Forex News
- BoE's Andrew Bailey says the pass-through from higher energy prices remains subdued for now.
- A prolonged period of high energy prices could make it harder to maintain rates unchanged.
- The Governor also sees Artificial Intelligence as a potential positive supply shock.
Bank of England (BoE) Governor Andrew Bailey said on Friday that the pass-through from higher energy prices remains “quite subdued” so far, while stressing that it is still early days.
Speaking at the Monetary Economics Conference hosted by the University of Oxford, Bailey warned that the longer energy prices remain elevated, the harder it becomes for the central bank to maintain a stance of not raising interest rates.
The Governor also noted that the BoE takes the rise in mortgage rates into consideration when assessing economic and monetary conditions. Looking further ahead, Bailey struck a more positive tone on Artificial Intelligence (AI). He said the technology could provide a positive supply shock at a time when economies have been facing a series of negative supply shocks.
Market reaction
Bailey’s comments have no immediate impact on the British Pound (GBP). GBP/USD gains 0.15% on Friday, hovering just below the 1.3240 level at the time of writing.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Commerzbank’s India section notes September flash PMIs pointing to stronger end-Q3 activity, with both manufacturing and services indices well above 50. Domestic demand is robust, but elevated input and output prices, especially in manufacturing, keep upside inflation risks high. The bank expects RBI to stay cautious and in wait-and-see mode, while USD/INR is supported by broad Dollar strength and portfolio outflows.
Growth momentum with price pressures
"The flash September manufacturing PMI rose to 55.7 from 52.8 in August. This reading marked its highest level in seven months, driven by stronger domestic demand. The index remained comfortably above the 50-neutral threshold and above its long-run average. New orders accelerated and outpaced growth in the services sector. The expansion was led by stronger demand for electronics, pharmaceuticals and food products."
"The flash services PMI increased to 55.8 from 54.1 in August, reaching a three-month high. However, it remained below the May 2026 peak of 59.8. New business growth strengthened, supported by firmer demand for transportation and software services. However, growth in new export orders eased and lagged that of the manufacturing sector."
"Overall, the September flash PMIs suggest economic activity regained momentum at the end of Q3, supported by resilient domestic demand across both manufacturing and services. At the same time, elevated input and output price pressures, particularly in manufacturing, indicate that underlying upside inflation risks remain elevated."
"While year-to-date CPI inflation has averaged 3.8%, below the Reserve Bank of India's (RBI) FY2026-2027 forecast of 5.0%, the persistence of cost pressures suggests policymakers will likely maintain a cautious stance. This supports our view that the RBI will remain in a wait-and-see mode, with higher global crude oil prices and evidence of second-round effects continue to pose upside risks to the inflation outlook."
"In FX, USD/INR rose 0.2% to 95.93 yesterday, supported by broad USD strength and foreign portfolio outflows. Foreign investors were net sellers of USD338mn in equities and USD134mn in bonds so far this week. Nonetheless, RBI Deputy Governor Poonam Gupta argued that there is a "fair case" for INR appreciation, citing stretched valuations in foreign markets, stronger domestic bank balance sheets, and the potential inclusion of Indian bonds in global indices as supportive factors."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- XAU/USD bounced up from $4,245 lows on Thursday but remains below $4,300 on track for a nearly 2% weekly decline.
- Fed tightening bets and US Treasury yields at multi-year highs are keeping Gold rallies limited so far.
- The risk remains skewed lower with $4,230 support area on the bears' focus.
Gold (XAU/USD) is trimming some losses on Friday, trading just below the $4,300 level after bouncing from support in the $4,230 area on Thursday. The broader bearish trend, however, remains intact as market expectations pf further Federal Reserve (Fed) rate highs and long-term US Treasury yields above the 5% level are likely to pose a heavy weight on precious metals.
Fed speakers have reinforced the hawkish view this week, the latest examples being Philadelphia Fed President Anna Paulson, who said that the bank will have to apply “modest” rate increases to bring inflation to target, and New York Fed President John Williams, who stated on Thursday that “it is reasonable to see another US rate hike this year.”
Beyond that, US Treasury yields remain at high levels, with the 10- and 30-year notes paying above 5%, at 19- and 22-year highs respectively.
Looking ahead, OCBC strategists underline that “oil and the rates response remain the main swing factors” for gold in the near term. They suggest that “some easing in energy prices or the USD could help gold stabilise,” whereas “a further rise in yields would keep the near-term bias under pressure,” reinforcing the view that the metal’s trajectory will be closely tied to moves in commodity markets and bond yields.
Technical Analysis: The risk remains skewed lower, with $4,230 area in danger
XAU/USD trades at $4,290, but momentum indicators on the 4-hour chart remain neutral-to-bearish, which highlights the fragility of the current recovery attempt. The Relative Strength Index (14) hovers just below the 50 midline and the Moving Average Convergence Divergence (MACD) indicator edges toward the zero line.
