Forex News

• GBP/JPY attracts some buyers as Japan’s fiscal woes continue to undermine the JPY.
• The wide UK-Japan interest rate gap further contributes to JPY’s underperformance.
• The GBP is pressured by a broadly firmer USD and caps gains for the currency pair.

The GBP/JPY cross edges higher on Tuesday, though it lacks bullish conviction and remains confined within a familiar range held over the past week or so. Spot prices currently trade around mid-216.00s amid a broadly weaker Japanese Yen (JPY).

Japan's benchmark 10-year bond yield hit 3% for the first time since September 1996 amid inflation risks stemming from higher energy prices and mounting pressure on the Bank of Japan (BoJ) to hike interest rates faster. This would increase the cost of servicing Japan's massive debt pile at a time when ​Prime Minister Sanae Takaichi is planning aggressive investment, adding to worries about the country's worsening fiscal condition. This, in turn, is seen as a key factor undermining the JPY and acting as a tailwind for the GBP/JPY cross.

Analysts at Rabobank highlight a fresh source of policy friction after US Treasury Secretary Scott Bessent appeared to nudge the BoJ toward faster tightening, even as the Japanese government has sought to discourage any rush to raise rates. Rabobank notes that Bessent prefaced his remarks by saying he was not going to tell the BoJ what to do, but then suggested that “the reflationary policies of Abenomics have run their course” and that “coordinated intervention in FX markets could only go so far.” Underscoring the assertive tone of his intervention, Bessent added: “I can’t affect the natural equilibrium. What I can do is send a signal and, as I’ve said, I have information that the market doesn’t have.”

Meanwhile, borrowing costs in Japan remain significantly lower than in other major economies, including the UK, which keeps the so-called carry trade active and contributes to the weaker tone surrounding the JPY. The BoJ increased its short-term policy rate to 1.00% in June and is expected to hike again this month. The Bank of England (BoE) has maintained its benchmark rate at 3.75%, still leaving a sizeable difference of over 250 basis points (bps). This, in turn, backs the case for some meaningful appreciating move for the GBP/JPY cross.

However, a pickup in the US Dollar (USD) demand is seen exerting some pressure on the British Pound (GBP) and holding back bulls from placing aggressive bets. Nevertheless, the supportive fundamental backdrop suggests that any corrective pullback could be seen as a buying opportunity and is more likely to remain limited. Traders now look to the release of the final UK Manufacturing PMI, though BoE Governor Andrew Bailey's speech on Friday should provide some meaningful impetus to the GBP/JPY cross.

• EUR/JPY ticks lower to near 185.50 in the countdown to the Eurozone HICP data for August.
• Inflationary pressures accelerated in Germany, France and Spain in August.
• JGB Yields surge to multi-decade high amid firm hawkish BoJ expectations.

The Euro (EUR) trades subduedly at around 185.50 against the Japanese Yen (JPY) during the European trading session on Tuesday. The major currency is mildly under pressure ahead of the Eurozone flash Harmonized Index of Consumer Prices (HICP) data for August, which will be published at 09:00 GMT.

Ahead of the Eurozone inflation data, HICP figures from Germany, France and Spain showed that price pressures accelerated.

Eurostat is expected to show that the headline HICP growth remained stronger at 3.3% Year-on-Year (YoY) against 2.9% in July. The core HICP – which excludes volatile components like food, energy, alcohol, and tobacco – grew at a steady pace of 2.5% YoY.

The Eurozone HICP data will likely have a significant impact of European Central Bank (ECB) interest rate expectations. For now, market experts see the ECB raising interest rates in the policy meeting this month.

ECB seen delivering insurance hike even as second-round pressures stay muted

ING strategists argue that, “despite little evidence of ongoing second-round effects, the European Central Bank is almost guaranteed to hike rates again next week.” In their view, this move still fits the “insurance” hike classification, aimed at reinforcing the disinflation narrative rather than responding to a renewed inflation surge. However, they caution that “further tightening from there – which is widely priced in by markets – would instead imply that the ECB sees restrictive policy as necessary, a much bolder move unless data shows a core inflation uptrend.”

