Forex News

TD Securities strategists argue that Federal Reserve (Fed) decisions in election years remain driven by data rather than politics, with only a small difference in action frequencies versus non-election years. They warn that avoiding a hike for political reasons could push long-end rates and inflation swaps higher, particularly if markets move toward pricing in nearly a full hike by the October meeting while the Fed remains on hold.

Election-year Fed moves and markets

"Election years tend to not be correlated with more or less Fed actions, as the Fed remains data-dependent."

"In the meeting closest to Election Day, 70% of meetings resulted in a hold, while 30% resulted in either a hike or cut."

"Choosing not to hike due to political concerns over the midterms would likely actually push long-end rates and inflation swaps higher if the Fed is viewed as political and unwilling to raise rates to tackle inflation."

"If markets continue to price in nearly a full hike by the October meeting without further guidance and the Fed continues to hold, investors could be led to believe a Fed hold was political if Warsh does not provide an adequate explanation in the presser."

"As the Fed remains data-dependent, if we start to see surprises drift positively, this could lead to a market that is concerned around labor market reacceleration."

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

BNY’s Geoff Yu reports that European Central Bank (ECB) Governing Council member Joachim Nagel has strongly signaled a September rate hike as Eurozone inflation stays above target and activity proves resilient. However, Nagel stresses a meeting-by-meeting approach beyond September given volatile energy prices and uncertainty. Yu also notes Eurozone natural gas at a three-year high, posing renewed inflation risks and complicating policy.

ECB signals but avoids firm guidance

"Even Bundesbank President Joachim Nagel, a hawk by any measure, has stressed the ECB’s “meeting-by-meeting” approach."

"ECB Governing Council member Joachim Nagel has strongly signaled that the central bank will raise rates next week, saying markets have a good understanding of the ECB’s reaction function; they are pricing in a greater than 95% probability of a September hike."

"Nagel was more cautious beyond September, stressing that volatile oil and gas prices, financial market instability and broader uncertainty make forward guidance difficult."

"He therefore backed retaining a meeting-by-meeting approach, suggesting that September tightening is highly likely but that subsequent moves will remain dependent on incoming inflation and growth data."

"Bond markets are adding restraint, but supply constraints cannot be ignored: Eurozone natural gas prices are at a three-year high, risking another difficult winter and renewed pressure on inflation expectations."

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

• USD/JPY falls 0.33% on Wednesday and retreats toward 159.65 after reaching its highest level since late July.
• Renewed speculation over coordinated intervention by the United States and Japan supports the Japanese Yen.
• The wide US-Japan interest rate gap, however, limits the Japanese currency's recovery.

USD/JPY retreats on Wednesday and trades around 159.65 at the time of writing, down 0.33% on the day. The pair gives back some of its recent gains after reaching its highest level since late July earlier in the day, as renewed speculation over foreign exchange intervention supports the Japanese Yen (JPY).

The Japanese currency benefits in particular from comments by Japan's Finance Minister Satsuki Katayama, who said she met with US Treasury Secretary Scott Bessent, and both officials agreed that orderly Japanese Yen movements are critical for global market stability. The remarks revive expectations of potential coordinated action by the United States (US) and Japan to curb another excessive depreciation of the Japanese currency.

Expectations of monetary policy tightening by the Bank of Japan (BoJ) also provide support to the Japanese Yen. Markets appear increasingly confident that the Japanese central bank could raise interest rates at its September meeting. MUFG analysts highlight that markets are now assigning a 92% chance to a rate hike this month.

However, the still-wide interest rate differential between Japan and the United States continues to limit the Japanese Yen's appreciation potential. Japanese borrowing costs remain significantly lower than those in other major economies, keeping Yen-funded carry trades attractive and providing underlying support to USD/JPY.

Meanwhile, concerns over Japan's public finances remain a negative factor for the currency. The recent rise in Japanese government bond yields increases the cost of servicing the country's debt, while the government's investment plans fuel concerns over Japan's fiscal trajectory.

