Forex News

• The Bank of Japan kept interest rates steady at 1.00% in an 8-1 vote, meeting market expectations.
• Japanese authorities warned they remain ready to intervene in foreign exchange markets to support the Yen.
• Easing Middle East tensions and diplomatic progress could soften safe-haven demand for the US Dollar.

USD/JPY rises after two days of losses, trading around 160.80 during the Asian hours on Friday. The currency pair continues to appreciate as the Japanese Yen (JPY) weakens following the Bank of Japan’s (BoJ) decision to keep its short-term interest rate unchanged at 1.00%.

The outcome of the two-day monetary policy review meeting, which matched market expectations, passed in an 8-1 vote. Board member Hajime Takata was the sole dissenter, advocating for another rate hike as policymakers weighed potential upside inflation risks driven by Middle East conflict-related demand pressures.

Meanwhile, Japanese Finance Minister Satsuki Katayama reiterated that financial authorities remain prepared to step into the foreign exchange market at any moment, emphasizing ongoing coordination with the United States regarding currency moves.

Strategists at Scotiabank highlight a notable shift in official rhetoric, observing that recent commentary from Japan’s Ministry of Finance has moved away from explicit FX defence. They note that “comments from the MoF have shifted from intervention-related threats to growth-oriented tax cuts,” underscoring a policy tone that appears more focused on supporting domestic activity than on directly jawboning the Yen.

The USD/JPY pair could soon face headwinds as safe-haven demand for the US Dollar (USD) cools alongside easing geopolitical tensions. Global risk sentiment has improved following positive diplomatic breakthroughs, including advancing talks between the US and Iran to secure stability in the Strait of Hormuz. Additionally, US President Donald Trump announced a historic deal directing the disarmament of Hamas and the withdrawal of Israeli forces from Gaza, a milestone confirmed by senior Hamas officials that has further alleviated market anxiety.

• The Euro surges further against the Japanese Yen to near 185.20 after the BoJ leaves interest rates unchanged at 1%.
• The BoJ reiterates the hawkish stance on interest rates while warning of upside inflation risks.
• Investors await the Eurozone flash HICP data for July.

The Euro (EUR) extends the intraday rally to near 185.20 against the Japanese Yen (JPY) after the Bank of Japan’ (BoJ) monetary policy decision during the Asian trading session on Friday. The BoJ has kept interest rates steady at 1%, as expected, with an 8-1 majority.

BoJ member Hajime Takata dissented from the vote to hold and favored a 25 basis points (bps) interest rate hike to push rates to 1.25%.

The Japanese central bank has warned that medium-to-long-term inflation expectations are set to climb and has reiterated that the monetary policy path will remain on the upside. “Will keep raising interest rates in response to economic, price trends and financial conditions,” BoJ said.

The BoJ was already anticipated to do so as it is unlikely to deliver back-to-back rate hikes to build pressure on the economy. In the June meeting, the Japanese central bank raised borrowing rates by 25 basis points (bps) to 1%, the highest level not seen since 1995.

On the Eurozone front, investors await the preliminary Harmonized Index of Consumer Prices (HICP) data for July, which will be published at 09:00 GMT. The inflation data from Germany and Spain showed on Monday that inflationary pressures grew at a faster-than-expected pace.

According to TD Securities, Eurozone inflation is likely to firm only modestly in the latest print, with the bank expecting “euro area HICP to pick up only slightly to 2.9% y/y (mkt: 2.9%; prior: 2.8%), as the recent rebound in energy is largely offset by softer food and core goods prices.” The analysts note that “airfares may provide some upside given higher jet fuel costs and the start of the summer holiday season,” but they judge that “broader services HICP is likely to remain contained, with limited evidence so far of a wider pass-through of the energy shock.” In this context, TD Securities concludes that “we see the core inflation number remaining steady at 2.4% y/y (mkt: 2.4%, prior: 2.4%).”

Signs of acceleration in inflationary pressures in the Eurozone would prompt expectations of more interest rate hikes by the European Central Bank (ECB) in the near term.

