Forex News
- GBP/USD softens to around 1.3415 in Tuesday’s Asian session.
- IMF raises the UK growth forecast but warns political turmoil could hurt growth.
- Traders are pricing in an interest rate increase as soon as December.
The GBP/USD pair loses ground to near 1.3415 during the Asian trading hours on Tuesday. The British Pound (GBP) edges lower against the Greenback amid UK political turmoil. Traders will take more cues from the UK employment report, which is due later on Tuesday.
UK Prime Minister Keir Starmer is facing a major leadership crisis following poor local election results on May 7, triggering a wave of high-level government resignations and severe market volatility. UK gilt yields have spiked to a 28-year high amid fiscal worries, exerting some selling pressure on the Cable sentiment.
The International Monetary Fund (IMF) on Monday raised its growth forecast for the UK economy this year but warned that further "domestic uncertainty," at a time when political instability is engulfing the government, could hit spending and investment.
On the USD’s front, hotter-than-expected US inflation data have driven hawkish Federal Reserve rhetoric, lifting the US Dollar (USD). Traders in the fed funds futures market are pricing in a 35.0% chance that the US central bank will raise interest rates by 25 basis points (bps) by year-end, according to the CME FedWatch tool.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- EUR/JPY declines as the Euro weakens amid persistent uncertainty in the Middle East surrounding Iran.
- ECB’s Yannis Stournaras stated a modest rate hike could curb inflation without harming economic growth.
- Japan’s Q1 2026 GDP grew 0.5% quarter-on-quarter, beating forecasts and accelerating from Q4’s revised 0.2%.
EUR/JPY inches lower after registering modest gains in the previous day, trading around 185.10 during the Asian hours on Tuesday. The currency cross declines as the Euro (EUR) weakens amid persistent uncertainty in the Middle East surrounding Iran.
However, the downside of the Euro could be limited due to hawkish comments from European Central Bank (ECB) policymakers. ECB Governing Council member Yannis Stournaras said over the weekend that a modest ECB interest-rate increase could temper inflation without causing economic damage.
The majority of economists from the Reuters poll, around 85%, indicated that the ECB would raise its deposit rate by 25 basis points (bps) to 2.25% in June, up from just over half expecting that before the April meeting.
The EUR/JPY cross may gain ground as the Japanese Yen (JPY) remains subdued despite stronger-than-expected preliminary economic growth data from Japan. In the first quarter of 2026, Japan’s Gross Domestic Product (GDP) grew 0.5% quarter-on-quarter, accelerating from a downwardly revised 0.2% in the final quarter of 2025 and exceeding market expectations of 0.4%. This represented the strongest quarterly expansion since the third quarter of 2024.
On an annualized basis, Japan’s economy expanded at a rate of 2.1% in Q1, up from a downwardly revised 0.8% growth in the previous quarter and surpassing market forecasts of 1.7%, marking the fastest pace of expansion in six quarters.
Japan's Economy Minister, Minoru Kiuchi, said on Tuesday that the government will respond swiftly while monitoring the economic impact of the Middle East conflict and price hikes on households and businesses.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- AUD/USD attracts fresh sellers following the previous day’s bounce from over a two-week low.
- Geopolitical uncertainties and rising Fed rate hike bets underpin the USD, weighing on the pair.
- The RBA’s hawkish outlook fails to inspire the Aussie bulls or lend any support to spot prices.
The AUD/USD pair struggles to capitalize on the previous day's modest recovery from the 0.7120-0.7115 region, or over a two-week low, and meets with a fresh supply during the Asian session on Tuesday. The intraday slide is sponsored by the emergence of some US Dollar (USD) dip-buying, which overshadows the hawkish Reserve Bank of Australia (RBA) and drags spot prices back below mid-0.7100s in the last hour.
In fact, Minutes of the RBA's May policy meeting showed that eight of nine board members backed the rate hike to 4.35%, citing rising inflation risks from the Gulf conflict. Earlier, RBA Assistant Governor Sarah Hunter said that the central bank is worried higher energy costs will feed through to consumer prices quickly, potentially creating a significant shift in inflation expectations. This reaffirms market expectations for a further rate hike at the August RBA meeting, though it does little to benefit the Aussie amid the underlying USD bullish sentiment.
Following the previous day's pullback from its highest level since April 7, the USD Index (DXY), which tracks the Greenback against a basket of currencies, regains positive traction amid a combination of supporting factors. Despite renewed optimism over a potential US-Iran peace deal, investors remain on edge amid broader disagreements over Tehran's nuclear program and the Strait of Hormuz. Apart from this, expectations that the US central bank will raise borrowing costs by the year-end revive the USD demand and weigh on the AUD/USD pair.
