Forex News

Nordea’s Kjetil Olsen notes that Norges Bank raised its policy rate by 25bp to 4.5% and lifted the policy rate path, implying some risk of a further hike over the next six months. Norges Bank expects mainland growth to remain around 1% and unemployment to edge higher, while Olsen sees rates staying near current levels for an extended period and only declining gradually thereafter.

Central bank signals prolonged tight stance

"Norges Bank raised its policy rate by 25bps to 4.5% as we expected and signals a 40% chance of another hike over the next half year."

"They do not forecast rate cuts before 2028."

"Norges Bank expects growth to be around 1% going forward, slightly below potential, and that unemploment will edge up."

"They do not think the inflation outlook has changed much since June despite inflation having been lower during summer and NOK is somewhat stronger, pointing to stronger external impulses (energy, commodity prices)."

"Rates will stay around current levels for quite some time and when rates eventually goes down, they will not go down by much."

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

Rachel Battaglia at Royal Bank of Canada (RBC) argues that higher backward-looking population growth implies stronger potential output, mechanically reducing pressure on the Bank of Canada (BoC) to hike rates. Yet she notes policymakers are increasingly focused on energy price risks, and with key slack indicators like unemployment and business surveys unaffected by demographic revisions, the October policy meeting remains a difficult call.

Revised potential GDP meets energy risks

"From the Bank of Canada’s perspective as policymakers consider interest rate hikes, higher backward looking population growth estimates imply the economy’s production potential was stronger than previously thought (all else qual, such as productivity estimates)."

"But other real-time indicators of slack in the economy like business survey responses on excess capacity, the unemployment rate, and core inflation trends are all unimpacted by changes in population estimates."

"The BoC will be closely monitoring these indicators ahead of their next policy decision in October."

"On the surface, mechanical upward adjustments to potential GDP via revised population estimates, would reduce urgency to hike rates, but with the BoC increasingly focused on “risks” from energy prices it makes the October meeting a difficult decision."

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

• The Indian Rupee declines further against the US Dollar due to multiple headwinds.
• A rebound in Oil prices and surging US Treasury Yields weighs on the Indian currency.
• US S&P Global PMI unexpectedly expands at a faster pace in September.

The Indian Rupee (INR) extends its losses against the US Dollar (USD) on Thursday. The USD/INR pair jumps to near 95.96 at the time of writing as the Indian currency comes under pressure, with Oil prices regaining ground and rising United States (US) Treasury Yields due to solid Federal Reserve (Fed) interest rate hike expectations.

As of writing, the MCX Crude Oil contract expiring on October 19 is up 1% at around Rs. 8,900 after recovering early losses. The Oil price bounced back after posting a fresh two-week low near Rs. 8,496. Meanwhile, 10-year US Treasury Yields have posted a fresh 19-year high at 5.14%.

Oil prices bounce back as Iran vows not to surrender to US

Oil prices draw support from Iranian President Masoud Pezeshkian’s speech at the United Nations (US) General Assembly on Wednesday, where he vowed that the Islamic Republic will not surrender to the United States (US).

“They have tested the strength and the steadfastness of Iran and they have learned that Iran cannot be made to surrender,” Iranian President Pezeshkian said.

The statement from the Iranian President came after US President Donald Trump said that Washington has mainly two options: either to make a deal with Iran or annihilate the nation, while pushing back hopes of a deal after Mid-term elections.

Higher Oil prices bode poorly for currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs.

Global PMI surge reinforces Fed hawkish tone

Analysts at MUFG/BTMU highlight that the latest survey data have added to the hawkish policy backdrop, noting that “both the Services and Manufacturing PMI for September surged, which will encourage the Fed to maintain the current hawkish rhetoric.” They stress that the momentum is not confined to the US, with “the data stronger than expected in Europe as well.” In a sign of broad-based expansion, MUFG/BTMU point out that “the Global Composite PMI increased to 58.4 in September, the highest level since July 2021,” underscoring the strength of global activity that is feeding into firmer yields and ongoing support for the Dollar.

Strategists at Deutsche Bank underline how quickly market expectations have shifted, noting that “this hawkish repricing was clear over the last 24 hours,” with pricing for a Fed move in October jumping sharply. They highlight that the probability of an October hike “rose from 53% on Tuesday, to 69% by last night’s close,” underscoring the speed and intensity of the adjustment in rate expectations.

