Forex News
BNY’s Geoff Yu notes that the U.S.–Iran confrontation and Houthi threats in the Red Sea are sustaining a geopolitical premium in Brent and WTI. Brent has risen toward $88 per barrel, with risks that Strait of Hormuz disruptions further tighten Oil supply. Higher Energy prices are described as both a risk-off signal and an inflation shock for global markets.
Gulf tensions keep crude supported
"The U.S.–Iran conflict intensified for a tenth straight day while mediators tried to restore a fragile truce, with the Houthis in Yemen threatening a new maritime front in the Red Sea. The U.S. Central Command said it hit command centers, launch sites and air defenses in Iran, while Iran struck U.S. military sites in Kuwait and Jordan. The U.K. navy reports also pointed to attacks on vessels near the Strait of Hormuz."
"The standoff has lifted Brent crude to $88.45 a barrel and pushed U.S. gasoline above $4 per gallon. Disruptions to Hormuz shipping could further tighten global oil supplies and raise geopolitical risk."
"In the Gulf, a tenth day of strikes keeps the shipping-risk channel alive and leaves oil trading with a geopolitical premium. Gold has edged higher, but higher oil is not just a risk-off signal; it’s also an inflation shock. That is why Treasurys haven’t behaved like a simple safe haven."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
The Japanese Yen (JPY) continues to trade on the defensive against the US Dollar (USD), lingering near year-to-date highs just below the 163.00 handle. Driven by global energy price shocks stemming from Middle East supply risks and persistent macro headwinds, the Yen remains under pressure relative to its major peers.
However, as technical indicators signal near-term range consolidation, market participants are closely weighing long-term structural factors, including Japan's newly approved national economic blueprint and explicit assurances regarding Bank of Japan (BoJ) independence.
Technical consolidation caps immediate breakout near 163.00
UOB analysts highlight that intraday price action for USD/JPY exhibits a firm tone, locking the pair into a slightly higher daily band between 162.30 and 162.70. Over a multi-week horizon, however, technical indicators suggest that broader consolidation will keep gains capped below major resistance levels. Crucially, as long as spot prices hold above key moving averages, the medium-term uptrend remains unbroken.
While we are not able to derive much from the price action since then, a narrower 161.30-163.00 range is likely sufficient to contain USD for now.
Energy price shocks and fiscal clarity shape Yen fundamentals
MUFG points out that rising Oil prices present a direct headwind for the Yen due to Japan's heavy reliance on imported energy. On the policy front, Japan's newly finalized growth strategy included a crucial clarification that leaves monetary policy tools entirely to the central bank's discretion. This move has helped stabilize market expectations regarding future BoJ rate hikes.
The final document also included a footnote stating that the government leaves specific monetary policy tools up to the BoJ while respecting its autonomy. The addition has helped to ease some concern amongst investors that the government will restrict the BoJ’s room to tighten policy further.
Banks expect range-bound path for USD/JPY
The banks project an elevated yet technically constrained trajectory for USD/JPY in the near term. UOB expects the pair to trade within a 161.30 to 163.00 range over the next few weeks, maintaining a broader bullish bias as long as the key 161.00 support level (21-day EMA) holds. Meanwhile, MUFG emphasizes that while energy supply risks will continue to weigh on Yen performance, official confirmation of BoJ policy independence provides a structural counterweight against Yen depreciation.
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Gold rebounds from the $4,000 area as markets monitor the latest US-Iran developments.
- Elevated Oil prices and the prospect of tighter Federal Reserve policy limit the metal’s upside.
- XAU/USD tests the Bollinger midline near $4,062, with the $4,175 upper band acting as the next resistance.
Gold (XAU/USD) edges higher on Tuesday as buying interest around the $4,000 psychological level supports prices, while traders assess developments in the Middle East and their potential economic fallout. At the time of writing, XAU/USD trades around $4,058, up 1.27% on the day.
The United States military carried out a tenth consecutive night of strikes against Iran, while Iran’s Revolutionary Guards targeted US military assets across the region.
