Forex News
US President Donald Trump is delivering a primetime address to the nation from the White House on Friday.
Key quotes
Will publish classified U.S. evaluations showing ballot-counting systems susceptible to compromise by China, Russia.
China conducted largest known election data breach starting in 2020 cycle.
China obtained 220 million U.S. voter records.
Intelligence indicates China designated a data exploitation unit specifically for this new project.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
On Friday, the People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead at 6.7934 compared to the previous day's fix of 6.7909 and 6.7734 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.
Japan’s Finance Minister Satsuki Katayama said on Friday that the authorities are ready to act on currency moves whenever necessary.
Key quotes
Will not discuss particular FX levels.
Ready to act on currency moves whenever necessary.
Ready to take resolute steps if required.
Ready to take decisive steps on currency if necessary.
Market reaction
At the time of writing, USD/JPY is up 0.02% on the day at 162.43.
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.
- NZD/USD remains resilient as cooling food inflation is offset by ongoing RBNZ rate hike expectations.
- Fears of energy supply disruptions grow following reports of explosions and potential Red Sea shipping blockades.
- US President Trump's threat of military strikes on Iran could boost the safe-haven US Dollar.
NZD/USD inches higher after posting minor losses in the previous day, trading around 0.5840 during the Asian hours on Friday. The currency pair remains stronger as the New Zealand Dollar (NZD) holds its ground following the release of the country's latest food price data.
New Zealand’s food prices rose 0.6% month-over-month in June 2026, cooling slightly from the 1.0% increase seen in May. On an annual basis, food inflation slowed to 2.5% in June from May's 3.2%, marking the softest year-over-year increase since February 2025.
Despite the cooling food data, the New Zealand Dollar receives underlying support from persistently high oil prices, which continue to fuel inflation concerns and expectations of further interest rate hikes. This sentiment was echoed by Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway, who recently warned that sticky inflation could prompt the central bank to raise interest rates again.
Meanwhile, traders are continuing to digest escalating developments surrounding conflicts in the Middle East. Reuters reported on Thursday that Iran has instructed Yemen’s Houthi militia to stand ready to close the critical Red Sea oil route if the United States strikes Iranian power infrastructure, presenting a potent new threat to global energy supplies. Amplifying these concerns, the Tasnim news agency reported explosions in Bandar Abbas, Qeshm, and Ahvaz, while very loud explosions were also heard in Kuwait and as far away as Basra.
These geopolitical flare-ups follow threats made earlier this week by US President Donald Trump, who stated the US would strike Iran's bridges and power plants next week if the country does not return to the negotiating table. Ultimately, these signs of escalating tensions in the Middle East could boost safe-haven currencies like the US Dollar, potentially creating a strong headwind for the NZD/USD pair in the near term.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
- DXY struggles to capitalize on the previous day’s move higher as traders await Trump’s speech.
- Escalating US-Iran tensions fuel inflation fears and bolster Fed hike bets, supporting the buck.
- The fundamental backdrop favors USD bulls and supports prospects for some meaningful upside.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, is seen oscillating in a narrow range just above the 100.50 level as traders await US President Donald Trump's speech. In the meantime, escalating US-Iran tensions, along with reviving US Federal Reserve (Fed) rate-hike bets, act as a tailwind for the US Dollar (USD) and keep the index well above a nearly one-month low, touched on Wednesday.
The US intensified its strikes on Iran, with officials in southern Bandar Abbas reporting that civilian infrastructure – including power facilities and a train station – has been hit. The US also fired into a ship it accused of trying to break the renewed naval blockade on the Islamic Republic. Iran retaliated with missile and drone fire targeting US allies in the region and warned that its attacks may escalate. This keeps the geopolitical risk premium in play and turns out to be a key factor underpinning the safe-haven Greenback.
Meanwhile, Iran's Islamic Revolutionary Guard Corps had threatened to expand the conflict by targeting additional regional energy supply routes. Furthermore, Reuters reported that Iran has asked Yemen’s Houthis to stand ready to close the Red Sea oil route, posing a potent new threat to global energy supplies. The latest developments remain supportive of elevated Crude Oil prices, fueling inflation fears. Adding to this, hawkish remarks from a Fed official bolstered bets for at least one rate hike in 2026.
In fact, Dallas Fed President Lorie Logan said on Thursday that the positive news this week on consumer and wholesale prices still wasn’t good enough to signal real help for US households. She called for modestly higher interest rates to win a battle the central bank has been losing for the past five years. This turns out to be another factor lending support to the DXY, which remains on track to register weekly losses.
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 trades flat near 1.1445 in Friday’s early European session.
- Iran told Houthis to close the Red Sea oil route if the US hits the power network.
