Forex News
- Gold consolidates its recovery ahead of the US PCE inflation data.
- Less hawkish remarks from New York Fed President John Williams lower expectations of an October rate hike.
- The technical outlook remains bearish as XAU/USD remains below its key daily moving averages.
Gold (XAU/USD) trades little changed on Wednesday, consolidating the previous day’s gains after recovering from a seven-week low touched on Monday. A pullback in the US Dollar (USD) and US Treasury yields lends some support to the non-yielding metal as traders brace for the US Personal Consumption Expenditures (PCE) Price Index data, due at 12:30 GMT. At the time of writing, XAU/USD trades around $4,185.
The Greenback and Treasury yields retreat as traders trim bets on another Federal Reserve (Fed) interest-rate hike in October following less hawkish remarks from New York Fed President John Williams on Tuesday.
“With the policy action we took at our September meeting, there is no need for urgency,” Williams said. He added that “if the economy evolves in a manner broadly consistent with my forecast, one further upward adjustment of the federal funds target range may be appropriate late this year to support a timelier return of inflation to target.”
Markets now see a 43% chance of an October rate hike, down from around 70% earlier this week, according to the CME FedWatch Tool.
Economists expect the core PCE Price Index to rise 0.3% MoM in August, up from 0.2% in July. Headline PCE inflation is forecast to rise 0.4% MoM, up from 0.2%. On an annual basis, core and headline inflation are expected to remain unchanged at 3.3% and 3.7%, respectively.
The report will be closely watched for fresh clues about the Fed’s next policy move. A stronger-than-expected reading could revive expectations of an October rate hike, lifting the US Dollar and Treasury yields while putting renewed pressure on Gold.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.20 after reaching 101.61 on Tuesday, its highest level in two months. The benchmark 10-year yield stands near 5.22%, below the previous day's high of 5.29%, its highest level since 2007.
Gold remains on track to end September in negative territory, pressured by broad US Dollar strength and soaring Treasury yields. Heightened energy-driven inflation risks from the Middle East conflict have pushed traders toward a more hawkish view of the Fed after the central bank raised interest rates by 25 basis points (bps) earlier this month.
However, Middle East crude supplies are showing signs of recovery. Reuters reported that Saudi Arabia resumed tanker loadings at Yanbu after restarting its East-West pipeline, while Goldman Sachs estimated that Gulf Oil exports returned to their 2025 average over the past week. The US also announced that it would offer up to 40 million barrels from its Strategic Petroleum Reserve.
These measures pushed Oil prices lower on Tuesday, easing some concerns over energy-driven inflation. Prices recovered modestly on Wednesday as the stalemate between Washington and Tehran kept supply risks in focus. Iranian Foreign Minister Abbas Araqchi is expected to review Washington’s response to Tehran’s seven-day proposal aimed at reopening the Strait of Hormuz.
Technical Analysis: XAU/USD remains vulnerable while below major SMAs
On the daily chart, XAU/USD keeps a bearish near-term bias as spot holds beneath the 50-day, 100-day and 200-day Simple Moving Averages (SMAs) clustered between roughly $4,288 and $4,538. The relative strength index (RSI) at 40 sits below its midline, while the Moving Average Convergence Divergence (MACD) indicator remains in negative territory, both hinting that downside momentum still outweighs recovery attempts despite the recent stabilization off the $4,100 region.
On the topside, initial resistance emerges at the 100-day SMA at $4,288, followed by the 50-day SMA at $4,322, with the broader bearish structure reinforced by the 200-day SMA near $4,538 and a horizontal barrier at $4,700. On the downside, immediate support is seen at the horizontal level of $4,100, ahead of a deeper floor around $4,000, where a break would open the way for an extension of the prevailing corrective phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
- The core Personal Consumption Expenditures Price Index is forecast to rise 0.3% MoM and 3.4% YoY in August.
- Headline annual PCE inflation is expected to remain stable at 3.7%.
- EUR/USD is bearish near 2026 lows ahead of the critical data release.
The United States (US) Bureau of Economic Analysis (BEA) will publish the Personal Consumption Expenditures (PCE) Price Index data for August on Wednesday at 12:30 GMT. Market participants closely watch the PCE Price Index because it is the Federal Reserve’s (Fed) preferred measure of inflation and could influence its policy outlook.
PCE inflation: Insights into the Federal Reserve's key inflation metric
Market participants anticipate that the core PCE Price Index, which excludes volatile food and energy prices, advanced 0.3% month-over-month (MoM) in August, following the 0.2% increase recorded in July, while the annualized reading is foreseen at 3.4%, slightly higher than the 3.3% posted in the previous month.