Despite the continued military exchanges, diplomatic efforts are underway. The Associated Press reported that Iranian officials began meeting with mediators in Pakistan on Tuesday. Reuters reported on Monday that mediators had offered Tehran a 10-day ceasefire to try to bring last month’s interim agreement back on track.
With the situation still in flux, the US Dollar (USD) remains the preferred safe-haven asset, while Oil prices hold close to their highest level in more than a month. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is hovering just below the 101.00 mark, little changed on the day.
Although Gold is attempting to establish a base above the $4,000 psychological level, its upside remains limited as elevated energy prices stoke inflation concerns and strengthen expectations that the Federal Reserve (Fed) will keep monetary policy tighter for longer or even raise interest rates.
Higher borrowing costs reduce Gold's appeal, prompting investors to rotate toward interest-bearing assets such as government bonds.
Dollar support builds as Gulf tensions weigh on gold
Analysts at ING note that “the FX market is gradually catching up with developments in the Gulf, where tensions still appear to be escalating, and the Dollar has found broad-based support.” They highlight that US President Donald Trump has “pledged retaliation against Iran following the killing of three US service members in Jordan,” while Houthi militants are “threatening a blockade of Saudi Arabia in the Red Sea,” reinforcing the bid for the Dollar as geopolitical risks intensify.
Strategists at OCBC say Gold has "continued to consolidate around recent lows following the sharp pullback earlier this month," adding that "near term, price action may remain two-way, but a more sustained recovery likely requires oil prices to back off, some easing in real yields and Fed tightening expectations. Until then, upside may remain capped."
Technical analysis: XAU/USD stabilizes above $4,000
XAU/USD is testing the 20-day Simple Moving Average (SMA) at $4,062. The Relative Strength Index (RSI) at 45 on the daily chart is below the neutral 50 level, indicating weak bullish momentum. Meanwhile, the Average Directional Index (ADX) near 39 suggests the prevailing trend remains strong despite the near-term stabilization.
On the downside, immediate support lies at the $4,000 psychological level, followed by the lower Bollinger Band at $3,948. A break below this area could expose the horizontal support at $3,800.
On the topside, a sustained move above the Bollinger midline at $4,062 could open the door toward the upper band at $4,175, followed by the $4,200 resistance level. A decisive break above $4,200 would bring the more distant $4,500 barrier into focus.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Brown Brothers Harriman’s (BBH) Elias Haddad notes the Canadian Dollar (CAD) is underperforming other high-beta currencies after the Trump administration announced a 50% tariff on nearly $20 billion of Canadian imports, excluding energy and some key goods. At the same time, Canada’s June inflation cooled more than expected, with core measures below the Bank of Canada’s (BoC) 2% target, supporting an extended BoC pause and downside adjustment in rate hike bets against CAD.
Trade shock and inflation drag CAD
"CAD is underperforming other high-beta currencies. The Trump administration announced yesterday a 50% tariff on nearly $20 billion in imports from Canada (0.85% of Canada’s GDP), which will take effect on August 19."
"The tariff would apply to a range of products from wine to hockey sticks to cement. The tariff will not apply to energy, potash, products subject to tariffs under Section 232, and other goods like fish or critical minerals."
"Meanwhile, Canada inflation cooled more than expected in June. Headline CPI printed at 2.8% y/y (consensus: 2.9%) vs. 3.2% in May on lower gasoline prices. The policy-relevant core CPI (average of trim and median) dropped to 1.85% y/y (consensus: 2.05%) vs. 2.05% in May, matching the September 2020 low. Core CPI ex. food & energy was marginally hotter than anticipated at 1.8% y/y (consensus: 1.7%) vs. 1.6% in May."
"Worsening US-Canada trade dispute and core inflation running below the Bank of Canada’s (BoC) 2% target, support an extended BoC pause. As such, there is room for BoC rate hikes bets (50bps in the next twelve months) to adjust lower against CAD."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
The British Pound (GBP) is facing a notable loss of upward momentum across major currency pairs as UK political headlines and fiscal concerns re-emerge.
