Forex News

UBS economist Paul Donovan discusses how the Gulf war has lifted Oil prices and pushed consumer price inflation above target in major economies. He notes that Energy has a relatively small direct weight in US and EU consumer baskets, but its indirect impact via transport and production is significant. Donovan highlights the complexity of isolating war-related price effects from overall inflation.

War impact on global oil inflation

"The Gulf war has pushed up oil prices and increased consumer price inflation around the world—but by how much?"

"“Energy” (including non-oil energy) is just over 7% of the US consumer price basket. In the EU, it is almost 11%. Core inflation “excluding food and energy” does not exclude all the effects of energy (or, indeed, food). Energy is embedded in things like airfares and delivery costs."

"Measuring an economy’s oil consumption also does not help. If a good is manufactured in China and sold in Europe, Europe is effectively importing the oil used in the manufacturing and transport processes—over and above direct domestic oil consumption."

"Just focusing on crude oil prices misses the rise of refined oil prices, as Gulf refining capacity has been damaged. Since February, the crude oil futures price has risen 26%, but US diesel prices are almost 50% higher. China’s vehicle energy prices are up only 5%, meaning that the oil cost embedded in US imports from China are likely less than the oil costs embedded in US production."

"Stripping away the price of war from consumer inflation is therefore very complex. However, for major economies, the price consequences of the war are the dominant reason inflation is currently above target."

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

• Retail Sales in the US lost momentum in July.
• The US Dollar Index flirts with weekly lows near 99.50.

Retail Sales in the United States decreased to $763.6 billion in July, the US Census Bureau reported on Friday. This print reversed the 0.2% expansion recorded in the previous month and came in below market expectations (+0.1%). On a yearly basis, Retail Sales were up 5.0% in this period.

"Total sales for the May 2026 through July 2026 period were up 6.3 percent (±0.5 percent) from the same period a year ago. The May 2026 to June 2026 percent change was unrevised from up 0.2 percent (±0.3 percent)”, the press release read.

Market reaction

The Greenback trades with marked losses in the wake of the publication of Retail Sales data, with the US Dollar Index (DXY) returning to the 99.50 region, adding to Thursday’s slight pullback while retreating further from recent monthly peaks.

• The Preliminary Michigan Consumer Sentiment Index is expected to ease to 54.5 from 55.2 in July
• US consumers’ optimism has improved to levels close to those seen before the US-Iran war began.
• August’s UoM Consumer Sentiment is unlikely to change the view on the Fed’s monetary policy, which is the main USD driver.

The University of Michigan (UoM) will release the preliminary estimate of August’s Consumer Sentiment Index on Friday. The UoM report, which analyses US consumers’ feelings about their personal finances, business conditions, and purchasing plans, is expected to show a moderate decline, yet remain relatively close to levels in January and February, when concerns about Iran’s war and the economic impact of the energy shock were absent.

US consumers’ confidence is expected to have ticked down to 54.5 in August from 55.2 in July, as measured by the UoM Consumer Sentiment Index. These numbers would highlight fairly resilient sentiment in the face of uncertainty surrounding the Middle East conflict, a deteriorating labour market, and stubbornly high price pressures.

The risk on the US Dollar (USD), thus, is skewed to the downside. A positive surprise on August’s Michigan Consumer Sentiment Index is unlikely to change the prevailing view that the Federal Reserve (Fed) will stand pat on rates in September, while a weak sentiment report might heighten doubts about the momentum of the US economy, pushing Fed rate hikes further back and adding pressure on the Greenback

What to expect from August’s UoM Consumer Sentiment Index report?

Investors will be attentive to Friday’s data to see how US consumers are responding to the Middle East deadlock and the persistently high prices.

US macroeconomic data released earlier this week revealed some moderation in inflation, yet with the headline Consumer Price Index (CPI) growing at a 3.4% year-over-year rate in July, a whole percentage point above the levels seen in January and February, before the Middle East conflict sent Oil prices surging.