As previously noted, PCE inflation data is critical as it’s the Fed’s preferred inflation gauge and will help market participants move bets on whatever the central bank may do in the last two meetings of the year. It’s worth remembering that policymakers delivered a 25 basis points (bps) interest rate hike when they met in September, the first one in three years, to a target range of 3.75%–4.00% in a unanimous decision.
The hike explains itself: the Middle East war maintains energy prices upward, pressuring the cost of living, while PCE inflation hit 4% in early 2026, doubling the central bank’s goal. Sure, inflationary pressures have receded from that level, but they are still far from the comfortable 2%.
At the same time, crude Oil prices are roughly 50% higher than pre-war, while the conflict is far from resolving and has become a regional crisis with more and more countries involved. On a positive note, Oil flows through the Strait of Hormuz recovered to about 80% of pre-war levels in September, despite continued military tensions in the region.
The risk of an escalation, however, remains high and market participants are far from pricing in easing energy prices in the foreseeable future. That means inflation is likely to hold above the preferred 2% and hence, result in some Fed action to tame it.
Ahead of the PCE Price Index release, market participants expect interest rate hikes both in October and December, according to the FedWatch Tool. The odds for an October hike stand at 72.5% at the time of writing.
Generally, a higher-than-anticipated PCE Price Index result should boost the odds for upcoming rate hikes, increasing demand for the US Dollar (USD). A reading in line with the market’s expectation should have a limited impact on prices, yet maintain the USD on its bullish route. On the contrary, a lower-than-anticipated outcome should put some pressure on the Greenback, at least temporarily.
How will the Personal Consumption Expenditures Price Index affect EUR/USD?
As the release approaches, the US Dollar Index (DXY) trades not far below its yearly peak at 101.80, maintaining its positive momentum as investors bet on higher interest rates while seeing no easy way out of the Middle East conflict.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “The EUR/USD pair trades in the 1.1350 price zone, with a clear bearish bias and without signs of downward exhaustion. The pair develops far below all its Simple Moving Averages (SMAs), while the 20-day SMA crosses below an also bearish 100-day SMA, usually a sign of strong selling interest. At the same time, technical indicators maintain their downward slopes well into negative territory, also reflecting sellers’ control.”
Bednarik adds: “June monthly low at 1.1324 provides immediate support ahead of the 1.1200 price zone, where the pair topped between August and September 2025 multiple times. Once below the area, the case for additional declines will strengthen. Resistance can be found at 1.1400, while additional gains expose a long-term static area around 1.1470. Sellers are likely to reappear around the latter if reached, limiting any additional bullish potential.”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Economic Indicator
Core Personal Consumption Expenditures - Price Index (MoM)
The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The MoM figure compares the prices of goods in the reference month to the previous month.The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.
Read more.Next release: Wed Sep 30, 2026 12:30
Frequency: Monthly
Consensus: 0.3%
Previous: 0.2%
Source: US Bureau of Economic Analysis
After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.
- The US ADP Employment Change report is forecast to show a 72K increase in net employment in September.
- If the market consensus is confirmed, it will endorse the theory of US economic exceptionalism.
- The impact on the US Dollar is likely to depend on the outcome of the PCE Price Index due at the same time.
The Automatic Data Processing (ADP) Research Institute will release September’s monthly report on private-sector employment creation on Wednesday. The ADP Employment Change report is forecast to reveal that net employment in the United States (US) private sector increased by 72K this month, almost twice the 38K new jobs reported in August.
ADP data is closely watched by markets as it sets the sentiment ahead of the all-important Nonfarm Payrolls (NFP) report, usually released a couple of days later by the US Bureau of Labor Statistics. This time, however, the ADP report will have to share the spotlight with the key US Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve’s (Fed) gauge of choice for assessing inflationary trends, which will be released 15 minutes later and might end up stealing the show.
ADP jobs report is expected to reflect a resilient labour market
Markets hold an optimistic view of US employment trends, especially after the outstanding August Nonfarm Payrolls report, which showed a 162K net increase in job creation and a steady Unemployment Rate at 4.1%, its lowest level in more than a year.
Apart from that, more recent data has contributed to keeping spirits high, as analysts at OCBC note: “Recent claims data have continued to trend lower, suggesting labour market conditions remain firm.” Weekly ADP data has also been positive, as the latest reports showed that US private employers added an average of 20K jobs per week, up to the first week of this month.
