Forex News
- EUR/USD holds above 1.1600, unchanged on the day inside a 28-pip range.
- European gas at a three-year high, up close to 128% on the year.
- EU storage 67% full against a seasonal norm of 83%.
EUR/USD holds above 1.1600 after a session that has covered 28 pips and left the pair half a pip from where it opened. European gas hit a three-year high on the same clock, and the European Central Bank (ECB) is expected to raise the deposit rate on Thursday. The pair has priced both at nothing. What chains the Euro is a bill that comes due before winter, and no rate gap fixes it.
Europe delayed the purchase and the price moved
Dutch front-month gas rose as much as 3.4% on Tuesday to its highest since January 2023 and trades near €75.00 a megawatt-hour, close to 128% above where it stood a year ago. European storage is 67% full against a seasonal norm of 83%, with less than a month before the heating season. The Strait of Hormuz has been shut since February 28, and Qatar has extended force majeure on European and Asian cargoes through the autumn.
The bloc now buys more than 120 billion cubic metres of seaborne gas a year and bids for every cargo against Asian buyers, with the United States Gulf Coast and Qatar the two largest suppliers. Russian pipeline gas has fallen from roughly 40% of demand to under 15%, so the marginal molecule is priced on a global market rather than in a long-term contract. Gas-fired plants set European power prices for several hours on most days, which is how a cargo auction in Asia reaches an Italian electricity bill.
Utilities across the bloc held off buying through the summer on the expectation that the strait would reopen and Qatari volumes would return. Storage is now the lowest for the date since the series began in 2011, and the mandatory November target has already been relaxed from 90% to 80%. The first Qatari cargo to clear Hormuz since July is signalling Pakistan.
A deposit rate is annual and a gas bill is weekly
The ECB is expected to lift the deposit rate to 2.5% from 2.25% on Thursday, with the main refinancing rate going to 2.65%. That is a quarter point of extra annual return on Euros left on deposit in Frankfurt. The gas the currency area cannot produce has to be bought from outside it, at whatever price the next bidder will pay, and that purchase repeats every week until the tanks are full.
A rate differential moves a currency by changing where money parks. A terms-of-trade shock moves it by changing how much of the bloc's income leaves. Higher energy prices argue for the tightening and against the currency at the same time, which is why a hawkish Council and a rising import bill produce a flat chart. The deposit rate goes up a quarter point a year on Thursday, and the gas price has gone up 23% in a month.
Tehran says an accord with Oman on Hormuz transit is close and will include a temporary safe route. That is the one headline that lowers the import bill without touching either central bank. Traders spent Tuesday waiting on the terms of that deal rather than on the rate decision.
The week's answers arrive fifteen minutes apart
The four-week average of American private payrolls lands Wednesday at 12:15 GMT after 11.75K, the last labour reading before the Federal Reserve meets. Rates and the statement follow at 12:15 GMT Thursday and the press conference at 12:45 GMT, with the American Producer Price Index (PPI) printing between them at 12:30 GMT. Consensus there is 0.4% on the month after a flat July and 5.3% YoY after 4.7%, with the core measure at 0.3% and 4.6%.
Friday belongs to the Dollar leg. The Consumer Price Index (CPI) at 12:30 GMT is seen at 0.4% on the month, 3.4% YoY and 2.4% on the core, the last inflation reading before the Federal Reserve meets September 15-16 with a quarter point priced near 58%. The Michigan survey follows at 14:00 GMT, with sentiment seen at 51 after 51.7 and one-year inflation expectations last at 4%. The ECB President has four scheduled appearances between Wednesday and Saturday.
Levels and bias
Resistance: The 1.1650 area caps the range and the session high has stopped short of it again. Above that sits the late-August peak just under 1.1700, which defines the whole three-week range. A daily close through it opens 1.1750 and then the May highs in the 1.1800 area.
Support: The 1.1600 handle has held all session, with the low resting just above it. Beneath it the 50-day and 200-day Exponential Moving Averages (EMA) now sit six pips apart just above 1.1550, which puts the entire downside case at one price. Under them 1.1500 is the next round figure, with the early-August base below that.