While the appointment of John Healey as Chancellor of the Exchequer under Prime Minister Andy Burnham was initially seen as market-friendly, subsequent signals regarding fiscal flexibility have unsettled the UK Gilt market. With the Bank of England (BoE) perceived as less hawkish than its European counterparts and key technical support levels yielding, major financial institutions are forecasting a period of range-bound trading for the British Pound.
Institutional Analysis: OCBC vs. UOB
Here is a breakdown of how analysts at OCBC and UOB view the currency's path forward:
- Political & fiscal drivers: OCBC highlights that Prime Minister Andy Burnham’s willingness to utilize "any flexibility" within fiscal rules (alongside plans for higher defense spending and reversing departmental cuts) presents clear friction ahead of the Autumn Budget. UOB focuses on immediate market sentiment, noting that recent technical breaks reflect fading momentum rather than aggressive selling.
- Monetary policy contrast: OCBC notes that while rising energy prices increase the likelihood of rate hikes across continental Europe, the BoE appears far less inclined to tighten policy, capping the British Pound’s relative yield advantage.
- EUR/GBP outlook: OCBC believes the recent slide in EUR/GBP to one-year lows has run its course, projecting a recovery toward 0.8700 over the coming months.
- GBP/USD outlook: UOB projects near-term consolidation within a 1.3385-1.3495 range, with broader multi-month support targets anchored down at 1.3210 and 1.3160.
Fiscal tensions and central bank divergence cap Pound upside
According to OCBC analysts, the British Pound's recent outperformance is reaching a ceiling. Although fiscal measures ahead of the Autumn Budget may remain modest in the immediate term, balancing defense commitments without breaching current spending rules will prove difficult. Combined with an asymmetric monetary policy outlook (where European peers face greater pressure to hike rates), Sterling lacks the catalyst for further sustained gains.
We continue to expect EUR/GBP to recover towards 0.87 over the coming months, in line with our broader view of a range-bound GBP. Higher energy prices raise the risk of additional rate hikes in Europe, but the Bank of England still appears less likely than its regional peers to tighten policy, limiting GBP upside.
Technical momentum cools as GBP/USD enters consolidation phase
From a technical perspective, UOB notes that GBP/USD is expected to trade range-bound after breaking through the key support level at 1.3450. Although the sell-off lacks strong downward impulse, the pair has transitioned into a well-defined range-trading environment.
The build-up in momentum has faded, and GBP has likely entered a range-trading phase between 1.3385 and 1.3495.
Banks expect range-bound trading with a downward bias for Sterling
The banks project a range-bound trajectory for the British Pound. OCBC anticipates that the recent EUR/GBP sell-off will reverse course, lifting the cross back toward 0.8700 as fiscal headwinds and BoE policy divergence weigh on the UK currency. UOB expects GBP/USD to remain locked between 1.3385 and 1.3495 over the next one to three weeks, warning that over a longer 1-3 month horizon, the loss of upside momentum leaves broader support levels at 1.3210 and 1.3160 vulnerable to testing.
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
ING’s Frantisek Taborsky expects the National Bank of Hungary (NBH) to cut rates by 25bp to 5.75%, continuing its easing cycle despite recent FX and rates pressure. He argues the sell-off in Hungarian Forint (HUF) assets reflects positioning rather than fundamentals and sees scope for a more dovish market stance. Taborsky forecasts the policy rate at 5.00% this year and 4.00% in 2028, with room to rebuild forint longs.
Forint under pressure as NBH cuts
"The National Bank of Hungary is likely to cut rates by another 25bp to 5.75% today. The central bank restarted its easing cycle in June and committed to further cuts in July and August. A new forecast is due in September, when the NBH should reassess its next steps."
"While FX and rates have come under significant global pressure, triggering the largest sell-off since the April general elections, the situation likely looks more stable from the central bank’s perspective than from the market’s."
"June inflation again undershot the NBH’s forecast, and the governor last week described EUR/HUF around 355-360 as stable. Overall, we expect the NBH to maintain its current rhetoric."
"As a result, we expect the sell-off to fade at the first signs of global relief. The market now prices slightly more than 75bp of easing, including today’s meeting, and a terminal rate between 4.75% and 5.00%. We expect the policy rate to reach 5.00% this year and 4.00% in 2028. We therefore see room for the market to return to a more dovish stance and for investors to rebuild forint longs, depending on the global backdrop."