The Bank of Japan (BoJ) board members decided to leave the short-term interest rate unadjusted at 1.00%, following the conclusion of its two-day monetary policy review meeting on Friday.

The decision aligned with the market expectations.

Summary of the BoJ’s Monetary Policy Statement

BoJ makes rate policy decision by 8-1 vote.

BoJ's Takata considered that situation had shifted to new phase in which boj needs to adopt nimble approach in response to upside risks to prices caused by demand shocks stemming from overseas developments and to changes in overseas financial conditions.

Underlying inflation has been approaching 2%, financial conditions have been accommodative.

Will continue to raise interest rates in response to economic and price developments as well as financial conditions.

Will consider timing, pace of rate hikes while examining likelihood of realising baseline scenario and risks, with eye on impact of Middle East developments.

Will conduct monetary policy as appropriate from perspective of sustainably, stably achieving inflation target.

Must pay due attention to keep upside price risk from materialising, thereby exerting adverse impact on economy.

Must pay particular attention to impact of Middle East conflict on fx markets, economy, prices.

BoJ board member Takata proposes raising short-term interest rate target at 1.25%.

Proposal by Takata turned down by majority vote.

BoJ’s Outlook Report

Board's core CPI fiscal 2027 median forecast at +2.4% vs +2.3% in April.

Board's core CPI fiscal 2028 median forecast at +2.0% vs 2.0% in April.

Board's real GDP fiscal 2026 median forecast at +0.6% vs +0.5% in April.

Board's real GDP fiscal 2027 median forecast at +0.8% vs +0.7% in April.

Board's real GDP fiscal 2028 median forecast at +0.8% vs +0.8% in April.

Mechanism in which wages and prices rise moderately in interaction with each other will be maintained.

Medium- to long-term inflation expectations will rise.

Underlying inflation likely to reach level consistent with price target between 2nd half of fiscal 2026 and fiscal 2027.

Risks to prices are skewed to upside.

Underlying inflation approaching 2%, firms' behaviour shifting more towards raising wages, prices. 

BoJ Report on Risks

Significant downside risks to economic activity and the significant upside risks to prices have decreased.

Price pass-through stemming from high crude oil prices has been progressing at a relatively fast pace in business-to-business transactions.

There is a risk of underlying CPI inflation deviating upward to a level above the price stability target of 2%.

Market reaction to the BoJ policy announcements

The Japanese Yen (JPY) attracts some buyers following the Bank of Japan’s no-rate-change decision. At the press time, the USD/JPY pair is up 0.74% on the day to trade at 160.72. 

This section below was published on July 30 at 22:00 GMT as a preview of the Bank of Japan Interest Rate Decision.

• The Bank of Japan is widely expected to keep its policy rate unchanged at 1.00% after raising borrowing costs in June.
• Suspected intervention by Japanese authorities has sent the Japanese Yen sharply higher ahead of the policy decision.
• Investors will look to Governor Kazuo Ueda for clues on whether another rate hike could reinforce the Japanese Yen's rebound.

Investors are turning their attention to the Bank of Japan’s (BoJ) monetary policy announcement on Friday, after the Japanese Yen (JPY) staged a dramatic rebound during Thursday's American session. The move came amid growing speculation that Japanese authorities intervened in the foreign exchange market after USD/JPY tumbled from above 163.00 to below 158.00 within minutes.

While the BoJ is still widely expected to leave its policy rate unchanged at 1%, the sudden appreciation of the Japanese Yen has altered the market backdrop heading into the meeting. Investors will now focus on the updated economic projections and Governor Kazuo Ueda's press conference to assess whether the central bank's policy outlook could reinforce the Japanese currency's recovery.

The decision follows the BoJ's June rate hike, which gave policymakers room to assess the effects of tighter financial conditions. Although another immediate move appears unlikely, markets continue to expect additional tightening before year-end, with October and December remaining the main candidates.

What to expect from the BoJ interest rate decision?