- Rising tensions in the Middle East have boosted crude oil prices, prompting markets to anticipate another ECB rate hike in September.
The EUR/USD pair holds steady around 1.1445 during the early Asian session on Friday. Traders continue to digest the developments surrounding the Middle East conflicts. The preliminary reading of the Michigan Consumer Sentiment Index for July will be published later on Friday.
Reuters reported on Thursday that Iran has asked Yemen’s Houthi militia to stand ready to close the Red Sea oil route if the United States (US) strikes Iranian power infrastructure, posing a potent new threat to global energy supplies.
Meanwhile, the Tasnim news agency reported another explosion in Bandar Abbas, Qeshm, and Ahvaz. Very loud explosions were heard in Kuwait, and the sound was also heard in Basra.
Earlier this week, US President Donald Trump threatened to strike Iran's bridges and power plants next week if the country does not return to talks. Signs of escalating tensions in the Middle East could boost a safe-haven currency such as the US Dollar (USD) and create a headwind for the major pair in the near term.
Across the pond, the European Central Bank (ECB) is expected to hold interest rates next Thursday but will hike for the second time this year in September as a renewed energy price surge raises the risk of more intense inflation pressures, according to Reuters.
Cook underscores cautious disinflation outlook, keeping Dollar supported
Fed’s Cook delivers a mildly more hawkish tone, with the 6.4/10 FXS Speechtracker score just above the 6.3/10 historical average, signaling continuity rather than a regime shift. The emphasis that one month of softer CPI and PPI “does not make a trend,” combined with the description of policy as only “mildly restrictive” and a willingness to wait “a bit more time” while remaining ready to act if disinflation stalls, reinforces a patient but vigilant stance that tends to underpin the Dollar. References to AI-driven investment, anchored inflation expectations conditional on appropriate policy, and upside risks from tariffs and geopolitical tensions further tilt the balance of risks toward sustained policy firmness.
The FXS Fed Sentiment Index rose by 0.20 points to 126.33, confirming that the speech nudged overall Fed rhetoric deeper into hawkish territory. With the index well above the neutral 100 mark and the FXS Speechtracker score slightly above the established baseline, Cook’s remarks are consistent with a Fed that is in no rush to ease, a backdrop that generally supports the Dollar against the Euro and Yen.
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.
Iran has asked Yemen’s Houthi militia to stand ready to close the Red Sea oil route if the United States (US) strikes Iranian power infrastructure, posing a potent new threat to global energy supplies, Reuters reported on Thursday.
According to a source close to the Houthis, the group had finished preparing to attack shipping by deploying missiles and drones near the Bab El-Mandeb Strait, the gateway to the Red Sea in Yemen's highlands with views of Hodeidah and the Gulf of Aden. The source said that representatives of Iran’s Islamic Revolutionary Guard Corps (IRGC), who are already in Yemen, will control the decision on when to close the Bab El-Mandeb Strait.
Earlier Thursday, the Tasnim news agency reported another explosion in Bandar Abbas, Qeshm, and Ahvaz. The source said the attacks targeted the bridge connecting Bandar Abbas to Shiraz, known as the Bandar Abbas-Khorstan-Lar bridge. Power outages are currently affecting areas in Kahorstan.
Meanwhile, Fars News reported another attack in the Middle East, saying that there were very loud explosions heard in Kuwait, and the sound was also heard in Basra. On Friday, Qatar’s Defence Ministry also said the country intercepts missile attack.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- Gold price slumps to near $3,975 in Friday’s early Asian session.
- Iran tells Houthis to close Red Sea gateway if US hits power network.
- Escalating Middle East conflict fueled concerns that the Fed could hike interest rates this year.
Gold price (XAU/USD) falls to near an eight-month low around $3,975 during the early Asian session on Friday. The precious metal extends its downside as rising tensions in the Middle East raise inflation concerns and reinforce expectations of elevated US interest rates.
Reuters reported on Thursday that Iran has asked Yemen’s Houthi movement to stand ready to close the Red Sea oil route if the US strikes Iranian power infrastructure, posing a potent new threat to global energy supplies. This action came after US President Donald Trump’s threat to attack Iran's power infrastructure on Tuesday.
Any threat to the Red Sea risks hugely exacerbating the global energy crisis triggered by Iran's closure of the Strait of Hormuz and underscores the explosive risks stemming from a new round of warfare. This, in turn, could push crude oil prices up and could prompt central banks to hold rates at elevated levels for longer, weighing on gold's appeal as a non-yielding asset.
The developments surrounding Middle East conflicts overshadow recent optimism over easing inflation. Data released on Tuesday showed that US Consumer Price Index (CPI) inflation slowed in June, while data from Wednesday showed a decline in the Producer Price Index (PPI).