"The market has already priced out a large share of expected rate cuts after recent pressure on HUF assets, which underperformed not only within CEE but also across emerging markets. In our view, this reflects heavy long positioning rather than a deterioration in the local fundamentals, which remain constructive."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- AUD/USD rallies for the second consecutive day and hits one-month highs above 0.7020.
- Investors' optimism about a ceasefire in Iran is keeping the US Dollar under pressure.
- Rising bets that the RBA might hike rates once more this year provide additional support to the Aussie.
The Australian Dollar (AUD) is showing one of the best performances among major currencies on Tuesday, appreciating to fresh one-month highs against the US Dollar, amid hopes of a ceasefire in Iran. The AUD/USD pair extends gains for the second consecutive day to reach levels above 0.7020 for the first time since mid-June.
A mild appetite for risk is supporting the Aussie’s recovery as investors cling to hopes of a ceasefire in Iran. A report by Axios released earlier on Tuesday revealed that the US administration is reviewing a peace proposal submitted by mediators and that the US president has urged Israel to avoid actions that might endanger a negotiating scenario.
The report, however, also says that the US military is preparing for an all-out war, in case the diplomatic way fails. This is keeping US Dollar dips limited so far.
The Australian and US economic calendars are thin this week, but rising bets that the Reserve Bank of Australia (RBA) might hike interest rates before the end of the year are providing moderate support for the Aussie. The RBA left rates on hold in June and is expected to stand pat in August as well, but the recent rally in oil prices has boosted hopes of another rate hike before the year-end.
In the US, on the other hand, the soft inflation data released last week dampened hopes of a rate hike in July and left investors split about one in September. This has blunted the US Dollar’s bullish edge this week.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
- The Indian Rupee rebounds against the US Dollar on hopes of peace in the Middle East again.
- Iran confirms receiving a 10-day ceasefire proposal from the US by mediators.
- FIIs have remained net sellers in the last six trading days.
The Indian Rupee (INR) opens higher against the US Dollar on Tuesday. The USD/INR pair corrects to near 96.34 from its two-month high of 96.76 posted on Monday, as fresh hopes of de-escalation in military aggression between the United States (US) and Iran have offered support to the Indian currency.
The emergence of hopes for Middle East peace has resulted in a pause in the oil price rally, a scenario that offers support to currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs.
In the opening trade, the MCX Crude Oil contract expiring on August 19 is marginally down to near Rs. 7,945. On Monday, the crude oil price corrected sharply after posting a fresh five-week high at Rs. 8,158.
Iran receives 10-day ceasefire proposal with US
On Monday, a senior Iranian official confirmed receiving a proposal of a 10-day cessation of strikes from mediators to find ways to revive the interim deal with the US. This led to financial markets regaining confidence that negotiations between nations are still active.
Earlier in the day, an Axios report also showed that US President Donald Trump will either accept the 10-day ceasefire with Iran and resume negotiations toward an interim deal or will call for a joint full-scale military campaign with Israel against Iran.
Renewed hopes for peace in the Middle East will likely keep oil prices’ upside limited; however, the continuation of attacks between the US and Iran would increase global volatility further.
FIIs continue dumping their stake in Indian stock market
Foreign Institutional Investors (FIIs) are consistently paring their stake in the Indian stock market, extending their selling streak for the sixth trading day on Monday. In the last six trading days, overseas investors have cumulatively sold their stake worth Rs. 10,240.80 crore.
The sentiment of overseas investors toward the Indian stock market appears to have turned cautious amidst the ongoing Q1FY27 earnings season. FIIs' confidence in the Indian stock market is expected to deteriorate further as the administration has stated that it has no plans to scrap Long-Term Capital Gains (LTCG) tax on investors, a key reason behind the consistent outflow of foreign funds from the Indian equity market.
"At present, there is no such proposal under consideration. The tax policies, including capital gains tax rates, are reviewed periodically as part of the annual budgetary process, and legislative revisions are made after taking into consideration the macroeconomic parameters," Minister of State for Finance Pankaj Chaudhary said, The New Indian Express reported.