On the Tokyo front, surging Japan Government Bond Yields provide cushion to the Japanese Yen.

Japan bond yields hit milestone as markets ramp up BoJ hike bets

Analysts at Danske Bank highlight that in Japan, attention has centred on the 10-year government bond yield, which "rose to 3% for the first time since 1996," a move they link to comments from US Treasury Secretary Scott Bessent suggesting the BoJ should "raise rates more aggressively." Danske Bank notes that markets were already "pricing a high likelihood of a 25bp hike to 1.25% at the September meeting," but Bessent’s remarks have "added to the pressure," with investors now "pricing a rate hike by 70%."

ING’s Francesco Pesole expects the Reserve Bank of New Zealand to raise rates by 25bp to 2.75%, with markets fully pricing the move. He argues that current market pricing for further tightening looks too hawkish unless the RBNZ lifts its rate path significantly. ING anticipates softer CPI projections and sees NZD/USD slipping back below 0.5900 as the bank underwhelms hawkish expectations.

RBNZ decision and New Zealand Dollar reaction

"We expect the Reserve Bank of New Zealand to hike rates by 25bp to 2.75% tomorrow morning (announcement 0300 BST). Consensus is unanimous and markets are fully pricing in the move, so the impact on the New Zealand dollar will be highly dependent on whether the statement will still include firmly hawkish guidance, and on updated rate/economic projections."

"As discussed in our preview, we see some downside risks for NZD. Market pricing (95bp by June 2027) looks way too hawkish. To validate such expectations, the Reserve Bank would need to revise rate projections materially higher, as they currently embed only another 25bp hike for the next three quarters."

"We don’t think they will, as we instead expect CPI projections to be revised lower on the back of softer oil prices."

"We see NZD/USD trading back below 0.5900 in the near term as the RBNZ may fail to meet hawkish expectations and USD finds some support."

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

Here is what you need to know on Tuesday, September 1:

The action in financial markets remain relatively subdued on the first trading day of September as investors' attention shifts to preliminary August inflation readings from the Eurozone and mid-tier macroeconomic data releases from the United States (US).

The US Dollar (USD) Index closed in negative territory on Monday and erased a small portion of the previous week's gains. US Treasury Secretary Scott Bessent told CNBC on Monday that the core inflation has remained "very restrained" and argued that traditionally interest rates shouldn't be raised into a supply shock. Bessent, however, noted he is not going to speculate on what the Federal Reserve's (Fed) next policy step could be.

At the same time, US President Donald Trump said interest rates are too high, adding he has a lot of respect for Fed Chair Kevin Warsh and that he will know what he has to do. After falling about 0.3% on Monday, the USD Index clings to marginal gains at around 99.50 in the European morning on Tuesday. Later in the American session, JOLTS Job Openings data for July and the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index (PMI) report for August will be featured in the US economic calendar.

Fed credibility questioned as political pressure mounts in the US

Analysts at BNP Paribas highlight that political pressure on the Fed has intensified, with President Trump "relentlessly attacking the Federal Reserve and its leadership out of anger that they have not cut interest rates more." They note that financial markets have become increasingly uneasy, "unsure whether the Chairman he appointed will deliver the policy tightening that appears likely to be needed to restore price stability." BNP Paribas cautions that "once lost, credibility takes not only time but action to restore, demanding a higher economic cost to restore price stability than would be the case under a fully credible central bank," underscoring the potential macroeconomic consequences if confidence in the Fed’s policy framework continues to erode.