Against this background, investors are expecting September’s labor data to confirm that the market remains tight, which, together with the strong inflationary pressures stemming from high energy prices, will pave the path for the Fed to tighten its monetary policy further in October or December at the latest. Futures markets are pricing in a 70% chance of a quarter-point interest rate hike in October and 60% odds that the US central bank will hike rates by 50 basis points before year-end, according to the data released by the CME Group’s FedWatch Tool.
It is worth recalling, however, that markets will contrast the ADP outcome with the PCE Price Index report released almost simultaneously for a more complete picture of the Fed’s monetary policy outlook. PCE inflation is widely expected to reflect upside pressures from high Oil prices, amid uncertainty in the Middle East, and show that consumer prices remain well above the Fed’s target. In that sense, employment data is seen as the sidekick to underpin the central bank’s hawkish stance this week.
Federal Reserve officials have reiterated that inflation pressures remain too high and that the bank might have to hike interest rates again. Fed Governor Lisa Cook went further on Monday, stating that the “number and magnitude of any future rate adjustments will be informed by inflation and labor market data,” thus increasing interest in this week’s releases.
When will the ADP report be released, and how could it affect the USD?
The US ADP Employment Change report will be out on Wednesday at 12:15 GMT, and it is expected to show that the private sector created 72K new jobs in September. If the final data meets expectations and is followed by hot PCE Price Index figures, it will boost hopes of another Fed interest rate hike in October and provide additional support to the US Dollar (USD).
Forex experts at Societe Generale anticipate that the combination of "higher inflation and resilient real-economy data could propel the Dollar Index to a near-2026 high (just 0.7% away) or push EUR/USD to a new low (only 0.5% away)," underscoring the potential for renewed Greenback strength even as investors digest the upcoming economic data releases.
The US Dollar Index (DXY) technical picture shows a solid bullish trend, after rallying nearly 2.5% in less than three weeks, which has boosted price action to two-month highs near 101.50 at the time of writing. Fundamentals are supportive, but the Relative Strength Index (RSI) is reaching overbought levels on intraday charts, suggesting that the trend may be overextended and warning about a potential bearish correction.
According to Guillermo Alcalá, Analyst at FXStreet.com, bulls are likely to meet resistance at the 2026 highs of 101.64 and 101.80, July and June’s peaks, respectively. If these levels give way, the next target is the May 2025 high near 102.00. Bearish attempts, on the other hand, are likely to be tested at the ascending trendline support, now at 101.25 ahead of the September 25 low near 100.90. ”Further decline is likely to require a significant disappointment in US macroeconomic figures,” says Alcalá.
Economic Indicator
ADP Employment Change
The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Next release: Wed Sep 30, 2026 12:15
Frequency: Monthly
Consensus: 72K
Previous: 38K
Source: ADP Research Institute
Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
- Australian Dollar remains supported near 0.6970 as the Australian Dollar remains under pressure.
- Further acceleration in Australian inflation reinforces hawkish RBA expectations.
- The US Dollar trades lower ahead of key US data.
The Australian Dollar (AUD) holds onto its early recovery move at around 0.6970 against the US Dollar (USD) during the European trading session on Wednesday. Still, the Aussie pair is down 0.19% to near 0.6970.
Australian Dollar Price Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.13% | -0.49% | -0.17% | -0.07% | 0.21% | -0.15% | 0.01% | |
| EUR | 0.13% | -0.33% | -0.07% | 0.06% | 0.32% | -0.03% | 0.14% | |
| GBP | 0.49% | 0.33% | 0.27% | 0.41% | 0.67% | 0.32% | 0.49% | |
| JPY | 0.17% | 0.07% | -0.27% | 0.10% | 0.39% | 0.00% | 0.20% | |
| CAD | 0.07% | -0.06% | -0.41% | -0.10% | 0.28% | -0.09% | 0.10% | |
| AUD | -0.21% | -0.32% | -0.67% | -0.39% | -0.28% | -0.36% | -0.18% | |
| NZD | 0.15% | 0.03% | -0.32% | 0.00% | 0.09% | 0.36% | 0.18% | |
| CHF | -0.01% | -0.14% | -0.49% | -0.20% | -0.10% | 0.18% | -0.18% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
The pair attracted bids near 0.6958 after a weak opening, following the release of the hot Australian Consumer Price Index (CPI) data for August, which would reinforce expectations of more interest rate hikes by the Reserve Bank of Australia (RBA) in the near term even after raising them 100 basis points (bps) to 4.6% so far this year.
Analysts at Commerzbank argue that the latest inflation data underscore why market pricing for “1.5 additional rate hikes by the RBA, as the market was still expecting yesterday”. One day after the RBA’s monetary policy meeting, they note that the CPI figures released today reinforce the case for a more cautious stance.