On the US side, the US Dollar (USD) remains supported by expectations of elevated interest rates in the United States and geopolitical tensions. Markets now turn their attention to Friday's Nonfarm Payrolls (NFP) report, which could provide fresh clues about the Federal Reserve's (Fed) monetary policy outlook and determine whether USD/JPY can resume its advance or whether the Japanese Yen's recovery extends.

USD/JPY technical analysis

In the four-hour chart, USD/JPY trades at 159.69, consolidating in a neutral bias between the 100-period simple moving average (SMA) support at 159.33 and the 200-period SMA resistance at 160.18. The pair holds above the shorter 100-period SMA, hinting at a still constructive underlying tone, but remains capped by the 200-period SMA and nearby horizontal resistance at 160.39, limiting topside traction. The Relative Strength Index (14) around 48 drifts near the midline, suggesting subdued momentum and reinforcing the view of a range-bound phase rather than a directional breakout.

On the topside, initial resistance sits at the 200-period SMA at 160.18, followed by the horizontal barrier at 160.39, with a stronger cap emerging at 160.88 if buyers extend gains. On the downside, immediate support is found at the 100-period SMA at 159.33, with further cushions at 158.57 and 158.00, ahead of deeper structural floors at 156.68 and 155.23 that would come into play if the current range gives way to a broader correction.

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

Brown Brothers Harriman’s (BBH) Elias Haddad notes the US Dollar (USD) is supported by widening US-G6 yield spreads and resilient US data, which keep Federal Reserve (Fed) rate hike expectations alive in the near term. However, Haddad argues further upside is capped as other major central banks also tighten, limiting policy divergence and reducing the likelihood of new cyclical highs for the USD.

Yield spreads and data back USD

"USD extended yesterday’s upswing underpinned by widening US-G6 two-year bond yield spreads. Favorable US economic activity and a stable labor market will keep Fed rate hike expectations firmly in play in the near-term. But we don’t expect USD to make new cyclical highs because tightening by other major central banks limits monetary policy divergence."

"US manufacturing sector growth momentum eased more than expected in August, but price pressures persist. The headline index dipped to a two-month low at 54.6 (consensus: 55.2) vs. 55.6 in July driven by slower expansions in both the New Orders and Employment indexes. The Prices Paid index held at 71.1 (consensus: 70.8) for a second straight month signaling ongoing upside inflation risks."

"The JOLTS July survey reinforced the US labor market’s low hire, low fire backdrop. The hiring rate fell -0.2ppt to 3.2%, lowest since February. The layoffs rate dipped -0.1ppt to 1.0%, remaining within its 1.0-1.2% range that’s held for the past two years."

"US August ADP private payrolls is up next (1:15pm London, 8:15am New York). Consensus is for the economy to add +47k jobs vs. +44k in July. The Fed Beige Book (7:00pm London, 2:00pm New York) will offer fresh anecdotal insights into the US growth and inflation outlook."

"The global bond market rout deepened reflecting firmer crude oil prices and a resilient global growth outlook. Aside from the UK and Japan, the bond market selloff is not worrisome as 10-year bond government yields for most major economies are still trading below nominal GDP growth."

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

United States (US) Commerce Secretary Howard Lutnick said during the European trading session on Wednesday that there will be tariff relief if the company builds in the US.

Additional remarks

The market will stabilize.

You will see targeted tariff policy.

Optimistic bond market will ‘treat the US very well’.

We will be successful in semiconductors.

Semiconductor tariffs are being considered.

• The Indian Rupee opens flat against the US Dollar on Wednesday after a strong Tuesday.
• Hawkish Fed bets could act as a headwind for the Indian currency.
• India’s growth outlook improves on expectations of strong festive demand.

The Indian Rupee (INR) holds onto Tuesday's gains at around 94.80 against the US Dollar (USD) on Wednesday. However, the Indian currency is expected to face selling pressure against the US Dollar, as the latter has strengthened due to increasing expectations that the Federal Reserve (Fed) will tighten its monetary policy at the policy meeting this month.