The data from Germany showed earlier in the day that Retail Sales declined by 3.4% on a monthly basis in July. This print missed the market expectation for an increase of 0.4% by a wide margin. In the Eurozone, the Harmonized Index of Consumer Prices are forecast to rise 3.3% on a yearly basis in August, following the 2.9% growth recorded in July. Ahead of this data, EUR/USD stays on the back foot and trades marginally lower on the day at atound 1.1600.

GBP/USD registered small gains on Monday but lost its traction early Tuesday. At the time of press, the pair was trading in the red, below 1.3550.

Japanese Finance Minister (FM) Satsuki Katayama said Tuesday that he confirmed with US Treasury Secretary Scott Bessent that continued, coordinated action on foreign exchange markets is needed. USD/JPY stabilizes following Monday's modest decline and trades near 160.00.

Gold struggles to keep its footing following Monday's choppy action and declines toward $4,400 in the European session on Tuesday.

United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann observe that AUD/USD has corrected from 0.7208 but is now rebounding, with intraday trade expected between 0.7155 and 0.7180. They believe the month-long Australian Dollar (AUD) strength has ended, opening scope for a deeper pullback toward 0.7120. However, the medium-term technical picture still favors a break above 0.7200 toward the year-to-date high near 0.7280.

Aussie Dollar consolidates before next leg

"24-HOUR VIEW: Last Friday, AUD rose to 0.7208 before pulling back sharply to close at 0.7158 (-0.50%). Yesterday, when AUD was at 0.7160, we were of the view that AUD “could continue to pull back toward 0.7145.” We added, “based on the prevailing momentum, a clear break below this level appears unlikely.” AUD declined less than expected to 0.7152 before rebounding to a high of 0.7171. While the increase in momentum suggests AUD could rebound further, it should stay within a 0.7155/0.7180 range."

"1-3 WEEKS VIEW: The following excerpts from our update yesterday (31 Aug, spot at 0.7160) remain valid. “The price action suggests that the almost month-long AUD strength has ended. Given the overbought conditions and negative divergence, AUD could pull back further toward 0.7120. It is unclear for now whether AUD could break clearly below this level. On the upside, a breach of the ‘strong resistance’ level, now at 0.7200, would mean that AUD is more likely to range-trade rather than continuing to pull back.” "

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

Michael Pfister at Commerzbank notes that several central banks, including the European Central Bank (ECB), have already raised rates following the inflation shock linked to the Iran conflict. He stresses that markets reward central banks that react proactively rather than label shocks as transitory. For the Euro, he views the ECB’s more forceful stance as a positive sign after years of disappointment.

ECB reaction improves Euro’s standing

"In recent weeks, expectations regarding central banks worldwide have been revised to varying degrees following a significant shift towards higher interest rates in the aftermath of the conflict in Iran. But several central banks have already delivered rate hikes since the conflict began."

"While we do not currently expect this from the Fed, the Reserve Bank of Australia, the ECB and the Bank of Japan have already raised interest rates since the start of the conflict. Admittedly, inflation risks in Australia had already risen significantly prior to the war, which also explains the three rate rises that have already taken place."

"But it is also clear that central banks which proactively react to an inflation shock - rather than describing it as transitory - will be rewarded by the market in the medium term. Should another shock occur, market participants would probably expect these central banks to respond more forcefully."

"For the euro, this is a positive sign after many years of disappointment, as the ECB has not traditionally been known for taking proactive action."

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

• NZD/USD turns lower as rising Fed rate hike bets and US-Iran tensions revive USD demand.
• The downside seems cushioned as traders seem hesitant ahead of the RBNZ on Wednesday.
• A break below an ascending trend-line support is needed to back the case for deeper losses.

The NZD/USD pair attracts some sellers following a modest intraday uptick to the 0.5930 region and languishes near the lower end of its daily range during the early European session on Tuesday. Bearish traders now await a break below the 0.5900 mark before positioning for an extension of the recent pullback from the vicinity of the 0.6000 psychological mark, or a three-month high touched in August.