The Bank of Japan is expected to maintain its policy rate at 1% following the conclusion of its two-day meeting. The decision is likely to be supported by a broad majority of the Policy Board, as officials assess incoming data after the June rate hike.

The central bank will also publish its quarterly Outlook Report, including updated projections for economic growth and inflation. Policymakers could revise their growth forecasts higher, supported by resilient domestic activity and strong demand linked to artificial intelligence investment. At the same time, headline inflation estimates may be adjusted slightly lower due to government subsidies and softer energy prices.

A downward revision to the inflation forecast would not necessarily imply a more dovish policy stance. The BoJ is still expected to warn that underlying price pressures could remain stronger than projected, particularly as higher import and producer costs gradually pass through to consumers.

The Japanese central bank’s latest Tankan survey also showed that companies continue to expect inflation to remain above the BoJ’s 2% target over the coming years. These expectations, combined with rising wages and persistent services inflation, strengthen policymakers’ confidence that a durable wage-price cycle is taking hold.

The weakness of the Japanese Yen remains another important consideration. A softer currency raises the cost of imported goods and energy, potentially intensifying inflationary pressures. Even though the suspected intervention by Japanese authorities has temporarily eased pressure on the Japanese Yen after months of persistent weakness, the trend could resume, as seen after the previous intervention in April. The BoJ does not directly target exchange rates, but Governor Ueda could emphasize that policymakers are closely monitoring the impact of currency movements on the inflation outlook.

The BoJ is likely to preserve a gradual tightening bias without explicitly committing to the timing of its next move. Market pricing indicates that investors expect at least one additional 25-basis-point increase before the end of the year, although expectations remain divided between the October and December meetings, according to Reuters.

Ueda’s communication will therefore be decisive. A stronger emphasis on upside inflation risks, wage growth or the economic consequences of the weak Japanese Yen could reinforce expectations of an October rate hike. Conversely, a cautious assessment of consumption and global demand could encourage investors to push those expectations towards December.

How could the Bank of Japan's monetary policy decision affect USD/JPY?

USD/JPY enters the BoJ meeting under very different conditions after plunging more than 2% on Thursday amid speculation that Japanese authorities intervened to support the Japanese Yen. With the decision to keep interest rates unchanged already largely priced in, the pair's next move will depend on whether Governor Ueda reinforces expectations for another rate hike later this year.

A hawkish outcome, including stronger warnings about inflation or a clear indication that another rate increase could come as early as October, may support the Japanese Yen and push USD/JPY lower. Markets could interpret such language as evidence that the BoJ is prepared to continue narrowing the interest-rate gap between Japan and other major economies.

By contrast, a neutral or cautious message could leave the JPY vulnerable. Should Ueda stress downside risks to growth or avoid discussing the timing of the next rate increase, USD/JPY could rebound as investors unwind expectations of near-term tightening.

Thursday's sharp decline suggests that intervention fears may already have materialized. Although Japanese authorities have yet to confirm any action, the sudden appreciation of the Japanese Yen bears the hallmarks of previous interventions, shifting investors' attention to whether the move can be sustained by a more hawkish BoJ or proves to be only temporary without additional policy support.

The Federal Reserve (Fed) also remains part of the equation after keeping interest rates unchanged on Wednesday for a fifth consecutive meeting. Although the decision matched market expectations, the US Dollar (USD) weakened as investors unwound bets on a surprise rate hike. That softer USD could offer some additional support to the Japanese Yen, meaning that any hawkish signal from the Bank of Japan may have a greater impact on USD/JPY if the Greenback remains under pressure.

In the daily chart, USD/JPY trades just under the 100-day Simple Moving Average (SMA) at 160.08, which caps the topside and keeps the near-term bias slightly bearish despite the broader uptrend. Price holds above a dense support area defined by the horizontal floor around 158.00, the rising 200-day SMA at 157.94 and the uptrend support around 157.77, suggesting downside attempts could initially stall in this region. The Relative Strength Index (RSI) has slipped toward 30, hinting at emerging oversold conditions that may temper selling pressure but not yet imply a decisive bullish reversal while the pair trades below the 100-day SMA.