If this was not enough, the Nonfarm Payrolls (NFP) report showed that net employment contracted unexpectedly in July, highlighting a sharp deterioration of the labour market, which, sooner or later, is highly likely to dent consumers’ confidence.

July’s University of Michigan report highlighted a broad-based improvement, although, looking from a wider perspective, the overall sentiment remains well below its historical average. The Director of the Survey of Consumers, Johanne Hsu, noted that “sentiment is 11% below a year ago, reflecting a generally somber view of the economy amid five years of elevated inflation and persistently high prices.”

Bearing this in mind, the landscape has not given reasons to contemplate a positive surprise on Friday. Quite the contrary. West Texas Intermediate (WTI) Oil prices are more than 15% above the levels in early July, when the interviews for last month’s report took place, and the situation in the Middle East remains stalled, pushing energy prices and overall inflation higher. 

Inflation expectations for the year ahead eased in July to 4.2% from 4.6% in June, but recent developments might have prompted some recovery in August, adding pressure on the overall sentiment.

When will the UoM Consumer Sentiment Index be released, and how could it affect the US Dollar?

The University of Michigan will release its Consumer Sentiment Index, together with the Consumer Inflation Expectations survey, on Friday at 14:00 GMT. The market consensus hints at a moderate pullback from July’s reading, although showing levels not far from the 2026 peak.

The US Dollar remains weighed by dwindling hopes of Fed rate hikes, although the cautious market mood, amid growing uncertainty about the fate of the US-Iran peace process, has kept the safe-haven Greenback buoyed this week.

The USD Index (DXY), which measures the value of the US Dollar against a basket of six major currency peers, has been showing a mild upside bias over the last few days, after finding some support at the 99.45 area.  Bulls, however, have been unable to find acceptance above the 100.00 psychological level at the time of writing.

The 4-hour chart highlights a neutral-to-bearish near-term bias, with the Relative Strength Index (14) drifting below the 50 midline and the Moving Average Convergence Divergence (MACD) histogram marginally in negative territory. This hints at a fading bullish undertone rather than a bearish reversal.

Bulls would need a clear break of the 100.00 resistance zone to shift the focus towards a previous support area near 100.45, which capped bulls on July 31, ahead of the July 30 high, a few pips above 101.00. On the downside, Wednesday’s low in the 99.60 region is likely to test bears’ confidence, although the key support area is the mentioned 99.40, the bottom of the last two months’ trading range.

TD Securities’ Oscar Munoz argues that Chair Kevin Warsh’s communication strategy has undermined market confidence in the Federal Reserve’s inflation-fighting resolve. The report expects Warsh to reset his approach as early as the Jackson Hole Symposium, with greater clarity on the Fed’s reaction function and policy framework seen as necessary to restore credibility and centralize guidance.

Warsh seeks to rebuild Fed credibility

"Questions around Fed credibility arose after the most recent FOMC meeting, with Chair Warsh's lack of clarity about how the Committee intended to lower inflation acting as a key catalyst. We expect a reset on strategy by the chairman as early as the Jackson Hole symposium."

"The Jackson Hole Symposium later this month seems like the perfect platform for Chair Warsh to set the record straight. While forward guidance may be out the window, providing information about the Fed's reaction function should not be."

"In the end, the Fed chair does not want to lose the power of the bully pulpit or for the market to outsource policy guidance from other Fed officials. The Fed chair should want to remain a relevant part of monetary policy considerations. This is why we think the current communications strategy from Chair Warsh needs a reboot."

"Absent clarity from the Chair, the market will likely look elsewhere to find information about the Fed's policy framework, including increasingly relying on guidance from more vocal Fed officials. As we have noted before, a number of Committee members appear to be more than happy to fill the void left by the Fed chair."