The US Dollar (USD) regains positive traction as traders continue to price in a greater chance of a US Federal Reserve (Fed) rate hike in September amid inflation risks stemming from rising energy prices. Adding to this, a further escalation of tensions between the US and Iran is seen as another factor underpinning the safe-haven Greenback, exerting some downward pressure on the NZD/USD pair.

The downside, however, seems cushioned as traders might refrain from placing aggressive bets and opt to wait for the Reserve Bank of New Zealand (RBNZ) policy meeting on Wednesday. The focus will then shift to the closely watched US monthly jobs data, popularly known as the Nonfarm Payrolls (NFP) report on Friday. Apart from this, geopolitical headlines should provide some impetus to the NZD/USD pair.

From a technical perspective, an intraday breakdown below the 100-period Simple Moving Average (SMA) on the 4-hour chart could be seen as a key trigger for bearish traders. Moreover, the Moving Average Convergence Divergence (MACD) indicator remains marginally below zero and the Relative Strength Index (RSI) hovers in the mid-30s, which together hint at fading bullish momentum after the latest recovery.

However, the NZD/USD pair is holding above the 200-period SMA at 0.5876, leaving the near-term bias neutral but capped by nearby overhead supply. Furthermore, the upward-sloping trend-line reference around 0.5900 still underpins price action, making it prudent to wait for a break below the said handle before positioning for a slide to the 200-period SMA at 0.5876, where buyers could defend the broader uptrend.

On the topside, initial resistance is defined by the 100-period SMA at 0.5915, and a sustained break above this barrier would be needed to re-open a more constructive path for the NZD/USD pair.

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

NZD/USD 4-hour chart

Michael Wan at MUFG notes continued dispersion in Asia FX, with USD/JPY trading just below 160. NHK reports US officials urging Japan to raise interest rates, while markets already price a 92% chance of a September Bank of Japan (BoJ) hike. Communication on the full path of rate increases is seen as key for Japanese Yen (JPY) and JGB sentiment.

BoJ path in focus

"In Asia, we had continued dispersion across currencies driven by the factors mentioned above, with USD/JPY a touch below 160, KRW outperforming with USD/KRW below 1370, with some underperformance in PHP."

"NHK reported that US Secretary Scott Bessent told Japanese Finance Minister Katayama and Bank of Japan Governor Ueda that Japan’s next step should be to raise interest rates, on the sidelines of the G20 finance minister and central bank governor meeting in North Carolina. "

"Overall, with markets already pricing in a 92% chance of a September rate hike by BoJ, what matters more may not just be the September meeting but also communication about the whole path of rate hikes in upcoming BoJ meetings."

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

• AUD/USD edges lower to near 0.7164 as the US Dollar ticks up.
• The US ISM Manufacturing PMI, JOLTS Job Openings, and Australia’s Q2 GDP data are awaited.
• The RBA is expected to deliver another interest rate hike this year.

The Australian Dollar (AUD) trades marginally lower at around 0.7164 against the US Dollar (USD) during the European trading session on Tuesday. The Aussie pair edges down as the US Dollar ticks higher due to surging United States (US) Treasury Yields amid rising oil prices due to renewed Middle East conflicts.

At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally higher to near 99.50. 10-year US Treasury Yields hit a fresh 19-month high at 4.78% and come closer to the multi-year high of 4.81%.

On the domestic front, the US ISM Manufacturing PMI data for August and the JOLTS Job Openings data for July are under the spotlight, which will be published at 14:00 GMT.

In Australia, investors await the Q2 Gross Domestic Product (GDP) data, which will be released on Wednesday.

Australia growth seen slowing as RBA faces renewed hike speculation

Analysts at ING’s Asia-Pacific research team expect Australian GDP growth to slow to “1.8% YoY in 2Q,” citing “ongoing weakness in the housing sector – including declining house prices – and softer residential investment.” They note that the upcoming release will be “closely watched following the upside surprise in July inflation, which has markets pricing in a higher probability of another Reserve Bank of Australia rate hike.” However, despite the shift in market expectations, ING says it “continue[s] to lean towards the RBA remaining on hold.”