While acknowledging that “there’s no question that inflation is still too high, and it will take a while before it returns to the middle of the target range, the Commerzbank is still not satisfied with hawkish RBA expectations and sees limited likelihood of further policy tightening.
The CPI report showed that inflationary pressures accelerated to 4% Year-on-Year (YoY), as expected, from 3.5% in July.
Meanwhile, the US Dollar is also under pressure ahead of the United States (US) ADP Employment Change data for September and the Personal Consumption Expenditure (PCE) Price Index data for August, which will be published in the North American session.
AUD/USD Technical Analysis
In the daily chart, AUD/USD trades at 0.6971, extending its slide below the 20-day exponential moving average (EMA) at 0.7078 and shifting the near-term bias firmly bearish. The pair has also fallen back under the 61.8% Fibonacci retracement at 0.7008, highlighting renewed downside pressure, while the Relative Strength Index (RSI) at 29.2 slips into oversold territory, which hints that the recent decline may be stretched but not yet decisively exhausted.
On the topside, initial resistance emerges at the 61.8% retracement at 0.7008, followed by the 50.0% level at 0.7052 and the 20-day EMA at 0.7078, with the 38.2% retracement at 0.7096 and the 23.6% level at 0.7150 reinforcing a broader cap ahead of the cycle high anchor near 0.7238. On the downside, immediate support is seen at the 78.6% retracement at 0.6946, ahead of the 100.0% Fibonacci anchor at 0.6866, where sellers could pause to reassess the trend if oversold conditions start to attract profit-taking.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
- The US Dollar is trimming some gains but most bank analysts expect the broader bullish trend to extend into the coming months.
- High US Treasury yields, strong US data, and monetary tightening by the Fed are seen underpinning demand for the USD.
- The US Central bank is expected to hike interest rates between three and four times in the next 12 months.
The US Dollar (USD) is showing a moderately softer tone on Wednesday, weighed down by the recent pullback in US Treasury yields and some dovish comments from New York Fed President John Williams. The Dollar Index (DXY), which measures the value of the Greenback against a basket of currencies, has pulled back to 101.20 from two-month highs above 101.60 on Tuesday, but it remains on track for a 1.8% monthly gain.
Analysts at some of the world's major banks see high US Treasury yields, rising Oil prices stemming from the Middle East war that are boosting global inflation, and the reaffirmation of the Federal Reserve's (Fed) commitment to fight inflation as the main reasons behind the US Dollar's uptrend. Against this backdrop, most of them expect the US Dollar to rise further towards the year-end.
Dollar strength persists as Fed path, yields and oil keep upside risks in focus
Analysts at ING highlight that the US Dollar appreciated further on Tuesday as rising back-end yields continue to weigh on global risk sentiment, which leaves “low-liquidity, higher-beta currencies bearing most of the brunt.” They note that the Japanese Yen remains “the sole exception to the broader Dollar strength trend.”
“Some stabilisation in risk sentiment could take some shine off the Dollar rally,” says ING in a note but warns that with “room for markets to reprice a higher probability of an October Fed hike, it may be premature to call the top in this Dollar move,” suggesting that any near-term pause in the currency’s advance is unlikely to mark a definitive peak.
The Fed is expected to hike rates several times in the next 12 months
OCBC analysts point out that the recent decline in jobless claims highlights a firm labour market and “the risk of an upside payrolls surprise appears to be increasing.” OCBC adds that “a stronger-than-expected employment report would likely reinforce expectations of further Fed tightening, keep Treasury yields elevated and provide additional support for the USD.” All this considered, OCBC’s base case is “for a moderate USD rally into year-end,” but they caution that “markets are currently pricing almost four Fed rate hikes over the next year, which appears overly aggressive.”
In the same vein, Rabobank notes that “USD net longs are largely unchanged as both long and short positions increased by 2,000 positions, respectively,” while the “OIS curve suggests investors are still positioned for more than three hikes by the end of next year.” Taken together, the combination of firm US data, elevated yields, and lingering upside risks around oil leaves the Dollar well-supported, with only the Yen standing out as a notable exception to the “broader Dollar strength trend.”
Analysts at MUFG/BTMU highlight that the US rate market now expects the Fed to deliver "almost another 100bps of rate hikes in the year ahead," a shift that is "reinforcing support for the US Dollar from the positive terms of trade shock for the US economy from higher energy prices." They note that the combination of a more aggressive Fed tightening path and elevated energy costs is underpinning the Dollar’s appeal relative to its major peers.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Brown Brothers Harriman’s Elias Haddad notes the Dollar has eased from recent highs as lower Oil prices and comments from New York Fed President John Williams temper rate expectations. However, upcoming US August PCE and September ADP data are expected to show sticky inflation, stronger consumer spending and resilient labor demand, which BBH says should reinforce the Fed’s hawkish bias and support further USD strength.