Traders are now pricing in nearly a 55% odds that the Federal Reserve (Fed) will hike rates in September, according to the CME FedWatch Tool.
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.
Federal Reserve (Fed) Vice Chair Philip Jefferson said that the current policy stance should support the job market and allow inflation to resume decline toward 2% as tariff effects and energy prices pass through, Reuters reported on Thursday. He added that in a scenario where inflation does not start cooling, it could be appropriate to reconsider stance to ensure we deliver price stability.
Key Quotes
Current policy stance should support job market, allow inflation to resume decline toward 2% as tariff effects, energy prices pass through.
In scenario where inflation does not start cooling, it could be appropriate to reconsider stance to ensure we deliver price stability.
Current policy is well positioned to respond, based on incoming data, evolving outlook and balance of risks.
Firmly committed to returning inflation to our 2% target, consistent with dual mandate.
Expect Middle East conflict to have muted effects on demand as us is net oil exporter, economy less oil intensive.
Now monitoring 2 significant developments - Middle East conflict, proliferation of AI.
Current scenario exemplifies policy dilemma where dual mandate goals are in tension.
Cannot look at each in a vaccuum, must consider whole of economy when setting policy.
Energy shock overlaps with trade policy shock, which has had at least near-term effects on output and prices.
Quick succession of shocks risks inflation getting entrenched, inflation expectations getting unanchored.
Economic shock from AI likely to have persistent effects on supply and demand.
If demand effects from AI buildout and consumption occur before AI productivity benefits, AI could exert upward pressure on inflation.
If AI productivity benefits reduce production costs sooner, there may be downward pressure on inflation.
Market reaction
As of writing, the US Dollar Index (DXY) trades 0.22% higher to near 100.73.
Jefferson flags policy dilemma but keeps Fed stance steady for Dollar
Jefferson’s remarks score 6/10 on the FXS Speechtracker, only slightly above the 5.8/10 historical average, signaling a tone broadly in line with the established baseline. The key message is that the current policy stance is expected to support the job market while allowing inflation to resume its decline toward 2% as tariff and energy shocks pass through, but with a clear warning that the stance will be reconsidered if inflation fails to cool, underscoring a data-dependent but vigilant posture. The emphasis on overlapping energy and trade shocks, AI-driven demand and supply effects, and the risk of entrenched inflation expectations highlights a nuanced policy dilemma rather than a decisive hawkish or dovish shift.
The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated level of 126.57, confirming that Jefferson’s speech leaves the perceived stance firmly in hawkish territory. The combination of a stable index reading and a speech score close to the historical average suggests that, in the FXS Speechtracker framework, the Dollar narrative remains one of steady, data-driven vigilance rather than a fresh policy pivot.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
BNY’s Geoff Yu highlights a hawkish 25bp hike by the Bank of Korea (BoK) to 2.75%, with guidance that Gross Domestic Product (GDP) and core inflation will exceed earlier forecasts. Authorities are also tightening rules on single-stock leveraged ETF/ETN products to curb speculative leverage in memory chip names. Asian semiconductor stocks, including SK Hynix and Samsung Electronics, have slumped, weighing on KOSPI and USD/KRW.
Hawkish BoK and chip-led risks
"The BoK has raised its base rate by 25bp to 2.75% in a unanimous 7-0 decision, citing stronger-than-expected growth, sticky inflation and rising financial stability risks. The board struck a more hawkish tone, signaling that further hikes remain under consideration. It said GDP is likely to be considerably higher than forecast in May, when it was seen at 2.6%."
"Inflation is expected to remain elevated for a prolonged period despite lower oil prices, with core inflation now projected to exceed the May forecast of 2.4%, while headline inflation is expected to hold at 2.7%. The central bank highlighted robust semiconductor-led exports, firm investment and improving domestic demand, alongside faster house price gains, higher household debt and exchange rate volatility."
"Asian semiconductor stocks slumped after a sharp selloff in U.S. chipmakers, with the weakness driven by profit-taking and renewed caution over lofty AI-related valuations rather than any clear deterioration in fundamentals. SK Hynix fell 11.5% in Seoul after recent extreme volatility, while Samsung Electronics dropped more than 8% and other South Korean chip names also declined."
"South Korea’s authorities have announced supplementary measures on single-stock leveraged ETF/ETN products. The move is aimed at curbing overheating, strengthening investor protection and reducing the risk of further volatility in memory chip names amid rapid growth in these products since launch."
"New listings of single-stock products, including inverse and covered call variants, will be temporarily suspended until markets stabilize, and advertising and event marketing will be banned. Risk controls will be tightened through lower LP deviation thresholds, tougher penalties, faster designation of risky products, expanded pre-investor education and automated risk alerts."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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