Forex News

BNY’s Bob Savage notes that Japanese equities have reclaimed record highs, but international allocations to Japan and Japanese Yen (JPY) hedges have not fully normalized. JPY remains pressured by persistent foreign hedging and limited Japanese outflows. Savage argues that potential Ministry of Finance (MoF) intervention will be less effective until hedges unwind, leaving Bank of Japan (BoJ) rate hike expectations as a key driver for the US Dollar (USD) and Japanese Yen in coming weeks.

Hedge overhang tempers intervention impact

"The Japanese Nikkei share index has rallied to set a new record highs, erasing all the losses from the Iran war. However, our holdings data suggest that investors are not back to February highs. International investors’ asset allocation to Japan was close to the MSCI ACWI index before the conflict, but not today."

"JPY holdings mostly reflect the hedging of Japan investments abroad. The FX positions are balanced against foreign hedging, which our data show restarted in the last week of March. The holdings figures suggest Japanese outflows into the U.S. and other markets have not been as large as the inflows, adding to pressure on JPY."

"The risk of intervention by Japan’s finance minister will have less effect until those hedges unwind – with the basis trade in JGBs against U.S. bonds part of the narrative. As such, BoJ rate hike risk should be a key factor for the weeks ahead in setting the course for the dollar."

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

ING’s Warren Patterson and Ewa Manthey note that Oil prices are drifting lower as markets price in a possible extension of the US–Iran ceasefire and renewed peace talks, even as physical supply tightens due to disrupted flows through the Strait of Hormuz. They highlight record US Oil and refined product exports, limited US drilling response, and a growing divergence between Brent futures and the physical market.

Physical tightness contrasts with softer futures

"The oil market continues to edge lower amid hopes that the US and Iran extend their ceasefire by another 2 weeks, along with a potential resumption in talks to bring an end to the war. However, the physical market is becoming tighter every day that passes without a restart of oil flows through the Strait of Hormuz."

"After taking into consideration pipeline diversions and the trickle of tankers through the Strait of Hormuz, we estimate that roughly 13m b/d has been disrupted. But with the US blockade, this number could creep higher."

"The divergence between the futures and physical markets is clear: dated Brent traded around $117/bbl, while front-month Brent futures settled a little below $95/bbl yesterday. The key upside risk for the market is that peace talks between the US and Iran break down."

"With buyers shifting toward US barrels, the domestic market is set to tighten as long as Middle East disruptions persist, likely prompting a supply response from US producers. US drilling activity, however, has barely moved since the start of the conflict."

"The lack of drilling activity also ties in with the EIA’s domestic crude oil production forecasts, which suggest little change in output this year. If we see a pickup in US drilling activity, it would have a more meaningful impact on oil output over 2027."

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

Societe Generale analysts highlight a strong rebound in global risk appetite, benefiting the South African Rand. USD/ZAR is seen as vulnerable after failing to hold above its 200-day moving average at 17.00, with scope to grind toward 16.00. Softer SARB tightening expectations and lower local yields add further support to ZAR.

Rand gains with carry and risk bid

"ZAR is a clear beneficiary, supported by the risk rebound and a renewed lift in gold."

"USD/ZAR looks vulnerable, with scope to grind toward 16.00 following the failure to sustain above the 200dma (17.00)."

"Local rates add fuel to the rand - SARB FRAs have aggressively repriced, now implying just 19bp of tightening at the next meeting (vs 34bp last week) and 36bp cumulatively by year‑end (vs 83bp)."

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

Brown Brothers Harriman’s (BBH) Elias Haddad notes that the recovery narrative is overshadowing the International Monetary Fund's (IMF) weaker growth outlook, with global equities at record highs and the US Dollar (USD) retracing losses. Haddad does not expect the US Dollar Index (DXY) to break its established 96.00–100.00 range in coming months, as rate differentials and still-strong foreign demand for US long-term securities underpin USD near term.

Range-bound Dollar with structural headwinds

"Markets continue to look beyond the IMF’s gloomier growth forecast and trading the recovery narrative. We agree."

"We don’t expect USD to make new cyclical lows in the next few months. Interest rate differentials between the US and other major economies continues to keep the DXY (USD index) anchored within its nearly one-year 96.00-100.00 range."

"Moreover, foreign demand for US long-term securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds) remains strong. The US Treasury International Capital (TIC) data showed that in the twelve months to February, foreign investors accumulated $1615bn of long-term US securities."