The market focus shifts to the release of FOMC Minutes on Wednesday. In the meantime, fresh developments surrounding the Middle East crisis could inject volatility in the markets. US President Donald Trump called off a planned military strike on Iran and said that there is a good chance an Iran nuclear deal can be reached. The muted reaction, however, points to the market skepticism over a quick resolution to the Iran conflict, which might continue to benefit the safe-haven USD and backs the case for a further depreciating move for the AUD/USD pair.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
- US Dollar Index draws support from expectations of a more hawkish stance from the US Federal Reserve.
- The 10-year US Treasury yield spiked to 4.659%, its highest since February 2025, before retracing to 4.591%.
- Geopolitical tensions eased temporarily as President Trump delayed a planned military strike on Iran at Gulf states' request.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is gaining ground after posting modest losses in the previous day and trading around 99.10 during the Asian hours on Tuesday.
The US Dollar draws support from expectations of a more hawkish stance from the US Federal Reserve (Fed). In overnight trading, the yield on the benchmark 10-year US Treasury note jumped to 4.659%, its highest level since February 2025, before retracing to sit nearly flat on the day at 4.591%. This sharp rise in yields reflects market anxieties that elevated energy costs could flow into consumer price inflation, ultimately prompting the Federal Reserve to push interest rates higher.
Market participants are also closely watching the US central bank's internal dynamics. Reuters cited Lou Brien, market strategist at DRW Trading, noting that recent market volatility stems from investors testing how newly appointed Fed Chair Kevin Warsh will handle rising inflation. Brien emphasizes that Wall Street wants reassurance that Warsh will prioritize the Fed's traditional mandate and operate independently rather than bending to political pressure from the White House.
However, the Greenback faced safe-haven headwinds following an improvement in overall market sentiment. This shift occurred after US President Donald Trump announced he was delaying a planned military strike on Iran. According to reports, Trump called off the Tuesday attack following appeals from Persian Gulf allies requesting more time to negotiate a diplomatic resolution. While the US administration noted it remains prepared to strike if an acceptable agreement is not reached, no firm deadline has been set.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
- EUR/USD declines to near 1.1645 in Tuesday’s early Asian session.
- Trump said he called off a new Iran attack at the request of the Gulf states.
- ECB policymakers hinted at an interest rate hike to tame sticky inflation expectations.
The EUR/USD pair trades in negative territory around 1.1645 during the early Asian trading hours on Tuesday. The Euro (EUR) softens against the US Dollar (USD) amid persistent uncertainty in the Middle East surrounding Iran. European Central Bank (ECB) Chief Economist Philip Lane is set to speak later in the day.
US President Donald Trump said that he is holding off a military attack on Iran planned for Tuesday at the request of the leaders of Qatar, Saudi Arabia and the United Arab Emirates (UAE) as "serious negotiations are now taking place,” per BBC.
However, uncertainty remains high as Trump also warned that the US would be ready to "go forward with a full, large-scale attack on Iran on a moment's notice" if there was no acceptable deal. Signs of a prolonged conflict in the Middle East could boost a safe-haven currency such as the Greenback and create a headwind for the major pair in the near term.
Across the pond, hawkish comments from ECB policymakers could provide some support to the shared currency. ECB Governing Council member Yannis Stournaras said over the weekend that a modest ECB interest-rate increase could temper inflation without causing economic damage.
The majority of economists from the Reuters poll, around 85%, indicated that the ECB would raise its deposit rate by 25 basis points (bps) to 2.25% in June, up from just over half expecting that before the April meeting.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Japan's Economy Minister, Minoru Kiuchi, said on Tuesday that the government will respond swiftly while monitoring the economic impact of the Middle East conflict and price hikes on households and businesses.
Key quotes
See strong momentum in this year's wage negotiations, improvements in job conditions.
Effect of government steps likely to underpin moderate economic recovery.
Must be vigilant to impact on economy from Middle East conflict.
Government will act nimbly while keeping close eye out on economic fallout from Middle East conflict, effect of price rises on households and business activity.
Important to ensure market trust in Japan's finances, will keep close watch on daily market moves.
Administration's stance is to appropriate in annual budget any permanent spending measures, won't rule out extra budget to fund emergency, necessary measures.
Market reaction
At the time of writing, the USD/JPY pair is trading 0.06% higher on the day to trade at 158.92.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
- Silver struggles to capitalize on a modest Asian session uptick to the $79.00 neighborhood.
- The broader technical setup favors bearish traders and backs the case for further losses.