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

• EUR/GBP trades sideways but is set to snap a three-week winning streak.
• Eurozone and UK economies both expanded by 0.4% in the second quarter.
• Markets fully price a September ECB hike, while the BoE is expected to hold rates steady.

EUR/GBP is little changed on Friday, extending the sideways pattern seen through most of the week as traders show a muted reaction to second-quarter Gross Domestic Product (GDP) data from both the Eurozone and the United Kingdom (UK). At the time of writing, the cross trades around 0.8543.

Eurostat’s second estimate confirmed that the Eurozone economy expanded by 0.4% in the second quarter, in line with the flash reading and up from no growth in the previous quarter. On an annual basis, GDP growth accelerated to 1.0% from an upwardly revised 0.5%.

Data released on Thursday showed that the UK economy also grew by 0.4% in the second quarter, matching forecasts but slowing from 0.6% in the first quarter. Annual growth improved to 1.2% from 0.9%, beating the 1.1% estimate.

The pair is on track to end the week in negative territory, with profit-taking likely weighing on the cross after three consecutive weekly gains. Meanwhile, traders remain focused on elevated Oil prices and their possible impact on inflation and the monetary policy outlook for the European Central Bank (ECB) and the Bank of England (BoE).

Markets are fully pricing in a September interest rate hike from the European Central Bank (ECB), which would be its second increase this year. Analysts at Nordea reiterate that they "continue to expect three more 25bp increases, taking the deposit rate to 3%," but note that they "revised the expected path of these hikes last month from consecutive to quarterly moves." In their updated baseline, Nordea now assumes "25bp rate hikes in September, December and March 2027."

The bank also highlights that geopolitical developments could materially alter the trajectory, arguing that "a quick and durable peace in the Middle East could reduce the pressure on the ECB to hike further, while a more notable escalation and longer-lasting disruption to energy markets could lead to faster and potentially more rate increases."

The BoE is likely to leave interest rates unchanged, with the pass-through from higher energy prices still limited. Next week’s Consumer Price Index (CPI) report will provide a fresh update on inflation.

• The Australian Dollar gains 0.31% on Friday, recovering from Thursday’s decline as domestic monetary policy expectations remain supportive.
• Comments from an Australian central bank official keep the prospect of further interest-rate increases on the table.
• Softer United States inflation figures weigh on the US Dollar ahead of July Retail Sales data.

AUD/USD rebounds on Friday and trades around 0.7080 at the time of writing, gaining 0.31% on the day after falling as low as 0.7044 on Thursday. The Australian Dollar (AUD) finds support from hawkish comments by Reserve Bank of Australia (RBA) Assistant Governor Chris Kent, while the US Dollar (USD) remains under pressure following softer United States (US) inflation data.

RBA Assistant Governor Chris Kent said on Thursday that recent interest-rate increases are producing their intended effects, but warned that further tightening remains possible if new inflationary risks emerge. His remarks reinforce the relatively hawkish message delivered by the Australian central bank earlier this week.

The RBA left interest rates unchanged at its latest monetary policy meeting. Governor Michele Bullock indicated that policymakers preferred to wait for additional information before acting again, while stressing that another rate increase remains under consideration. This stance keeps expectations of further monetary tightening alive and provides support to the Australian Dollar.

At the same time, the US Dollar struggles to regain momentum after softer inflation figures reduced expectations of an interest rate increase by the Federal Reserve (Fed) in September. According to the CME FedWatch Tool, markets price a 34.8% chance of a rate increase at the September meeting, down from around 60% two weeks earlier.

Attention now turns to US Retail Sales data due later on Friday. Markets expect sales to rise 0.1% in July after increasing 0.2% in June. Later in the day, the preliminary University of Michigan Consumer Sentiment Index for August is expected to ease to 54.5 from 55.2 in July. With inflation concerns and signs of cooling labor-market conditions remaining in focus, the two releases could provide fresh direction for AUD/USD heading into the end of the week.