As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.15% higher to near 99.85, the highest level seen in over two weeks.

Strategists at Brown Brothers Harriman (BBH) said that Fed funds futures now “price in 67% odds of a 25bps hike on September 16 and imply 60bps of tightening over the next twelve months.”

De-anchored inflation expectations fuel hawkish Fed bets

Rising global inflation projections due to continuously surging oil prices amid fears of prolonged global energy supply disruption on the back of ongoing tensions between the United States (US) and Iran have boosted Fed interest rate hike expectations.

According to Kpler’s data, only five vessels passed through the vital waterway, well below the 10-day average of about 14 vessels, Al Jazeera reported.

Continuous exchange of attacks between the US and Iran near the Strait of Hormuz, a key passage to almost one-fifth of global energy supply, has forced ship sailors to avoid the route.

On Tuesday, US President Donald Trump said in a post on Truth Social that Washington is striking Iranian targets near the Strait of Hormuz in retaliation for Iran’s "failed attempt" to add sea mines in the Strait, which currently “has no mines.” Trump added that the US base at Jordan successfully knocked down all eight missiles launched by Tehran.

US data awaited

Financial markets keenly await the US Nonfarm Payrolls (NFP) data for August, which will be released on Friday. The official employment is expected to have a significant impact on the Fed’s interest rate projections.

In Wednesday’s session, investors will focus on the US ADP Employment Change data for August, which will be published at 12:15 GMT. According to estimates, the US private sector created 48K fresh jobs, slightly higher than 44K in July.

Experts lift India’s growth outlook on stronger data and festive tailwinds

Strategists at Standard Chartered have raised their outlook for India’s economy, saying they now “revise our FY27 (year ending March 2027) GDP growth forecast to 7.2% from 6.6%.” They note that they had “previously highlighted upside risks amid reasonably strong economic activity despite the oil supply and price shock,” and the latest data have reinforced that view.

According to the bank, the upgrade “reflects stronger-than-expected Q1-FY27 (quarter ended June 2026) GDP growth of 7.8%, versus consensus – including us – of 7.3%; continued momentum in July, as indicated by our composite economic indicator; and the likelihood that activity and sentiment remain supportive into the festival season.” In line with the more upbeat tone of recent high-frequency data, Standard Chartered adds that “given the strength of high-frequency indicators so far, we now expect Q2-FY27 GDP growth of 7.4%, versus 6.6% previously.”

The bank still anticipates some moderation later in the fiscal year, cautioning that “we still expect growth to slow in H2-FY27, reflecting the adverse impact of El Niño on agricultural output and rural demand, higher inflation, and fading tailwinds from GST cuts delivered from September 2025.” Even so, they emphasise that “momentum should be stronger than previously expected,” and now “forecast H2-FY27 GDP growth of 6.7%, versus 6.5% previously.”

Technical Analysis: USD/INR holds remains below 20-day EMA

In the daily chart, USD/INR trades at 94.90, maintaining a bearish near-term tone as spot holds below the 20-period Exponential Moving Average (EMA) at 95.41. The pair is sliding away from this dynamic cap, while the Relative Strength Index (RSI) around 35 suggests persistent downside momentum, hinting that buyers remain on the defensive despite intermittent pauses.

On the downside, the two-month low at 94.80 is the key support level; a decisive move below it could expose the pair to the June low at 94.15. Looking up, the 20-day EMA will act as a dynamic barrier for the pair.

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

ING commodities strategists Warren Patterson and Ewa Manthey say Gold has slipped to a two‑week low below $4,300/oz as higher Oil prices revive concerns over US inflation and limit near‑term Federal Reserve easing. They note recent profit‑taking but argue medium‑term support from lower rate expectations, central bank buying and persistent geopolitical uncertainty.