- A convincing break below the channel support is needed to reaffirm the negative outlook.
Silver (XAG/USD) attracts some sellers following a modest Asian session uptick to the $79.00 neighborhood and drops to a fresh daily low in the last hour. The white metal, for now, seems to have stalled the previous day's recovery from a one-and-a-half-week low, though it shows some resilience below the $77.00 mark.
From a technical perspective, the previous day's break below the 100-period Simple Moving Average (SMA) on the 4-hour chart favors the XAG/USD bears within an otherwise broader upward parallel channel. The channel bottom near $74.60 acts as the main structural floor, while the SMA overhead, at $78.02, now caps rebounds.
Meanwhile, the Relative Strength Index (RSI) is hovering around 39, and Moving Average Convergence Divergence (MACD) is remaining in negative territory. Both suggest weak buying interest and downside-leaning momentum within the range, though a break below the channel support is needed to reaffirm the negative outlook.
The rising channel support is pegged around $74.60, where a clear violation would weaken the broader bullish structure and expose a deeper corrective phase. On the topside, a sustained break above the 100-period SMA on the 4-hour chart would open the way for additional gains toward the channel resistance near $90.44.
(The technical analysis of this story was written with the help of an AI tool.)
XAG/USD 4-hour chart
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
The Reserve Bank of Australia (RBA) published the Minutes of its May monetary policy meeting this Tuesday, which showed that eight members saw case for rate hike as strongest and one member preferred to await further data.
Additional takeaways:
Hike would give board space to see how gulf conflict developed, response of households and business.
Board judged financial conditions would be somewhat restrictive after may hike.
For future decisions, board agreed monetary policy could not alter the near-term trajectory of inflation.
Board agreed Australian economic growth likely to be below potential for some time.
Board will do what it considers necessary to meet inflation, employment mandates.
Majority emphasised core inflation was projected above target for extended period.
Board considered whether to hike by 25bps or to keep rates at 4.10%.
Eight members considered case for hike to be strongest, one wanted to wait for more information.
Judged additional loosening in the labour and product markets was needed given inflation risks.
Majority felt risks to inflation objective had risen, not confident 4.1% enough to offset risks.
Saw risk longer-term inflation expectations could become de-anchored.
One member felt capacity pressures not as great, protracted war more of a risk to demand.
Member expected inflation to return to target without further tightening.
Market Reaction:
The Australian Dollar (AUD) remains weak following the RBA Minutes. At the time of writing, the AUD/USD pair is trading 0.24% lower on the day to trade at 0.7150.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
The People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead on Tuesday at 6.8375 compared to the previous day's fix of 6.8435 and 6.7909 Reuters estimate.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
- USD/JPY rises as a subdued Japanese Yen offsets stronger-than-expected preliminary Japanese GDP growth data.
- Japan’s Q1 2026 GDP grew 0.5% quarter-on-quarter, beating forecasts and accelerating from Q4’s revised 0.2%.
- Geopolitical tensions eased temporarily as President Trump delayed a planned military strike on Iran at Gulf states' request.
USD/JPY extends its gains for the seventh consecutive day, trading around 159.00 during the Asian hours on Tuesday. The currency pair appreciates as the Japanese Yen (JPY) remains subdued despite stronger-than-expected preliminary economic growth data from Japan.
In the first quarter of 2026, Japan’s Gross Domestic Product (GDP) grew 0.5% quarter-on-quarter, accelerating from a downwardly revised 0.2% in the final quarter of 2025 and exceeding market expectations of 0.4%. This represented the strongest quarterly expansion since the third quarter of 2024. On an annualized basis, Japan’s economy expanded at a rate of 2.1% in Q1, up from a downwardly revised 0.8% growth in the previous quarter and surpassing market forecasts of 1.7%, marking the fastest pace of expansion in six quarters.
However, risks to the Japanese economy have heightened due to elevated oil prices linked to the closure of the Strait of Hormuz since the eruption of the Middle East conflict. Japan is particularly vulnerable to this energy shock because of its heavy reliance on oil imports from the Middle East, with surging fuel costs driving up inflation while simultaneously weighing on corporate profits and the broader economy.
Meanwhile, geopolitical tensions saw a temporary shift as US President Donald Trump stated he was holding off on a planned military attack against Iran at the request of Gulf states. A Bloomberg report indicated that the president called off the strike, which had been scheduled for Tuesday, after an appeal by leaders of Persian Gulf allies who requested more time to pursue a diplomatic resolution. The US administration added that Washington remains prepared to attack if an acceptable deal is not reached, though no specific deadline has been set.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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