Surging US Treasury Yields due to hawish Fed narrative have also strengthened the US Dollar. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades firmly near the eight-week high of 101.23.

Technical Analysis: USD/INR inches closer to 96.00

In the daily chart, USD/INR trades at 95.96. The pair holds above the 20-period exponential moving average (EMA) at 95.58, keeping the near-term bias bullish as price extends its recovery from last week’s lows. Momentum supports the constructive tone, with the Relative Strength Index (RSI) at 60.86, staying in positive territory but still shy of overbought conditions.

On the downside, immediate support is seen at the 20-period EMA at 95.58, which reinforces the bullish backdrop while it holds. Looking up, the immediate hurdle for the pair is the September 17 high at 96.10. The odds of the pair revisiting the all-time high near 97.00 would accelerate if it manages a decisive break above 96.10.

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

• USD/CAD rallies beyond 1.4100 and approaches late-July highs at the 1.4130 level.
• Surging US yields and Fed tightening bets are proppelling the US Dollar across the board.
• The rebound in Crude Oil prices has failed to provide any significant support to the CAD.

The Canadian Dollar (CAD) extends losses for the fourth consecutive day against the US Dollar (USD) on Thursday, as surging US Treasury yields and rising bets of Federal Reserve (Fed) rate hikes are propelling the Greenback across the board. The USD/CAD pair has reached levels above 1.4100 for the first time in two months and is nearing the late July highs, in the 1.4130 area.

Moderate risk aversion is driving markets on Thursday as US Treasury yields surge to their highest levels in more than 20 years, threatening to push borrowing costs for mortgages, credit cards and corporate loans, ultimately adding strain on economic growth.

These fears are offsetting the positive impact on the CAD of the rebound in Oil prices, Canada’s main import. Crude Oil shows a significant recovery from Wednesday’s lows, with the barrel of Brent Oil returning to the key $100 level, as US and Iran representatives failed to reach any relevant agreement at the United Nations (UN) General Assembly held in New York this week, which has curbed hopes of any imminent reopening of the critical Strait of Hormuz.

US yields extend gains as PMI shock fuels questions over Fed positioning

Strategists at Societe Generale note that the “10y UST has crossed its 2023 peak (5.02%), resulting in an extension of the uptrend.” They acknowledge that “the move appears somewhat stretched,” but stress that “signals of a meaningful pullback are not yet visible.”

The bank adds that the latest “PMI was an accelerator for the leap in 2s to 4.94% (Fed behind the curve?) and 10s to 5.09%,” with the data “most likely” coinciding with or triggering “a sell/ stop loss order,” a move that was “exacerbated potentially by concession before the 5y UST auction.”

US data released on Wednesday revealed that business activity grew at its strongest pace in more than five years, with jobs and wages rising fast and input prices surging amid higher energy costs. This has heightened concerns that the US economy might be overheating, which strengthens the case for further Fed tightening over the coming months.

Later on Thursday, the focus will shift to Canada's Retail Sales data for July, which is expected to show a 0.8% decline, largely reversing the 0.6% growth seen in June. In the US, investors will pay attention to the weekly Initial Jobless Claims figures to confirm signals of a tighter labour market shown by Wednesday's PMI report. Later on, Philadelphia Fed President Anna Paulson and Cleveland Fed President Beth Hammack are likely to provide further insight into the banks' immediate policy plans.

United States (US) President Donald Trump shares excitement ahead of meeting with Chinese leader Xi Jinping through a post on Truth.Social.

“A big day with President Xi of China. Super Intelligence (SI) will be a big topic of discussion, but I want to leave it exactly where it is. That is China’s position also,” Trump wrote.

Market reaction

No immediate impact is seen in the US Dollar (USD) following US President Trump's post. As of writing, the US Dollar Index (DXY) is stably higher at around 101.23.

• EUR/JPY advances above 180.50, supported by stronger-than-expected German business sentiment data.
• Germany’s IFO Business Climate Index rose to 89.9 in September, exceeding market expectations.
• The Japanese Yen struggles to benefit from higher Japanese bond yields as doubts remain over further monetary tightening.

EUR/JPY trades higher around 180.55 on Thursday, gaining 0.19% on the day at the time of writing. The Euro (EUR) receives support from stronger-than-expected German business sentiment data, while uncertainty surrounding the pace of further monetary tightening by the Bank of Japan (BoJ) limits the Japanese Yen’s (JPY) ability to strengthen.