On the topside, immediate resistance is seen at the 100-day SMA at 160.08, followed by the horizontal barrier around 160.60, while a more distant hurdle emerges at the cycle high at 163.99, which would come into play on a sustained recovery. On the downside, the first area to watch is the current pivot zone around 159.43, with further support aligning at 158.00, backed by the 200-day SMA near 157.94 and the trend-line support at 157.77. A daily close below this cluster would reinforce the bearish tone and open the door to a deeper corrective phase.

• GBP/USD falls as a hawkish Fed pause and internal FOMC split boost the US Dollar.
• The Greenback may struggle amid easing risk aversion driven by recent US-Iran diplomatic developments.
• TD Securities noted a subtle BoE surprise as a 6-3 vote, including a hawkish dissent, kept rates unchanged.

GBP/USD loses ground after three days of gains, trading around 1.3450 during the Asian hours on Friday. The pair depreciates as the US Dollar (USD) gains support from a hawkish pause by the Federal Reserve (Fed) and an internal FOMC policy split.

Strategists at HSBC highlight that the US Federal Reserve "left interest rates unchanged for a fifth consecutive meeting, in line with expectations," but stress that the "9-3 vote revealed a lively debate within the FOMC," underscoring the extent of internal divergence over the appropriate policy path.

The GBP/USD pair may regain ground as the US Dollar (USD) could face challenges amid easing safe-haven demand, driven by a reduction in global risk aversion spurred by positive diplomatic developments. Tensions in the Middle East have shown signs of cooling as negotiations between the US and Iran progress toward restoring stability in the Strait of Hormuz.

US President Donald Trump announced a historic agreement aimed at the disarmament of Hamas and the withdrawal of Israeli forces from Gaza, a deal reportedly confirmed by senior Hamas officials.

BoE split surprises as TD Securities sees committee comfortable on hold

According to TD Securities, the Bank of England’s latest decision delivered a modest surprise, with the BoE opting to keep rates unchanged in a “6-3 vote split with Mann also joining the rate hike camp.” The bank notes that “this was not the market consensus,” even though “many forecasters including ourselves have flagged this as a risk.” Beyond the headline split, TD Securities stresses that “other than the vote split, it would appear to us the rest of the committee is still very comfortable keeping rates on hold, given the lack of clear second-round effects observed in inflation data.”

• AUD/USD remains subdued following disappointing Chinese PMI data, as manufacturing contracted to 49.2 in July, missing expectations.
• The Australian Dollar faces pressure as soft Q2 inflation virtually ruled out an August RBA rate hike.
• The US Dollar gains despite easing risk aversion driven by recent diplomatic developments.

AUD/USD inches lower after registering over 1% gains in the previous day, trading around 0.7020 during the Asian hours on Friday. The pair remains subdued following the release of disappointing Chinese Purchasing Managers' Index (PMI) data.

China’s NBS Manufacturing PMI fell into contraction territory at 49.2 in July, down from 50.3 prior and below market estimates of 50.0. Similarly, the Non-Manufacturing PMI dipped to 49.0 against expectations of a 50.0 reading, underscoring ongoing weakness in Australia's largest trading partner.

Aussie inflation cools further, easing pressure on the RBA

Analysts at Deutsche Bank highlight that the latest data showed a further easing in price pressures, with "annual inflation moderated from +4.0% to +3.8% yoy." They note that this incremental slowdown in headline inflation reinforces the perception that underlying price momentum is gradually cooling, helping to temper expectations for additional near-term tightening by the RBA and contributing to a softer tone in the Aussie Dollar.

The US Dollar (USD) holds firm despite an easing of global risk aversion brought on by positive diplomatic developments. Tensions in the Middle East have shown signs of cooling as negotiations between the US and Iran progress toward restoring stability in the Strait of Hormuz.

Further lifting market sentiment, US President Donald Trump announced a historic agreement aimed at the disarmament of Hamas and the withdrawal of Israeli forces from Gaza, a deal reportedly confirmed by senior Hamas officials.