RBA holds but hawkish tone keeps Aussie rate hike risk alive

Strategists at Societe Generale note that in Australia, the RBA left the cash rate target on hold at 4.35%, but “lowered the trajectory of the policy rate and inflation.” Despite that adjustment, they judge that “the statement was hawkish,” highlighting Governor Bullock’s pledge that the bank “would not hesitate to act if needed.” In their view, “monetary policy must stay restrictive and additional tightening is not ruled out.”

Rabobank points out that the RBA left rates unchanged this week, with markets initially interpreting the accompanying statement as “relatively dovish.” However, Governor Bullock quickly pushed back against that perception, revealing that policymakers debated both holding and hiking, and stressing that another increase remains “quite possible.” While Rabobank acknowledges that the RBA clearly hopes previous tightening will prove sufficient, they “remain unconvinced and continue to expect one more hike later this year.”

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7084, maintaining a bullish near-term bias as it holds above the 100-period simple moving average (SMA) at 0.7061 and the 200-period SMA at 0.7051. The pair is pressing against the upper end of its recent range, with the upward-sloping trend structure now pointing toward the break area around 0.7090, while the Relative Strength Index (14) stretches into overbought territory near 72, hinting that upside momentum is strong but increasingly vulnerable to consolidation.

On the topside, initial resistance is seen at the trend-line break level around 0.7090, followed closely by the horizontal cap at 0.7091, forming a tight barrier just above current price. On the downside, immediate support emerges at the 100-period SMA near 0.7061, ahead of the 200-period SMA at 0.7051, with a lower structural floor at 0.7040 that would come into focus if profit-taking drives a deeper pullback.

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

Nordea strategists remain constructive on the Swedish Krona (SEK), viewing it as undervalued and supported by robust domestic fundamentals and improving macro data. However, they note fading momentum into 2025–2026, a more hawkish Federal Reserve (Fed), Middle East uncertainty and dependence on EUR/USD stability. They see potential Riksbank hikes as supportive via narrower rate differentials but warn upside in SEK is now more limited.

Undervalued but less bullish now

"The Swedish krona remains “undervalued” according to our view and we expect the improved macro economic score card to gradually appreciate the SEK over the forecast horizon."

"However, we recognize that the 2025 and early 2026 momentum have subsided, and we are less bullish on the SEK than before."

"Ready, steady, hike? Momentum in underlying inflation has picked up and might potentially force the Riksbank’s hand to deliver its first rate hike. A higher policy rate is a two-sided coin for the SEK; it dampens economic growth potential, but also narrows the policy rate differential compared to the ECB"

"For the time being, we believe the latter argument is of greater importance, with the risk of EUR/SEK edging higher if the Riksbank does not adhere to market expectations of 1-2 hikes until year-end."

"Healthy global risk appetite with low volatility, coupled with favorable domestic conditions, makes Sweden well positioned to attract foreign capital."

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

Danske Bank’s Danske Research Team notes that US July PPI came in slightly below expectations, with volatile trade and transport services dragging the headline lower while broader services stayed firm. Long-term borrowing costs at a 30-year Treasury auction rose to their highest since 2001, reflecting concerns over federal debt and persistent inflation. Fed’s Hammack reiterated support for higher policy rates to curb inflation.

Softer PPI but hawkish Fed voices

"In the US, July PPI was slightly softer than expected at 4.7% y/y (cons.: 4.9%). Volatile trade and transportation services pulled the reading lower, while broader services price pressures were a little stronger than expected. Core goods were steady and energy was in line with expectations."

"Weekly jobless claims, released at the same time, were also mixed, with continuing claims a touch lower than expected and initial claims higher. Overall, the market reaction was muted."

"The higher borrowing costs add pressure as debt servicing already exceeds defence spending, while the large fiscal deficits and a shift towards more short-term issuance leave public finances more exposed to interest rate moves. On the wires, Fed's Hammack, one of the dissenters who voted for a hike at the last meeting, reiterated that she continues to see the case for higher policy rates and said the Fed needs to act now to bring inflation under control."