Safe-haven metal consolidates gains

"Gold prices eased to a two-week low, slipping below $4,300/oz, as escalating tensions in the Middle East push oil prices higher. This prompted markets to reassess the outlook for US interest rates. Rising energy costs could add to inflationary pressures and reduce the scope for near-term Federal Reserve easing, weighing on non-yielding assets such as gold."

"The decline follows a strong August rally, with gold gaining nearly 10% and recording its biggest monthly increase since January. Safe-haven demand and growing concerns over US fiscal sustainability have continued to underpin investor interest in gold and other hard assets."

"While near-term profit-taking could continue after gold's recent run-up, broader fundamentals remain supportive. Expectations of lower rates over the medium term, central bank purchases and elevated geopolitical uncertainty should provide a floor for prices. Any pullbacks are likely to attract fresh buying interest."

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

• The US Dollar Index jumps to a fresh two-week high at 99.85 amid surging US Treasury Yields.
• Higher oil prices due to Middle East conflicts have revived global inflation fears.
• Investors await the US ADP Employment Change data for August.

The US Dollar (USD) reflects strength against its currency peers on Wednesday as United States bond yields surge further due to rising oil prices and hawkish Federal Reserve (Fed) expectations.

In European trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.2% higher to near 99.86. 10-year US Treasury Yields hit a fresh high at 4.82%, the highest level seen since November 2023.

Middle East tensions revive inflation fears and bolster the Dollar

Analysts at OCBC said that the renewed escalation in the Middle East has brought “inflation risks back into focus”, driving a fresh rise in global bond yields. They note that this move has been “accompanied by a bearish flattening of the US yield curve, a stronger USD and lower gold prices as markets moved to fully price a 25bp Fed rate hike by October.”

OCBC adds that Fed Governor Michael Barr has reinforced the hawkish policy backdrop, stating that “further rate increases may be warranted if inflation fails to moderate,” comments that “build on Chair Warsh's hawkish message at Jackson Hole.”

The CME FedWatch tool shows a 67% chance that the Fed will hike interest rates in the policy meeting this month.

Meanwhile, investors await the US ADP Employment Change data for August, which will be published at 12:15 GMT. According to estimates, the US private sector created 48K fresh jobs, slightly higher than 44K in July.

This week, the major trigger for the US Dollar will be the Nonfarm Payrolls (NFP) data for August, which will be released on Friday.

US Dollar Index Technical Analysis

In the daily chart, the Dollar Index Spot trades at 99.83. The near-term tone favors a slight bullish trend, with price sitting close to the 38.2% Fibonacci retracement at 99.81 and above the 20-day exponential moving average (EMA) at 99.57.

The Relative Strength Index (RSI) at 52.49 has recovered toward the midline, hinting that downside momentum has faded but not yet shifted into a clear bullish impulse.

On the topside, initial resistance is seen at the 50% Fibonacci retracement at 100.19, followed by the 61.8% level at 100.57; a daily close above these barriers would open the way toward the 78.6% retracement at 101.12 and the recent swing high near the 100% level at 101.81. On the downside, immediate support aligns at the 38.2% retracement at 99.81, with the 20-day EMA at 99.57 and the 23.6% retracement at 99.34 acting as a broader demand area; a break below this zone would expose the deeper structural floor far below current prices.

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

• Gold remains under pressure as rising global bond yields and a stronger US Dollar weigh on the yellow metal.
• Escalating tensions in the Middle East lift Oil prices, complicating the inflation outlook for major central banks.
• Sellers retain control below the 100-day SMA, with the lower Bollinger Band offering initial support.

Gold (XAU/USD) remains on the defensive on Wednesday after tumbling nearly 2.7% the previous day. The resumption of hostilities in the Middle East after several quieter weeks is once again dominating market sentiment, driving Oil prices and global bond yields higher while strengthening the US Dollar (USD). At the time of writing, XAU/USD trades around $4,310 after hitting an intraday low of $4,282, its lowest level since August 7.