Fed pause extends as FOMC split underscores policy debate

Strategists at HSBC highlight that the US Federal Reserve "left interest rates unchanged for a fifth consecutive meeting, in line with expectations," but stress that the "9-3 vote revealed a lively debate within the FOMC," underscoring the extent of internal divergence over the appropriate policy path.

• USD/JPY attracts some buyers on Friday and moves away from a two-and-a-half-month low.
• A modest USD strength acts as a tailwind for spot prices as focus remains on the BoJ decision.
• The bearish technical setup backs the case for the emergence of fresh selling at higher levels.

The USD/JPY pair is seen building on the previous day's late recovery from sub-158.00 levels, or the lowest since May 14, and gaining positive traction during the Asian session on Friday. Spot prices climb back above the 160.50 level amid the emergence of some US Dollar (USD) buying and some repositioning trade ahead of the highly anticipated Bank of Japan (BoJ) rate decision.

From a technical perspective, strength beyond the 160.00 psychological mark and the 38.2% Fibonacci retracement level of the sharp corrective pullback from a four-decade peak backs the case for further intraday gains. However, the 14-period Relative Strength Index (RSI) near 31 and a negative Moving Average Convergence Divergence (MACD) reading around -0.43 suggest lingering downside pressure.

Hence, any further move up is more likely to confront stiff resistance near a dense Fibonacci band led by the 50.0% retracement at 160.99 and further capped by the 61.8% and 78.6% retracements at 161.69 and 162.69, respectively. Bulls would need to clear the said barriers to ease immediate pressure and pave the way for a rise back towards the cycle high region at 163.97.

On the downside, initial support is seen at the 38.2% Fibonacci retracement at 160.28, ahead of the 23.6% level at 159.41 and the structural swing low zone at 158.00. A convincing break and acceptance below the handle will be seen as a fresh trigger for bearish traders and pave the way for an extension of the suspected intervention-led corrective decline.

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

USD/JPY 4-hour chart

• NZD/USD falls despite New Zealand's ANZ-Roy Morgan Consumer Confidence Index rising 8 points to 99.3 in July.
• China's July NBS Manufacturing PMI dropped to 49.2 from 50.3, falling short of the 50.0 market consensus.
• The US Dollar gains despite easing risk aversion driven by recent diplomatic developments.

NZD/USD loses ground after three days of gains, trading around 0.5870 during the Asian hours on Friday. The pair remains subdued following the release of China's Purchasing Managers Index (PMI) data. China’s NBS Manufacturing Purchasing Managers' Index (PMI) declined to 49.2 in July, from 50.3 in the previous reading. The reading came in below the market consensus of 50.0 in the reported month. The Non-Manufacturing PMI fell to 49.0, from 50.2 prior. The market forecast was for a 50.0 print.

Meanwhile, consumer sentiment in New Zealand showed signs of recovery as the ANZ-Roy Morgan Consumer Confidence Index jumped 8 points to 99.3 in July. While this marks its highest level since February, it remains 19 points below its January peak. Broader economic expectations for the year ahead also improved, rising from -23% to -13% for its strongest reading since February, alongside a 5-point gain in the five-year outlook to +12%.

Strategists at Brown Brothers Harriman highlight that the New Zealand Dollar has continued to firm, noting that “NZD is up against all major currencies” even as “New Zealand bonds underperformed peers.” They add that the latest ANZ July business outlook survey “was good, and indicative of an ongoing recovery in real GDP growth,” reinforcing the view that domestic momentum is improving even as local fixed income lags.

The NZD/USD pair depreciates as the US Dollar (USD) strengthens, defying a broader environment of easing risk aversion driven by diplomatic developments. Pakistan's Foreign Ministry spokesperson, Tahir Andrabi, confirmed that negotiations between the US and Iran are currently ongoing to restore stability, particularly within the critical Strait of Hormuz.