Sticky inflation to bolster dollar
"USD is off its highs as the modest pullback in crude oil prices and New York Fed President John Williams’ call for patience tempered Fed rate hike bets."
"Headline PCE is seen rising 0.3% m/m vs. 0.2% in July and be unchanged at 3.7% y/y."
"Bottom line: sticky US underlying inflation, a rebound in consumer spending, and resilient labor demand will reinforce the Fed’s hawkish bias."
"That should underpin the upswing in USD."
"Ahead of the PCE release, the September ADP private payrolls are seen at +72k vs. +38k in August (1:15pm London, 8:15am New York)."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Kit Juckes at Societe Generale highlights Japanese Yen outperformance in G10 as markets anticipate further USD/JPY intervention. He argues that strong intervention expectations are driving reluctance to be short Yen, with EUR/JPY likely sold on rallies. However, he cautions that another spike in Oil prices could quickly reverse recent improvements in risk sentiment, keeping overall caution warranted.
Market wary of fresh action
"The main movers are GBP (stronger after the GDP data), JPY (as markets anticipate further intervention to support the currency), and AUD (weaker following the RBA meeting, particularly against NZD)."
"With a strong market perception that further USD/JPY intervention is likely in the near future, EUR/JPY is also likely to be sold on any rally today."
"The yen has been the strongest of the G10 currencies this month, and the market's reluctance to be caught out by intervention is clearly having an impact."
"Another spike in oil prices could easily reverse the recent improvement in risk sentiment, however, and caution still seems warranted."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
MUFG’s Lee Hardman highlights that European Central Bank (ECB) President Lagarde has pushed back against expectations for another back-to-back ECB rate hike, stressing higher long-term yields and the need for a measured response.
Lagarde tempers October hike hopes
"Earlier this week President Lagarde pushed back against expectations for the ECB to deliver another back-to-back hike next month."
"Furthermore, with second-round effects so far absent, it means that the ECB should continue to adopt a “measured response as appropriate to keep inflation in check”."
"The comments have dampened expectations for another ECB hike as soon as next month."
"Inflation in the euro-zone would need to surprise meaningfully to the upside in September to refuel October rate hike speculation."
"The paring back of ECB rate hike expectations has contributed to euro weakness this week."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Societe Generale’s Kit Juckes notes a softer Dollar as Oil and bond yields edge lower and equities firm, with month-end flows likely in play. He highlights favourable conditions for a Dollar correction but warns that if EUR/USD cannot reclaim at least 1.14, the move will be seen as another opportunity to sell Euro, reinforcing negative sentiment from softer European data.
Key level caps Euro rebound
"If EUR/USD fails to move back above 1.14, at a minimum, this rebound will likely be widely viewed as another opportunity to sell the euro."
"Relative interest-rate differentials continue to move in the dollar's favour, while markets still price in three ECB rate hikes before the middle of next year."
"Is there really enough growth in the Eurozone to justify that?"
"It feels like an overreaction to a temporary inflation shock, albeit one that may persist as long as the energy crisis continues."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Deutsche Bank’s Jim Reid and team highlight a sharp intraday reversal in Brent Oil, with front-month prices dropping even as longer-dated contracts grind higher. Saudi supply normalization and a final US Strategic Petroleum Reserve release weighed on spot Brent, while December 2027 futures hit new highs, suggesting markets still price prolonged disruption despite near-term relief.
Spot weakness but curve stays firm
"At the European open, it looked like we were set for another day of gains, with Brent crude initially rising to $107/bbl. However, several headlines contributed to the pullback, including a Reuters report that Saudi Arabia had resumed oil loadings from the port of Yanbu."
"Meanwhile, the US announced that it will offer up to 40m barrels from its Strategic Petroleum Reserve, in what would be its last drawdown in the coordinated global release of oil announced earlier in the year. So that helped oil prices stage a decent intraday turnaround"
"Yet even with the pullback in oil and gas prices, investors struggled to get too excited. There are still no obvious signs of progress towards a deal, and we actually saw longer-dated Brent futures move up once again, with the December 2027 future up another +0.65% yesterday, reaching a new high of $80.81/bbl. So for investors, they’re still pricing in a lengthier period of disruption, even as increased oil flows out of the Gulf have eased the near-term pressure."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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