Technical Analysis: USD/INR stays firmly above 20-day EMA
USD/INR trades lower at around 96.34, but is maintaining a bullish near-term bias as spot holds above the 20-period exponential moving average (EMA) at 95.73. The pair has been grinding higher over recent sessions, and the Relative Strength Index (RSI) at 62 reinforces constructive momentum without yet signaling overbought conditions.
On the downside, immediate support is offered by the 20-period EMA at 95.73, which acts as a dynamic floor for any corrective dips. Looking up, the pair aims to revisit the all-time high at around 97.10.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
- Gold price jumps to near $4,067 as oil prices rally hit a pause.
- A lower US Dollar has also supported the Gold price.
- The Fed is expected to leave interest rates unchanged next week.
Gold price (XAU/USD) is up 1.5% to near $4,067 during the European trading session on Tuesday. The precious metal outperforms as the rally in oil prices has stalled, with investors turning confident that negotiations between the United States (US) and Iran towards peace have resumed.
In European trade, the WTI Oil price turns positive to near $82.65 after recovering early losses, but corrected sharply after registering a fresh monthly high at $84.42.
Lower oil prices ease inflation expectations and fears of interest rate hikes from central banks, a scenario that bodes well for non-yielding assets, such as Gold.
Meanwhile, a slight correction in the US Dollar due to risk-on market sentiment is also supporting the Gold price. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% lower to near 100.90.
Technically, a lower US Dollar makes the Gold price a favorable risk-reward bet for investors.
On the US interest rate front, the Federal Reserve (Fed) is almost certain to leave interest rates unchanged in the policy meeting next week.
Gold technical analysis
XAU/USD trades higher at around $4,069.52, closer to the 20-day Exponential Moving Average (EMA), which is at $4,089.31. The precious metal attempts a breakout of the Descending Triangle formation after remaining sideways for almost a month.
Momentum remains subdued with the 14-period Relative Strength Index (RSI) hovering around 45 and signaling a lack of bullish conviction.
On the downside, immediate support is seen around the recent break-price area near $4,043, before the rising trend-line floor at $3,941.63. On the topside, the 20-period EMA at $4,089.31 is the first meaningful barrier that gold must reclaim to ease near-term downside pressure and open the way for a more constructive recovery towards the July 6 high around $4,200.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
- USD/JPY rises to 162.70, despite broad US Dollar weakness, and approaches 40-year highs at 162.84.
- Investors' optimism about a ceasefire in Iran has failed to provide support to the Yen.
- The Yen remains weighed down by interest rate divergence between the BoJ and the rest of the major central banks.
The Japanese Yen (JPY) keeps drifting lower on Tuesday, unfazed by the mild US Dollar’s weakness. The USD/JPY pair has reached session highs at 162.70 during the European trading session, less than 15 pips below the 40-year high of 162.84, which is seen as the new line in the sand for Tokyo intervention.
The US Dollar is showing a moderately offered tone on Tuesday as investors cling to optimism amid reports that US and Iranian authorities are reviewing a peace proposal submitted by mediators that might avoid the conflict escalating out of control.
Interest rate divergences are crushing the Yen
The Yen, however, remains on its back foot as the recent rally in Oil prices adds pressure on major central banks to tighten their monetary policies further, increasing the interest rate divergence with the Bank of Japan (BoJ).
BoJ officials have reiterated their commitment to tighten their monetary policy further, but investors are sceptical that interet rates might be raised much higher than 1.25% in the near term, as they would jeopardise the Japanese Government’s efforts to boost economic growth. This leaves the Yen at the mercy of carry traders, whose strategy consists of borrowing low-yielding currencies to exchange them for higher-yielding ones, and pocket the differential, therefore fuelling massive JPY- short positions.
In the Japanese calendar, the main focus this week is on June’s National Consumer Prices Index (CPI) figures, which are expected to show a mild uptick, following soft readings in the previous two months. The Yen would need a positive surprise on inflation to renew pressure on the BoJ to hike rates and keep JPY sellers at bay, at least for some time.
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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