Fed press conference underscores resolute 2% inflation goal, supports stronger Dollar bias

The FOMC press conference tone was clearly more hawkish, with the 7/10 FXS Speechtracker score running above the 6/10 historical average and emphasizing “only one target and it is 2%” alongside a warning that “inflation cannot be cured in 9 weeks.” The repeated stress on impressive economic resilience, materially higher nominal and real yields, and a refusal to tolerate a higher inflation target signals a firm commitment to restrictive policy for longer, even as the Committee “steers clear of forecasting” and leans on trend-based assessment rather than short-term data dependence. This combination of confidence in the policy team and insistence on delivering the 2% target reinforces a hawkish bias that is typically supportive for the Dollar, especially against lower-yielding currencies.

The FXS Fed Sentiment Index jumped by 18.94 points to 147.58, firmly in hawkish territory and well above the neutral 100 line, aligning with the above-baseline FXS Speechtracker score and the strong anti-inflation rhetoric. Such a sharp move higher in the FXS Fed Sentiment Index underscores that markets are likely to price in a more persistent restrictive stance, favoring the Dollar on rate differentials and keeping pressure on risk-sensitive FX pairs.

Geopolitical developments in the Middle East saw further movement following statements from US President Donald Trump, who claimed his "Board of Peace" reached a historic agreement for the complete disarmament of Hamas and other armed groups in Gaza, after which Israel would exit the territory. Senior Hamas officials have reportedly confirmed reaching a deal to end the conflict with Israel following the announcement.

• DXY attracts some buyers and snaps a three-day losing streak to its lowest level since June 17.
• Geopolitical risks offset signs of cooling US inflation and keep bets for a Fed rate hike on the table.
• Escalating US-Iran tensions further support the DXY and contribute to the intraday recovery move.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, gains some positive traction and climbs back above the 100.00 psychological mark during the Asian session on Friday. The index, for now, seems to have snapped a three-day losing streak to its lowest level since June 17, touched on Thursday, though it remains on track to register heavy weekly losses.

The US Personal Consumption Expenditures (PCE) Price Index fell 0.1% in June, marking the first monthly decline since April 2020 as the temporary truce in the Iran war sent gas prices lower. This, in turn, dampened expectations for an immediate interest rate hike by the US Federal Reserve (Fed) and led to the overnight slump in the DXY. However, volatile crude oil prices amid the US-Iran standoff suggest that inflation remains a concern.

In the latest developments surrounding the Middle East crisis, Iran rejected Oman's plan for a 50-50 joint management, which would see Tehran partially control the Strait of Hormuz and collect voluntary fees for using the waterway. Meanwhile, the US military announced it had completed a heavy wave of strikes against Iran, in response to Iranian missile attacks on its forces in the Middle East, dampening hopes for a diplomatic breakthrough.

Meanwhile, Saudi Arabia is building an international coalition to protect key shipping routes in the Bab al-Mandab Strait, the Red Sea, and the Gulf of Aden from repeated attacks by Yemen's Houthi militias. On July 20, the Iran-aligned Houthis declared a maritime embargo against Saudi ‌Arabia, opening a new front in a five-month-old US-Iran war, raising the risk of a wider regional conflict and keeping geopolitical risk premium in play.

This continues to act as a tailwind for crude oil prices, and fuels worries about reviving inflationary pressures. Moreover, the core US PCE remains well above the Fed 2% target, leaving the door open for at least one rate hike by the year-end. This might hold back traders from placing fresh bearish bets on the DXY and warrants some caution before positioning for an extension of this week's sharp retracement slide from the highest level since June 25.

China’s Manufacturing Purchasing Managers' Index (PMI) fell to 49.2 in July, compared to 50.3 in the previous reading, China’s National Bureau of Statistics (NBS) reported on Friday. The reading came in below the market consensus of 50.0 in the reported month. 

The NBS Non-Manufacturing PMI eased to 49.0 in July versus June’s 50.2 figure. The market forecast was for a 50.0 print.

Market reaction

The China-proxy Australian Dollar (AUD) edges slightly lower following the downbeat China’s PMI data. At the press time, the AUD/USD pair is down 0.04% on the day to trade at 0.7026.