Forex News
New Zealand's (NZ) inflation expectations rose on a 12-month time frame and on a two-year time frame for the second quarter of 2026, the Reserve Bank of New Zealand’s (RBNZ) latest monetary conditions survey showed on Wednesday.
Two-year inflation expectations, seen as the time frame when RBNZ policy action will filter through to prices, extended its advance to 2.53% in Q2 2026 versus 2.37% seen in Q1.
NZ average one-year inflation expectations jumped to 3.41% in Q2 vs. 2.59% in the first quarter of this year.
NZD/USD reaction to inflation expectations
The Indian government has raised import tariffs on gold and silver to 15% from 6%, in an attempt to discourage the purchase of precious metals due to ease pressure on the nation’s foreign exchange reserves, Reuters reports.
The government has imposed a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC) on gold and silver imports, taking the effective import tax to 15% from 6%.
The government has imposed a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC) on gold and silver imports, taking the effective import tax to 15%, according to the notification issued by the Department of Revenue under the Customs Act
Market participants had already anticipated the move as Indian Prime Minister (PM) Narendra Modi urged citizens, in an event in Hyderabad over the weekend, to postpone gold purchases for a year, reduce fuel consumption, and avoid foreign travel, all aimed to conserve India’s forex reserves.
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
- GBP/USD languishes near a two-week low amid a combination of negative factors.
- The UK political turmoil continues to undermine the GBP and weigh on spot prices.
- The USD benefits from Fed rate hike bets and Iran tensions, favoring bearish traders.
The GBP/USD pair struggles to capitalize on the previous day's late bounce from the 1.3500 psychological mark, or a nearly two-week low, and oscillates in a narrow band during the Asian session on Wednesday. Spot prices remain below the 1.3550 level and seem vulnerable to weaken further amid a combination of negative factors.
The British Pound (GBP) continues to be undermined by a severe political crisis in the UK, with over 80 Labour MPs calling for Prime Minister Keir Starmer to resign following disastrous local election results. The US Dollar (USD), on the other hand, is seen consolidating the previous day's strong gains to an over one-week high as hot US inflation data reaffirmed bets for a rate hike by the Federal Reserve (Fed). These turn out to be key factors acting as a headwind for the GBP/USD pair.
The US Bureau of Labor Statistics (BLS) reported on Tuesday that the headline US Consumer Price Index (CPI) rose 3.8% in the 12 months through April, marking the biggest year-on-year increase since May 2023. Moreover, the core gauge, which excludes volatile food and energy prices, climbed 0.4% and 2.8% on a monthly and yearly basis, respectively. Traders were quick to react and are now pricing in roughly a 35% chance of a 25-basis-point hike by the December 2026 meeting.
This comes on top of fading hopes for a US-Iran peace deal and further underpins the USD's reserve currency status, backing the case for a further near-term depreciating move for the GBP/USD pair. In the latest development surrounding the Middle East crisis, US President Donald Trump said that the ceasefire with Iran was "on life support", while Tehran rejected a US proposal to end the war amid major disagreements over its nuclear program and the critical Strait of Hormuz.
Traders now look forward to the release of the US Producer Price Index (PPI) for a fresh impetus later during the early North American session. Apart from this, the incoming geopolitical headlines might continue to infuse volatility in the financial markets and produce short-term trading opportunities around the GBP/USD pair. Nevertheless, the fundamental backdrop favors bearish traders and suggests that the path of least resistance for spot prices is to the downside.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling 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, its currency will benefit 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.
- USD/JPY rises as the Japanese Yen weakened following the release of Japan’s current account surplus data.
- The OECD projects the Bank of Japan will increase short-term policy rates to 2% by the end of 2027.
- Hotter US inflation data suggests the Federal Reserve may maintain high interest rates to combat persistent price increases.
USD/JPY extends its gains for the third successive day, trading around 157.70 during the Asian hours on Wednesday. The pair appreciates as the Japanese Yen (JPY) remains subdued after the release of Japan’s current account surplus, which increased to JPY 4,681.5 billion in March from JPY 3,625.3 billion in the same month a year earlier. These figures surpassed market expectations of JPY 3,879 billion, marking the largest amount on record.
The Bank of Japan’s April Summary of Opinions revealed that policymakers are considering further rate hikes as early as their next meeting, driven largely by inflation risks linked to rising oil prices.
The Organisation for Economic Co-operation and Development (OECD) has recommended that Japan primarily utilize consumption tax increases to bolster its national revenue. On the monetary front, the Bank of Japan (BOJ) is projected to raise short-term policy rates to 2% by the end of 2027, though it must remain flexible enough to modify the pace and maturity of its bond-buying activities should financial or bond market disruptions occur. Furthermore, the OECD advised stricter fiscal discipline, suggesting that the government limit the use of supplementary budgets to instances of significant economic shocks.
The USD/JPY pair advances as the US Dollar (USD) gains ground on the volatile geopolitical climate in the Middle East following recent comments from US President Donald Trump. While claiming that Iran is "under control," the President warned of a binary outcome: a new deal or total "decimation." In response, Iranian Deputy Foreign Minister Kazem Gharibabadi maintained a firm stance, asserting that any viable peace agreement must include reparations, recognized sovereignty over the Strait of Hormuz, and a complete end to US sanctions.
