsible for the upside miss in core inflation, rather than a broad array of the CPI basket."

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

ING strategist Frantisek Taborsky reports the National Bank of Hungary (MNB) cut rates to 5.75% and confirmed dovish guidance, signaling further easing in August and possibly beyond. Markets have accepted renewed rate-cut pricing, and ING expects more dovish repricing. For FX, EUR/HUF is seen capped near post-election levels, with a move back below 360 if the global backdrop stabilizes.

Dovish NBH cuts and HUF outlook

"The National Bank of Hungary, as expected, cut rates by 25bp to 5.75% and confirmed its dovish forward guidance. It committed to another rate cut in August and an assessment of the situation in September, possibly continuing the cutting cycle from there."

"The NBH’s confirmation of its earlier forward guidance, despite elevated volatility and pressure on Hungarian assets amid the global risk-off sentiment, should reassure markets that the local story is unchanged. The reaction after the press conference suggests investors have accepted the dovish signal, with rate cuts returning to market pricing. "

"We expect this to continue, supported by an unchanged fundamental backdrop after the April elections and repeated downside inflation surprises. With markets having priced out around 40bp of easing and the implied terminal rate back near 4.75-5.00%, we expect pricing to shift toward a more dovish view after yesterday's meeting, closer to our medium-term forecast of 4.00%, while curve steepening continues."

"The FX implications are more mixed. Further NBH rate cuts would weaken expected carry, while a stronger US dollar and risk-off conditions remain unfavourable for EM currencies. Still, EUR/HUF has almost returned to post-election levels, which should limit further upside. If the global backdrop stabilises, we expect EUR/HUF to move back below 360."

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

Societe Generale economist Sam Cartwright analyzes June United Kingdom (UK) inflation, noting headline Consumer Price Index (CPI) at 2.6% year-on-year, below Bank of England (BoE) projections, with core inflation steady at 2.6%. The report highlights fuel-driven disinflation, limited indirect energy effects, and only modest expected core inflation increases. Cartwright forecasts Bank Rate staying at 3.75% through 2026, with potential 75bp cuts in 2027, while flagging energy-price risks to this path.

BoE seen holding rates through 2026

"Looking ahead, the recent rise in Brent crude, refined oil product, and European wholesale gas prices points to a stronger increase in near-term inflation than we had previously forecast. Using the current Brent and wholesale gas forward curves, headline inflation would peak closer to 3.5% yoy at end-2026, compared with our previous forecast of 3.0% yoy, even after accounting for the government's recently announced VAT [Value Added Tax] cut on consumer electricity prices, which should reduce headline CPI by around 0.1pp. However, given the uncertainty surrounding the US-Iran conflict, it remains unclear whether these trends will prove persistent, intensify, or begin to subside."

"So far, the inflation data point to limited indirect effects from the energy shock beyond its direct contribution to fuel prices, largely because upstream cost pressures take time to pass through supply chains and some energy-intensive upstream commodities had moderate from previous high. While we do expect minor indirect effects from the energy shock, particularly for food and goods inflation, firms' limited pricing power should constrain the extent to which higher input costs are passed on to consumers."

"Our baseline forecast remains that the BoE will keep Bank Rate on hold at 3.75% throughout 2026. By early 2027, we expect the MPC to gain confidence that inflation will return sustainably to the 2% target over the medium term, allowing for cumulative rate cuts of 75bp in 2027, bringing Bank Rate to our estimate of its neutral level of 3%."

"That said, a further escalation of the ongoing conflict, leading to additional increases in energy prices, would pose a risk to this view and could potentially prompt the BoE to deliver two 25bp rate hikes, broadly in line with what markets are currently pricing at prevailing Brent prices. Conversely, a moderation in energy prices, similar to that seen following the signing of the MoU [Memorandum of Understanding], would increase our confidence in our BoE call."

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