Bulls remain capped below $4,300 so far, but the initial resistance emerges at the horizontal barrier of $4,400 area, which has held bulls several times this week. A confirmation above those levels would ease negative pressure and shift the focus towards the early-September highs, just above $4,5000.
On the downside, the $4,230 area (August 6, September 16 lows) is a key support. If that level gives way, previous resistances in the $4,100-$4,150 area are likely to be targeted ahead of the late July and early August lows, just above the $4,000 psychological level.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.84% | 1.17% | 0.76% | 1.12% | 1.24% | 1.01% | 0.89% | |
| EUR | -0.84% | 0.35% | -0.04% | 0.32% | 0.38% | 0.18% | 0.06% | |
| GBP | -1.17% | -0.35% | -0.50% | -0.06% | 0.05% | -0.17% | -0.29% | |
| JPY | -0.76% | 0.04% | 0.50% | 0.40% | 0.46% | 0.26% | 0.14% | |
| CAD | -1.12% | -0.32% | 0.06% | -0.40% | 0.17% | -0.13% | -0.23% | |
| AUD | -1.24% | -0.38% | -0.05% | -0.46% | -0.17% | -0.22% | -0.41% | |
| NZD | -1.01% | -0.18% | 0.17% | -0.26% | 0.13% | 0.22% | -0.13% | |
| CHF | -0.89% | -0.06% | 0.29% | -0.14% | 0.23% | 0.41% | 0.13% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Deutsche Bank strategists highlight a sharp rise in Brent Oil as geopolitical tensions and Iranian rhetoric fuel concerns about an extended conflict. Brent briefly spiked above $108 before retracing on reports of potential US–Iran negotiations to reopen the Strait of Hormuz. They note recent price action and stress that any diplomatic breakthrough remains uncertain.
Geopolitics and deal speculation steer prices
"While we were all walking, markets have had another rough 24 hours, as a fresh jump in oil and gas seemed to send bond yields in another tailspin. Brent crude rose +3.41% to $106.60/bbl, even if it did pare back some of its gain after Reuters reported that the US and Iran were exploring a phased deal to reopen the Strait of Hormuz and end the blockade."
"That rise in yields came as oil prices continued to march higher. The initial driver were escalatory comments from Iran, which played into investor concerns about an extended conflict. For instance, Iran’s Fars reported an adviser to the Supreme Leader, who said that the war may “widen further and extend to the Indian Ocean or elsewhere”."
"After hitting an intra-day high of $108.16/bbl Brent crude did see a mostly temporary drop of around $4 just after Europe closed as Reuters reported that the US and Iran are exploring a phased deal to reopen the Strait of Hormuz."
"We've been here many times before but the article made the valid point that it’s not just the US that has an incentive to get a deal done before midterms. The consensus seems to feel that Iran is happy to make life uncomfortable for the US ahead of the vote."
"All that left Brent closing at $106.60/bbl (+3.41%), before declining by -0.91% this morning so far."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Silver prices (XAG/USD) rose on Friday, according to FXStreet data. Silver trades at $64.60 per troy ounce, up 1.18% from the $63.85 it cost on Thursday.
Silver prices have decreased by 9.12% since the beginning of the year.
Unit measure | Silver Price Today in USD |
|---|---|
Troy Ounce | 64.60 |
1 Gram | 2.08 |
The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 66.48 on Friday, down from 66.96 on Thursday.
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.
(An automation tool was used in creating this post.)
OCBC strategists Sim Moh Siong and Christopher Wong note that the Swiss National Bank (SNB) kept rates at 0% and toned down its FX intervention language, signalling more tolerance for a firmer Swiss Franc but not a hawkish shift. With inflation staying within the SNB’s 0–2% range and policy rates expected to remain anchored, OCBC still views CHF primarily as a funding currency over the coming months.
SNB stance keeps CHF anchored
"CHF weakened after the SNB kept its policy rate unchanged at 0% and removed its earlier reference to an "increased willingness" to intervene in FX markets."
"The revised language suggests greater tolerance for a stable or stronger CHF, which may help offset inflation risks stemming from higher energy prices."
"The SNB also noted that inflation has risen mainly due to oil-related costs, while underlying medium-term inflation pressures have increased only slightly."
"That said, we do not believe this is enough to transform the CHF from a funding currency into an investment currency. Inflation remains comfortably within the SNB's 0-2% price stability range, with the central bank forecasting average inflation of just 0.8% in 2027 and 2028 while assuming policy rates remain at 0% throughout the forecast horizon."
"In our view, the SNB is unlikely to validate the market's relatively hawkish pricing. We expect rates to remain unchanged well into 2027, whereas OIS markets continue to price a meaningful probability of a rate hike as early as December."