Germany’s IFO Business Climate Index rose to 89.9 in September from 88.8 in August, exceeding the market consensus of 89. The Current Assessment Index also improved to 89.5 from 88.5, while the Expectations Index climbed to 90.4 from 89, reaching its highest level since February.

On the Japanese side, Finance Minister Satsuki Katayama said on Thursday that the foreign-exchange principles established between Japan and the United States (US) remain in effect.

Meanwhile, Japanese government bond yields move higher. The 10-year Japanese Government Bond (JGB) yield rises by nearly 9 basis points to 3.071% at the time of press, reaching its highest level in 30 years after US Treasury yields advanced earlier.

The Bank of Japan raised its policy rate by 25 basis points to 1.25% last week, its highest level since 1995. However, the 7-2 vote highlighted divisions within the central bank, with board members Toichiro Asada and Ayano Sato dissenting. The disagreement raises uncertainty over the pace at which policymakers could deliver additional tightening.

BoJ Governor Kazuo Ueda’s comments following the decision also fell short of increasingly hawkish market expectations. Markets currently assign around a 30% chance to another rate increase, which would take the benchmark short-term rate to 1.5% in October, according to Bloomberg. The relatively limited expectations for an imminent follow-up hike prevent rising Japanese yields from translating into a stronger Japanese Yen, allowing EUR/JPY to remain supported above 180.50.

Brown Brothers Harriman’s (BBH) Elias Haddad observes AUD/USD trading near its 200-day moving average support as broad Dollar strength weighs on the pair. Australia’s August labor force report, with stronger-than-expected job gains and higher participation, reinforces expectations for a 25 basis point Reserve Bank of Australia (RBA) hike to 4.60% next week. Haddad sees further RBA tightening and commodity exposure as supportive for the Australian Dollar.

Jobs data backs RBA tightening

"AUD/USD is down near support at its 200-day moving average at 0.7022 on broad USD strength. Australia’s August labor force report reinforced the case for a 25bps RBA hike to 4.60% next week (90% priced-in)."

"The economy added more jobs than expected (actual: +39.5k, consensus: +20k, prior: -15.9k) driven by part-time employment (+45.8k vs. -30.8k in July)."

"The unemployment rate unexpectedly rose 0.1ppt to 4.6%, which was above consensus and RBA year-end projection of 4.5%. However, the increase in the jobless rate largely reflects a higher participation rate suggesting some tightness in the labor market persists."

"Bottom line: rising odds of additional RBA hikes limits policy divergence with the Fed and supports AUD/USD. Additionally, Australia’s strategic exposure to commodities linked to energy, AI, and defense remains an important long-term tailwind for AUD."

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

• The British Pound declines to near 1.3225 against the US Dollar.
• Fed’s Williams said it is reasonable to expect more interest rate hikes this year.
• BoE’s Lombardelli and Dhingra share contrary views on economic activity.

The British Pound (GBP) is down 0.12% to near 1.3225 against the US Dollar (USD) during the European trading session on Thursday. The GBP/USD is under pressure and might face more decline as United States (US) Treasury Yields rally further amid firm expectations that the Federal Reserve (Fed) will hike interest rates again this year.

In European trade, 10-year US Treasury Yields post a fresh 19-year high at 5.15%. Surging US Treasury Yields have strengthened the US Dollar too. As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.15% higher to near 101.32, the highest level seen in eight weeks.

The CME FedWatch tool shows an almost 55% chance that the Fed will hike interest rates in both remaining policy meetings this year.

Fed board members have also warned of more interest rate hikes this year as high inflation is proving to be a key challenge.

Williams flags resilience and AI demand while keeping door open to another Fed hike

Fed’s Williams delivered a speech that scored 7.2/10 on the FXS Speechtracker, notably above the 6.2/10 historical average, underscoring a tone that remains firmly focused on the inflation challenge despite acknowledging that downside risks to maximum employment have receded and that the US economy shows “remarkable resilience.” The emphasis on “pretty strong demand from AI,” the need to get inflation back to target in a “timely manner,” and the remark that it is “reasonable to see another rate hike by end of year,” even as explicit forward guidance is dialed back and uncertainty around the persistence of higher yields is admitted, collectively point to a cautious but still hawkish policy stance that should underpin the Dollar on balance.