Moreover, the Greenback may receive support as hotter-than-expected US Consumer Price Index (CPI) has reinforced a hawkish sentiment among investors, signaling that the Federal Reserve (Fed) is likely to maintain elevated interest rates to combat persistent inflationary pressures.
The Bureau of Labor Statistics reported on Tuesday that April CPI rose 0.6% month-over-month, pushing the annual inflation rate to 3.8%, its highest level since May 2023. Core CPI, which strips out volatile food and energy costs, also trended upward with a 2.8% annual rise.
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.
The Organization for Economic Co-operation and Development (OECD) projected the Bank of Japan (BoJ) will raise its policy rate to 2.0% by end-2027 from 0.75% currently, supported by higher inflation expectations, solid wage growth and a closed output gap.
Key quotes
Japan should rely primarily on consumption tax hike to boost revenues.
BoJ should stand ready to modify pace, maturity profile of its bond buying in case of financial, bond market disruptions.
BoJ projected to raise short-term policy rate to 2% by end of 2027.
Use of supplementary budgets should be limited to large economic shocks.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
- AUD/USD drifts higher to near 0.7240 in Wednesday’s Asian session.
- The hawkish RBA tone underpins the Aussie.
- Traders will keep an eye on the US PPI inflation report and Trump-Xi summit later this week.
The AUD/USD pair gains ground to around 0.7240 during the Asian trading hours on Wednesday. The Australian Dollar (AUD) strengthens against the US Dollar (USD) amid a hawkish stance from the Reserve Bank of Australia (RBA).
The Australian central bank decided to raise the interest rates to 4.35% on May 5, marking its third consecutive hike this year, in line with market expectations. This tightening cycle continues to provide some support to the Aussie in the near term.
"Our economists expect the RBA to remain on hold in a 'wait-and-see' mode; however, further domestic fiscal support could increase the likelihood of additional tightening,” said HSBC economists.
Traders will closely monitor the US President Donald Trump-Chinese Xi Jinping meeting in Beijing on Thursday and Friday. Trump said on Tuesday that he would prioritize trade discussions during his summit with Chinese President Xi Jinping and downplayed the amount of attention they would devote to the Iran war, per Bloomberg. However, any positive developments surrounding the US and China talks could boost the China-proxy Australian Dollar.
On the USD’s front, data released by the US Bureau of Labor Statistics (BLS) on Tuesday revealed that annual inflation in the US, as measured by the change in the Consumer Price Index (CPI), jumped to 3.8% in April from 3.3% in March. This reading came in above the market consensus of 3.7% and registered the highest since May 2023.
Traders raised the odds for a Federal Reserve (Fed) rate hike by the end of the year to about 30% following the hot US inflation data, according to the CME FedWatch tool.
The US Producer Price Index (PPI) report will be the highlight later on Wednesday. The headline US PPI is expected to show a rise of 4.9% YoY in April, compared to 4.0% in March, while the core PPI is projected to show an increase of 4.3% YoY in April versus 3.8% prior.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
- Silver rises due to its essential role in manufacturing solar panels, electronics, and automotive components.
- Silver may struggle as geopolitical instability and potential Strait of Hormuz closures drive oil prices and inflation higher.
- Hotter US inflation data suggests the Federal Reserve may maintain high interest rates to combat persistent price increases.
Silver price (XAG/USD) continues its winning streak for the sixth successive day, trading around $86.80 per troy ounce during the Asian hours on Wednesday. Rising industrial demand continues to bolster the outlook for Silver, as the "white metal" remains a critical component in the production of solar panels, electronics, and automotive parts.
However, this bullish momentum for Silver faces significant headwinds from geopolitical instability. The potential for a prolonged closure of the Strait of Hormuz threatens to keep oil prices elevated, fueling inflationary fears. Such a scenario increases the likelihood of "higher-for-longer" global interest rates, which typically diminishes the appeal of non-yielding assets like Silver as investors pivot toward higher-return opportunities.
The geopolitical climate in the Middle East remains volatile following recent comments from US President Donald Trump. While claiming that Iran is "under control," the President warned of a binary outcome: a new deal or total "decimation." In response, Iranian Deputy Foreign Minister Kazem Gharibabadi maintained a firm stance, asserting that any viable peace agreement must include reparations, recognized sovereignty over the Strait of Hormuz, and a complete end to U.S. sanctions.
Adding to the economic pressure, the Bureau of Labor Statistics reported a hotter-than-expected Consumer Price Index (CPI) for April on Tuesday. The data revealed a 0.6% monthly increase, pushing the annual inflation rate to 3.8%, its highest level since May 2023. Core CPI, which strips out volatile food and energy costs, also trended upward with a 2.8% annual rise. These figures have reinforced a hawkish sentiment among investors, signaling that the Federal Reserve (Fed) is likely to maintain elevated interest rates to combat persistent inflationary pressures.
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
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