"While risks to CHF funding remain, particularly from a sharp rebound in gold prices or a material deterioration in the European growth outlook, neither appears especially imminent. As a result, the CHF is likely to retain its role as a low-yield funding currency over the coming months."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
UOB’s Quek Ser Leang and Lee Sue Ann highlight that EUR/USD extended its recent slide to 1.1358, leaving conditions deeply oversold. While the Euro (EUR) could weaken further, they see downside as relatively limited, with strong supports at 1.1355 and 1.1325 and resistance at 1.1400–1.1430, where a break higher would signal stabilising Euro weakness.
Euro oversold near key supports
"24-HOUR VIEW: Two days ago, EUR plummeted to a low of 1.1367. Yesterday, EUR extended its decline to 1.1358 before closing marginally lower by 0.01% at 1.1379. Downward momentum is starting to slow. This, combined with deeply oversold conditions, suggests that EUR is unlikely to weaken much further. Today, EUR is more likely to range-trade between 1.1355 and 1.1400."
"1-3 WEEKS VIEW: In our last update from Wednesday (23 Sep, spot at 1.1450), we highlighted that “there is a chance for EUR to test 1.1400, but the odds for a sustained decline below this level are not high.” However, the breach of 1.1400 triggered a sharp decline that reached a low of 1.1358 yesterday. While EUR could weaken further, the deeply oversold conditions suggest that the scope for additional downside may be relatively limited. Furthermore, the decline in EUR that started two weeks ago has been substantial. It is also worth noting that there are two strong support levels, at 1.1355 and 1.1325. On the upside, a breach of 1.1430 (‘strong resistance’ level previously at 1.1490) would indicate that the weakness in EUR is stabilising. "
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- GBP/JPY claws back some of its early losses against the Japanese Yen, but still remains down near 209.45.
- The Japanese Yen outperforms its currency peers on hopes of US-Japan joint intervention.
- Market experts doubt hawkish BoE repricing.
The British Pound (GBP) recovers some of its early losses against the Japanese Yen (JPY) during the European trading session on Friday, but is still down around 0.17% to near 209.45. The cross is under pressure as the Japanese Yen outperforms across the board due to growing fears of coordinated intervention by the United States (US) and Japan to support the currency.
Japanese Yen Price Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.10% | -0.13% | -0.44% | 0.08% | -0.24% | -0.15% | 0.12% | |
| EUR | 0.10% | -0.03% | -0.36% | 0.18% | -0.13% | -0.07% | 0.21% | |
| GBP | 0.13% | 0.03% | -0.29% | 0.22% | -0.10% | -0.03% | 0.24% | |
| JPY | 0.44% | 0.36% | 0.29% | 0.53% | 0.21% | 0.28% | 0.56% | |
| CAD | -0.08% | -0.18% | -0.22% | -0.53% | -0.33% | -0.25% | 0.02% | |
| AUD | 0.24% | 0.13% | 0.10% | -0.21% | 0.33% | 0.07% | 0.35% | |
| NZD | 0.15% | 0.07% | 0.03% | -0.28% | 0.25% | -0.07% | 0.28% | |
| CHF | -0.12% | -0.21% | -0.24% | -0.56% | -0.02% | -0.35% | -0.28% |
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 Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
The possibility of US-Japan joint intervention has increased after remarks from Japanese Finance Minister (FM) Satsuki Katayama delivered in a press conference earlier in the day, saying that US President Donald Trump expressed concern over the Yen's weakness during his meeting with Japanese Prime Minister (PM) Sanae Takaichi in New York on Tuesday, Reuters reported.
Japan FM Katayama added, "The principles since the previous joint intervention remain alive,. Katayama referred to the July 31 operation in which Tokyo and Washington intervened jointly to counter excessive volatility and disorderly market moves.
The Asia-Pacific currency has regained ground after underperforming since the Bank of Japan’s (BoJ) monetary policy announcement.
Yen sold off as BoJ hike draws dissent and lifts USD/JPY above 157
Analysts at MUFG/BTMU highlight that while the BoJ “raised its policy rate by 25bp as expected,” the decision nonetheless triggered renewed Yen weakness. They note that the currency was sold aggressively after “two policy board members voted against the decision,” a development that investors interpreted as undermining the conviction behind the move and helped drive “the USD/JPY above 157.”
On the British Pound front, market experts question elevated hawkish Bank of England (BoE) expectations.
Strategists at Brown Brothers Harriman (BBH) highlight a growing disconnect between market pricing and their own expectations for the BoE policy path. They note that “the swaps curve continues to imply about 100bps of BoE rate hikes in the next twelve months to 4.75%,” but argue that “the BoE may not need to tighten as much as markets expect,” adding that rates are already in the 2%-4% neutral range.