Bond yields have climbed to multi-year highs across major economies as rising Oil prices threaten to keep inflation elevated for longer. This could force central banks to maintain restrictive monetary policy or even consider raising interest rates. The benchmark 10-year US Treasury yield advances for the sixth consecutive day and trades around 4.81%, its highest level since October 2023.

Rising yields and expectations of higher interest rates are weighing heavily on the non-yielding metal, outweighing the support Gold would normally receive from heightened inflation and geopolitical tensions given its traditional role as a hedge against both risks.

On the monetary policy front, traders have increased bets that the Federal Reserve (Fed) could raise interest rates as soon as September, particularly after Fed Chair Kevin Warsh adopted a tougher stance on inflation at the Jackson Hole Symposium last week. According to the CME FedWatch tool, the probability of a rate hike at the September 15-16 meeting stands at around 70%, up from 36% a week ago.

Hawkish Fed expectations and escalating US-Iran tensions have also increased demand for the US Dollar, adding another headwind for the Dollar-denominated Gold. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.85, its highest level since August 14.

Against this backdrop, Gold is likely to retain a downside bias, although sellers could refrain from placing aggressive bets ahead of US labour market data. The ADP Employment Change report is due later during American trading hours, followed by the Nonfarm Payrolls (NFP) report on Friday. The figures could influence Fed interest-rate expectations and drive fresh moves in the US Dollar, Treasury yields and, in turn, Gold.

Technical analysis: Bears eye $4,200 as RSI slips below 50

XAU/USD holds below the 100-day Simple Moving Average (SMA) at roughly $4,360 and the Bollinger Bands midline near $4,445, keeping the near-term bias tilted lower. Momentum gauges reinforce this capped tone, with the Relative Strength Index (RSI) on the daily chart hovering just below the neutral 50 line at 45, while the Moving Average Convergence Divergence (MACD) histogram sits in negative territory, signaling increasing bearish pressure.

On the downside, immediate support is aligned with the Bollinger Bands lower band at about $4,204, ahead of a more substantial horizontal floor at $4,000. On the topside, initial resistance emerges at the 100-day SMA near $4,360, followed by the Bollinger Bands midline around $4,446, with the upper band near $4,688 acting as a more distant cap.

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

• USD/CAD hits fresh two-week highs above 1.3930 amid broad-based US Dollar strength.
• The Bank of Canada is expected to leave rates on hold later on Wednesday and hint at a steady policy ahead.
• Risk aversion amid rising US-Iran tensions and hopes of a Fed rate hike are buoying the Greenback.

The Canadian Dollar (CAD) depreciates against the US Dollar (USD) for the second consecutive day on Wednesday, as risk aversion and market expectations of an immediate Federal Reserve (Fed) rate hike keep underpinning USD's rally. The USD/CAD pair trades at two-week highs above 1.3930 as the focus shifts to the Bank of Canada's (BoC) interest rate decision.

The BoC is widely expected to leave its benchmark interest rate on hold at 2.25%, and, most likely, through the rest of the year, as the tariff rift with the US and the uncertainty surrounding the Middle East conflict cast serious doubt on the country's economic outlook.

Markets keep Fed tightening expectations elevated

This view contrasts with the hawkish repricing of the Fed's monetary policy, triggered by Chairman Kevin Warsh's speech at the Jackson Hole meeting on Friday, in which he affirmed that the central bank has "work to do" to bring inflation to the 2% target.

Strategists at Brown Brothers Harriman note that Fed funds futures now “price in 67% odds of a 25bps hike on September 16 and imply 60bps of tightening over the next twelve months.” Looking ahead, they expect that this “pricing will remain elevated into the September meeting, with the August CPI on September 11 the decisive test.”

Beyond that, the US Dollar has regained its safe-haven status this week, as the rally in global yields put investors on their toes, while escalating tensions in the Middle East have dampened risk appetite further.

On Wednesday, the focus will be on the US ADP Employment report, which is expected to show a net increase of 47K in private payrolls in August, following a 44K increase in July.