"Also in the US, long-term borrowing costs rose to their highest level since 2001 at a USD25bn auction of 30-year Treasury bonds. The auction reflected growing investor concern over the growing federal debt burden and inflation that remains above the Fed's target."

"In the US, US July retail sales data is due for release today. Private consumption was the most important growth driver in Q2, and the release will provide markets with the first hard data evidence of whether the strength also continued into late summer. The August flash consumer sentiment survey from the University of Michigan will provide an even more forward-looking signal. "

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

Rabobank's Senior FX Strategist Jane Foley highlights Switzerland’s stronger-than-expected Q2 Gross Domestic Product (GDP) and resilient economy, yet notes EUR/CHF remains in a gentle uptrend since late May. Foley has revised its 9–12 month EUR/CHF target to 0.95 from 0.94, arguing strong Swiss growth, benign inflation and zero interest rates could limit upside and increase sideways trading.

SNB policy and safe haven dynamics

"Nevertheless today’s data release casts the Swiss economy in a new light and speaks of the resilience of its economy. That said, the data has not been sufficient to knock EUR/CHF away from the gentle uptrend that has been in place since late May."

"While we have been expecting EUR/CHF to edge moderately higher, the move has outpaced our expectations. Consequently we are edging up our forecasts. That said strong Swiss growth could limit upside potential and increase scope for bouts of sideways trading."

"The SNB must be satisfied with the softening in the value of the CHF in recent months. For years, the Swiss central bank has struggled with the impact of safe haven flows into the CHF."

"Just days after the Iran war broke out, the SNB warned that it stood ready to intervene and data suggests that action was taken in Q2, most likely in March. The combination of intervention threats and zero policy rates have certainly appeared to dilute the appeal of the CHF as a safe haven currency in recent months."

"The uptrend in EUR/CHF was given another shot in the arm by the ECB’s June rate hike and the expectations that it could tighten policy further potentially next month. By contrast, the market sees little danger of a SNB rate hike in the next 12 months."

"That said, following years of downside pressure, EUR/CHF has not recovered far from record lows, meaning the SNB is unlikely to drop its intervention threat just yet. We have revised up our 9 to 12-month target to EUR/CHF 0.95 from 0.94."

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

Commerzbank’s Antje Praefcke explains that Norges Bank kept its policy rate at 4.25% and still signals that further tightening may be necessary as inflation remains above target. However, upcoming data, especially August inflation, could prompt the bank to drop its year-end hike signal. Weaker fundamentals and lower Oil prices could see EUR/NOK above 11 by year-end.

Policy caution and NOK vulnerability

"Even if Norges Bank does not want to restrict the economy more than needed, it concludes that a restrictive monetary policy stance remains necessary to bring inflation down to the target level within a reasonable time horizon. However, the statement sounds as if Norges Bank might consider not to hike again if the data during the coming weeks warrants it."

"By then, Norges Bank will have more data at its disposal and may - if necessary - drop its signal for another interest rate hike by year-end, as projected in June. In this regard, the focus now shifts to the upcoming data, particularly the August inflation figures, which will be released on September 10."

"If, at the same time, other fundamental data tends to be on the weaker side, the market could increasingly bet on the further rate hike being called off, thereby putting the NOK under some depreciation pressure. And if the oil price also falls thanks to an agreement in the Middle East, the NOK is likely to see a correction. Exchange rates above 11 in EUR/NOK are likely by the end of the year."

"Norges Bank thus acknowledges that inflation has been lower than projected, but it remains cautious. It is too early to conclude that the inflation outlook has changed materially since June. Furthermore, inflation remains well above the 2% target (the headline rate in July was 3% year-over-year, and the core rate was 2.7%), and the rapid rise in business costs in recent years will contribute to keeping inflation elevated ahead."

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