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 Indian Rupee finds a temporary ground against the US Dollar near 96.00 on possible RBI intervention.
- Elevated energy prices and Fed’s higher interest rates prospects boost US Treasury Yields.
- The possibility of an RBI interest rate hike in October has increased.
The Indian Rupee (INR) gains a temporary ground against the US Dollar (USD) on Friday after remaining under pressure in the past few days. The USD/INR pair struggles to extend gains above 95.96 on the likely Reserve Bank of India’s (RBI) intervention.
According to a Reuters report, India's central bank likely sold US Dollars before the local spot market opened on Friday, four traders told, helping the Indian rupee hold stronger than the key psychological 96-per-dollar level.
However, the mild strength in the Indian Rupee appears to be short-lived as United States (US) Treasury Yields continue to rally due to elevated energy prices and Federal Reserve’s (Fed) higher-for-longer interest rate narrative.
As of writing, the MCX Crude Oil contract expiring on October 19 trades 2.3% lower to near Rs. 8,950, but has gained sharply in the last two trading days. Meanwhile, 10-year US Treasury Yields are close to its 19-year high of 5.23% posted on Thursday.
The appeal of riskier assets, such as equities and currencies, like the Indian Rupee, gets diminished, in a high US bond yields environment.
US yields surge as markets reprice Fed's rate path
Analysts at MUFG highlight that the “dominant market theme remains the relentless rise in US yields and the renewed repricing of Fed expectations.” They note that Treasury yields “moved sharply higher as strong US activity data and rising energy prices reinforced concerns that inflation could prove more persistent.” In their latest update, MUFG points out that the “US 2-year Treasury yield jumped 14bp to around 4.9%, while the 10-year yield rose above 5.0% and the 30-year yield climbed beyond 5.4%.”
Against this backdrop, MUFG observes that “markets now price around 37bp of additional Fed tightening by December 2026, equivalent to roughly 1.5 rate hikes by year-end.” The bank cautions that this “economic resilience raises the risk that policymakers may need to do more to prevent inflation pressures from becoming entrenched,” underscoring the challenging environment for risk assets and, in particular, Asia FX.
India’s rising retail inflation boosts hawkish RBI bets
Analysts at MUFG note that India’s August inflation “rose 4.8% yoy (DBSf 4.9%) from a revised 4.5% month before, firmest since December 2024,” highlighting a clear uptick in price pressures. They add that “a gradual broadening of price pressures is likely to keep headline inflation above 5% in second half of the fiscal year, underscoring the need for a tighter policy bias.” In their view, “recent developments, including a sustained rise in crude prices, tightening global financial conditions, firm domestic growth and signs of broadening in core pressures, strengthen the case for a shallow 50bp hike in second half of FY27, making October’s meeting a live one.”
USD/INR Technical Analysis
In the daily chart, USD/INR trades at 95.85, holding a bullish near-term bias as spot remains above the 20-day exponential moving average (EMA) at 95.61. The price action staying over this short-term EMA suggests underlying demand is intact, while the Relative Strength Index (14) around 57.33 keeps a constructive tone without yet entering overbought territory.
On the downside, initial support is seen at the 20-day EMA clustered near 95.61, where buyers are likely to defend the current upswing if a pullback unfolds. Looking up, the pair would aim to revisit the all-time high near 97.00 if it manages a decisive break above 96.00
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
ING strategist Frantisek Taborsky reports that volatility in core rates and high Oil and gas prices are driving elevated tightening expectations across CEE, with roughly 125bp priced for Poland and the Czech Republic. He notes that improving rate differentials briefly supported regional FX, but with EUR/USD testing lows and energy prices rising, ING retains a bearish stance on CEE currencies.
Higher energy drives CEE repricing
"Regional markets remain under pressure as volatility in core rates and energy prices amplifies moves in CEE rates. At the peak, markets priced in an average of 15bp of additional tightening across the region. Despite a partial correction, rates remain elevated, leaving roughly 125bp of tightening priced in for both Poland and the Czech Republic."
"High oil and gas prices at yesterday’s close, alongside fresh highs in 10-year US Treasury yields, point to continued stress today. Although the backdrop is not directly comparable with the 2022 energy shock, the market response is beginning to look similar."
"With peak tightening expectations in 2022 reaching 210bp in Poland and 165bp in the Czech Republic, further repricing cannot be ruled out if energy prices continue to rise, regardless of central bank rhetoric."
"Yesterday, regional FX found support from improving rate differentials, reversing the narrowing trend in place since early September. This should help to stabilise currencies a bit. However, EUR/USD continues to test new lows and energy prices remain on the rise. Despite headlines suggesting possible US-Iran negotiations, we retain a bearish view on regional FX."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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