AUD/USD Technical Analysis

AUD/USD trades at 0.7164, retaining a bullish near-term bias as spot holds above the 20-period exponential moving average (EMA) at 0.7118. The pair’s position over this short-term EMA suggests underlying demand remains constructive, while the Relative Strength Index (14) at 63.09 stays in positive territory without reaching overbought conditions, hinting that buyers still have room to extend the advance.

On the downside, immediate support is located at the 20-day EMA at 0.7118, which represents the first line of defense in the event of a pullback. Looking up, the pair aims to extend the advance towards the four-year high at 0.7278.

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

• The Indian Rupee appreciates significantly against the US Dollar, with USD/INR sliding to near 94.80.
• RBI’s persistent intervention, India’s strong Q2 GDP data and lower fiscal deficit have supported the INR.
• Investors keenly await the US ISM Manufacturing PMI and JOLTS Job Openings data.

The Indian Rupee (INR) gains sharply against the US Dollar on Tuesday. The USD/INR pair slumps to near 94.80, the lowest level seen in two months, on likely Reserve Bank of India (RBI) intervention, stronger-than-expected Q2 Gross Domestic Product (GDP) data and a narrowed Fiscal Deficit.

According to a Reuters report, there has been persistent RBI intervention through spot and Non-Deliverable Forwards (NDFs) markets to support the Indian currency.

However, there is doubt that the INR’s strength is sustainable, as consistent RBI intervention leaves limited room for further US Dollar selling by the Indian central bank.

According to data from the RBI, the total net short forward positions now stand at a record high of $137 billion in July, up from $104 billion in June. Given that the RBI will eventually have to buy US Dollars to offset its outstanding position, this reflects that the INR’s appreciation is probationary.

India’s Q2 GDP growth remains strong, fiscal deficit narrows

The data on Monday showed that India’s Q2 GDP growth was in line with the prior growth rate of 7.8% Year-on-Year (YoY), stronger than estimates of 7.1%. Analysts at HDFC Bank said that stronger growth was led by upbeat domestic consumption, continued support from government spending, investments and healthy export performance.

Analysts added that input cost pressures due to the West ‌Asia conflict were offset by higher volume growth with sectors like manufacturing and electricity, gas growing by close to 9%. The stand-out sector remained services, with financial, real estate and professional services growing by a high of 12% in the quarter.

Meanwhile, India's Q2 fiscal deficit stood ​at Rs. 4.55 trillion ($47.81 billion), ‌or 26.8% of the target for the financial year 2026-27 due to a significant jump in net tax receipts. Government revenue from taxes stood at Rs. 8.5 trillion, compared with Rs. 6.6 trillion a year ‌ago.

US data in focus

In the United States (US), investors await the ISM Manufacturing PMI data for August and the JOLTS Job Openings data for July, which will be published at 14:00 GMT.

The Manufacturing PMI is expected to arrive at 55.2, lower than 55.6 in July. Meanwhile, fresh jobs posted by US employers are seen marginally lower at 7.3 million from 7.359 million in June. The Job Openings data is expected to have a meaningful influence on Federal Reserve (Fed) interest rate expectations.

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

USD/INR Technical Analysis

In the daily chart, USD/INR trades at 94.80, keeping a bearish near-term tone as spot holds below the 20-period exponential moving average (EMA) at 95.45.

The Relative Strength Index (14) slips below 40.00 for the first time in almost a year, signaling the onset of a bearish reversal.

On the topside, initial resistance is located at the 20-period EMA around 95.45, which is the first level bulls would need to reclaim to ease immediate downside pressure and open the way for a corrective bounce. Looking down, the pair could extend the decline to 94.50, followed by the June low at 94.19 if it fails to hold the fresh two-month low at 94.80.

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