The FXS Fed Sentiment Index slipped by 0.18 points to 148.63, signaling a modest pullback in perceived hawkishness even as the index remains deep in hawkish territory well above the neutral 100 mark. This configuration suggests that, relative to the established baseline, the market reads Williams as slightly less hawkish at the margin, but still clearly aligned with a Fed bias that keeps further tightening on the table and supports the Dollar against lower-yielding peers.

On the Pound Sterling front, Bank of England (BoE) officials share contrary views regarding the monetary policy outlook.

BoE’s Lombardelli flags conditional tightening bias as energy risks persist

BoE Deputy Governor Clare Lombardelli scores 8.4/10 on FXS Speechtracker, exactly in line with the speaker’s historic average, pointing to a consistently hawkish profile rather than a fresh surprise. The emphasis that policy is “increasingly likely to need to tighten” if elevated energy prices persist, combined with the view that wage growth is still too high for the inflation target, reinforces a clear tightening bias even while acknowledging that monetary policy should not react mechanically to energy price swings.

The speech underscores that Bank Rate remains restrictive but could rise further if the interaction between the underlying economy and higher energy costs sustains inflation, marking a marginally more hawkish tilt versus the current stance. For GBP, the conditional tightening language and focus on wage-driven persistence in inflation support expectations of higher-for-longer rates, which is typically supportive for the currency, while the stress on data dependence and demand risks tempers the upside by keeping the path of future moves explicitly contingent on incoming activity and disinflation signals.

Contrary to BoE's Lombardelli who supported the need of interest rate hikes if energy prices remain elevated, BoE policymaker Swait Dhingra said there are evidence of easing price pressures and weakness in the United Kingdom (UK) labour market.

BoE’s Dhingra speech scores 3.2/10 on FXS Speechtracker, exactly in line with the speaker’s historic average, signalling no meaningful shift in overall tone. Emphasis that UK financial conditions have already done “a lot of tightening work,” alongside a “pretty weak” labour market and concern over winter energy prices, leans the message toward a cautious, growth-sensitive stance that is mildly dovish for GBP.

At the same time, encouragement about current pricing and the absence of broad-based price rises like in 2022 suggest reduced inflation persistence, reinforcing the case against further aggressive tightening. The focus on second-round effects from winter energy prices keeps a conditional inflation risk on the radar, but the balance of remarks points to a BoE that is more inclined to wait and watch than to push GBP higher via additional rate hikes.

GBP/USD Technical Analysis

In the daily chart, GBP/USD trades at 1.3225, maintaining a bearish near-term bias as spot remains clearly below the 20-period exponential moving average (EMA) at 1.3421. The pair has extended its retreat from recent highs, and the EMA now acts as immediate overhead supply that caps any recovery attempts, while the Relative Strength Index (14) around 24.7 signals oversold momentum that could slow the downside rather than reverse it outright.

On the topside, initial resistance emerges at the 20-day EMA near 1.3421, and a sustained break above this barrier would be needed to ease the current bearish pressure and allow a more meaningful rebound. Looking down, the pair could extend its decline towards the Year-Till-Date (YTD) low at 1.3140.

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

• Gold slides to a one-week low as a stronger US Dollar and rising US Treasury yields weigh on the metal.
• Strong US business activity data and hawkish Fed signals strengthen expectations of another interest-rate increase.
• XAU/USD slips below the 50-day and 100-day SMAs, keeping the near-term technical bias bearish.

Gold (XAU/USD) slides to a one-week low on Thursday as rising US Treasury yields and a stronger US Dollar (USD) reflect an increasingly hawkish Federal Reserve (Fed) outlook. At the time of writing, XAU/USD trades around $4,260, down nearly 0.65% on the day.

The yield on the benchmark 10-year US Treasury note jumped 15.2 basis points (bps) on Wednesday and now trades around 5.15%, its highest level since 2007. Yields at the shorter end of the curve also hover near multi-year highs.

A strong batch of US S&P Global Purchasing Managers’ Index (PMI) data drove the move. The Composite PMI unexpectedly rose to a five-year high of 58.4 in September, pointing to resilient economic growth and giving the Fed more room to tackle stubborn inflation.

The strong figures strengthened expectations that the US central bank could raise interest rates again in October after delivering a 25 bps hike last week. The CME FedWatch Tool places the probability of a rate increase at around 75%, up from 55% a day earlier. Higher borrowing costs weigh on Gold by increasing the attractiveness of interest-bearing assets.