"Nevertheless, we expect foreign appetite for US long-term securities to dwindle over time. The Trump administration’s effort to narrow the US trade deficit means fewer dollars will flow overseas, reducing the need for those funds to be recycled back into US securities."

"Fed funds futures imply 45% probability of a 25bps cut by year-end to 3.25-3.50%. Our base case is for the Fed to deliver one cut by year-end, in line with the FOMC’s projection."

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

Federal Reserve Bank of New York President John Williams said on Thursday that they are seeing emerging signs of supply chain disruptions and added that he is projecting inflation to hit 2.75%-3% this year, due to rising energy prices, per Reuters.

Key takeaways

"Middle East war already lifting inflation."

"Amid challenges, monetary policy is well-positioned."

"Economic outlook highly uncertain amid war impact."

"Some of energy shock now passing through into other prices."

"Swift end to conflict should help ease inflation pressures."

"Expecting unemployment to stay between 4.25%-4.5%."

"Projecting inflation to return to 2% target in 2027."

"Forecasting 2%-2.5% GDP growth in 2026."

"Labor market sending out mixed signals."

"Fed rate control system is working very well."

"Expecting tariff impact on inflation to wane this year."

Market reaction

The US Dollar Index clings to small daily gains above 98.00 following these remarks.

• Gold holds within a multi-week range as traders await clarity on US-Iran talks.
• Oil-driven inflation risks support a steady Fed outlook, limiting Gold upside.
• Technically, XAU/USD remains range-bound between 50-day and 100-day SMAs.

Gold (XAU/USD) trades with a mild upward bias on Thursday, though it remains confined within a multi-week range as traders refrain from placing strong directional bets while awaiting clearer signals on US-Iran peace talks. XAU/USD is trading around $4,816 at the time of writing, after reaching an intraday high of $4,838, with a modest recovery in the US Dollar (USD) acting as a headwind.

Optimism builds around US-Iran talks

Markets remain cautiously optimistic that a deal could be reached to end the US-Iran war, with reports suggesting that a potential two-week ceasefire extension is under consideration to allow more time for negotiations.

White House Press Secretary Karoline Leavitt said on Wednesday that conversations with Iran are “productive,” while pushing back on reports that the United States had requested a ceasefire extension, as the current truce is set to expire next week.

Meanwhile, Pakistan’s Army Chief, Asim Munir, has arrived in Tehran to deliver a direct message from Washington to the Iranian leadership. The development follows remarks from US President Donald Trump, who indicated that negotiations could resume this week after last weekend’s talks in Islamabad failed to produce a breakthrough.

A senior Iranian official said on Thursday that “the visit by Pakistan’s army chief has helped narrow differences in some areas,” adding that “there are now greater hopes for a ceasefire extension and a second round of talks.” However, “fundamental disagreements over nuclear issues persist.”

Gold outlook tied to US-Iran developments and Oil prices

While diplomacy has improved risk sentiment, the situation remains far from resolved. A possible US-Iran deal remains a key variable for Gold, which is currently trading around 10% below its peak since the war began, as Oil-driven inflation risks fueled expectations that central banks, particularly the Federal Reserve (Fed), may need to raise interest rates.

Although Crude prices have eased from recent highs, reviving some Fed rate-cut bets, they remain elevated as supply through the Strait of Hormuz continues to face significant disruption amid a dual blockade by US forces and Iran. This keeps inflation concerns in focus, reinforcing expectations that the Fed will likely keep interest rates unchanged in the near term.

If tensions ease further and Oil prices decline, it could help reduce inflation pressure and lessen the burden on central banks, which might in turn support Gold.

St. Louis Fed President Alberto Musalem said that “supply shocks are placing the Fed’s inflation and employment targets at risk,” adding that “the current rate range is likely appropriate for some time.” He further noted that “the Oil shock is probably feeding into core inflation, which could remain near 3% through the end of the year.”

Technical analysis: XAU/USD consolidates below 50-day SMA

From a technical perspective, the daily chart shows that the metal remains under pressure below the 50-day Simple Moving Average (SMA), currently near $4,898, which acts as immediate overhead resistance. Meanwhile, the 100-day SMA near $4,708 provides immediate support, keeping price action range-bound.

The 14-period Relative Strength Index (RSI) around 53 has recovered toward neutral territory, while the Average Directional Index (ADX) near 24 suggests a modest but not particularly strong underlying trend as price consolidates below its primary short-term average.

On the downside, a sustained break below the 100-day SMA would signal a breakdown of the recent range and increase bearish pressure. Conversely, a daily close back above the 50-day SMA would be needed to ease immediate downside pressure and signal that bulls are regaining control.