The shift also keeps the US Dollar in strong demand. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 101.27, its highest level in two months. A stronger US Dollar makes Gold more expensive for overseas buyers.

Recent remarks from Fed officials have kept the door open to additional rate hikes, with policymakers stressing the need to bring inflation back to the 2% target. New York Fed President John Williams said on Thursday, “We need to get inflation back to target in a timely manner,” adding that it is “reasonable to see another rate hike by end of the year.”

Meanwhile, elevated Oil prices linked to the war in the Middle East keep inflation risks tilted to the upside, reinforcing expectations of tighter monetary policy across major economies.

The United States and Iran held talks on the sidelines of the United Nations General Assembly earlier this week, but the two sides are still far apart on how to end the war. Reuters reported, citing a senior Iranian official, that Tehran is reviewing Washington’s response to its peace proposals, which prioritise lifting the US naval blockade on Iranian ports and reopening the Strait of Hormuz.

Looking ahead, traders await more Fed commentary, the weekly US Initial Jobless Claims data and the meeting between US President Donald Trump and Chinese President Xi Jinping later on Thursday.

Technical Analysis: Sellers remain in control below key daily SMAs

XAU/USD remains bearish in the near term as it slips below key Simple Moving Averages (SMAs). Spot gold is capped below the 50-day SMA at $4,311 and the 100-day SMA at $4,308, forming a nearby resistance cluster that hints at downside risk. Momentum indicators reinforce this softer tone, with the Relative Strength Index (RSI) on the daily chart hovering near a neutral 42 and the Moving Average Convergence Divergence (MACD) indicator in negative territory, suggesting sellers still control the short-term swings.

On the downside, initial support is seen at the horizontal level near $4,150, where a break would expose the next bearish target around $4,000. On the topside, bulls would need to reclaim the clustered 50- and 100-day SMAs around $4,310 to ease immediate pressure, with further resistance then located at the 200-day SMA at $4,541 and the more distant structural barrier at $4,700. Until these overhead levels are overcome, rallies are likely to struggle and risk fading back towards the underlying support band.

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

• US Treasury yields surged on Wednesday, with the revenue of the 10- and 30-year notes breaking past the key 5% level.
• A mix of strong US data, Fed tightening expectatio, and low demand for US Treasuries is boosting yields this week.
• These levels suggest higher borrowing costs for families and businesses, which would threaten economic growth.

US Treasury yields stretched to their highest levels in years on Wednesday, fuelled by a mix of rising expectations of further monetary tightening by the US Federal Reserve (Fed), following upbeat US business activity data and a poor US Treasury bond auction. These levels are consistent with higher borrowing costs in mortgages, credit cards or corporate loans, ultimately posing a significant strain on economic growth. The market has performed a risk-off reaction, weighing on stocks and lifting the US Dollar (USD).

The yield on the 30-year Treasury bond trades at 5.444% on Thursday, its highest level in 22 years, and the benchmark 10-year has reached 5.148% for the first time since 2007 after a whopping 20-basis-point jump from Wednesday’s lows. The 2-year yield, which is closely related to Fed monetary tightening expectations, rallied to two-year highs at 4.494% 

Long-term securities have thus crossed the 5% level, considered a psychological threshold, which, apart from driving borrowing costs to unaffordable levels, might prompt investors to move away from stock markets to risk-free government debt. 

Strong US data and weak demand for US Treasuries boosted yields

US yields surged on Wednesday as preliminary S&P Global Purchasing Managers' Index (PMI) data showed strong business activity. These figures, coupled with higher wages and rising costs amid high energy prices, boosted expectations that the US central bank will have to tighten its monetary policy soon to keep the economy from overheating.

Fed Governor Michael Barr confirmed those views later on Wednesday, affirming that “further rate hikes are likely needed to ensure timely return to the 2% inflation.”  

Beyond that, a five-year US Treasury auction drew shockingly poor demand, which, according to MUFG analysts, highlights investor unease around the US rates outlook.

Against this backdrop, MUFG warns that “FX [is] more vulnerable to a carry unwind given how well these trades have done in this incredible low FX vol environment.” In such a shakeout, MUFG expects “high yielders across EM would suffer most while the yen and Swiss franc would outperform,” as investors rotate out of riskier carry positions into traditional safe-haven currencies.