Bias: Bearish while 1.1650 caps, with the moving average cluster just above 1.1550 the objective and a daily close beneath 1.1600 the trigger. The daily Stochastic Relative Strength Index (Stoch RSI) has fallen from above 85 to under 40 in five sessions while price held its range, which is momentum leaving without price following it. Two exponential averages six pips apart describe a daily chart with no trend to fade or follow. A daily close above 1.1650 voids the case and puts 1.1700 back in play.
EUR/USD daily chart
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- DJIA trades near 52,900, roughly 190 points lower, back on its 50-day EMA.
- Crude Oil up a sixth straight day, the longest run since March.
- Two-year yield at a January 2025 high, 58% priced for a September hike.
The Dow Jones Industrial Average trades near 52,900, roughly 190 points lower, in the first session since Friday. Crude Oil has risen for six days running and the two-year Treasury yield sits at its highest since January 2025. Neither is an equity story by itself. Together they set the rate at which this index gets discounted, and both moved against it while the market was shut for the holiday.
Riyadh's way around Hormuz goes through the Red Sea
West Texas Intermediate (WTI) Crude Oil has climbed for six sessions, the longest run since a seven-day stretch in March, and Brent Crude Oil trades near $98.00. American forces struck three Iranian tankers over the weekend and sank one, after Iran fired ballistic missiles at American positions. Houthi drones and missiles then hit Saudi Aramco facilities at Abha, Najran and Jazan this morning, halting operations and wounding more than 70 people.
The Strait of Hormuz is effectively shut, so Saudi Arabia had already rerouted most of its exports to Yanbu on the Red Sea. The Red Sea is what the Houthis hit this morning. Tanker traffic through the strait is running well below normal, which is the physical half of the move. Refining capacity is the tighter constraint, down in Russia to Ukrainian drones and down in the Gulf to the war, and American diesel has set a record above $5.90 a gallon.
The front end prices barrels now
The two-year Treasury yield trades at its highest since January 2025, and the 10-year sits above 4.80% after taking out the November 2023 high it made last week. Futures price roughly 58% odds of a quarter-point increase at the September 15-16 meeting. Energy runs straight into the headline inflation index, and the governors who leaned toward a hold made that hold conditional on monthly inflation moderating. A war premium is a supply shock, and a central bank cannot drill.
Higher yields reach this index twice. They lift the rate at which 30 sets of cash flows get discounted, and they lift the funding cost of the financial and consumer credit names that carry more than a quarter of the weight in it. Energy arrives from the other end, through freight, fuel, packaging and the input bills of companies that mostly buy it rather than sell it.
The other price increase arrived at 04:01 GMT
Canada's retaliatory tariffs took effect overnight on roughly $20 billion of American goods, at rates of 15%, 25% and 50% across more than 700 items. The rates were taken item by item from the American Section 232 and Section 338 schedules, and steel and aluminum doubled to 50%. Ottawa built the list around steel, appliances, agricultural equipment, pulp and paper and electronics.
That list is a description of what this index makes, and industrials run close to 16% of index weight. The levy bites both ways, because American steel and aluminum already carry 50% on the way in. Trump spent Monday telling Bombardier (BBD.A, BBD.B) it cannot sell aircraft in the United States unless it builds them there. That is a tariff without the paperwork.
Two prints, and a committee that cannot speak
The Producer Price Index (PPI) lands Thursday, September 10 at 12:30 GMT, with consensus at 5.3% YoY on the headline and 4.6% on the core measure. The Consumer Price Index (CPI) follows Friday at the same hour, with the headline seen holding at 3.4% and the core easing to 2.4%. That leaves Friday as the last inflation reading the committee sees before it votes. The Federal Open Market Committee (FOMC) meets September 15-16 with a fresh set of projections and has been in blackout since September 5.
Households have repriced none of it. The New York Federal Reserve's August survey puts one-year inflation expectations at 3.6% and the five-year at 3.0%, both unchanged from July, with the three-year up a tenth to 3.2%. The same survey has the share expecting higher unemployment in a year at 44.4%, the highest since April 2020, while the average odds of personally losing a job fell to 13.8%, the lowest since February. Respondents expect the recession to happen to somebody else.
Levels to watch
Resistance: The 53,100 area caps the session and is the first hurdle. Above it sits 53,250, where Friday topped out before sliding to just above 53,000. Then comes the 53,500 shelf that the payrolls print took away on September 4, the 53,800 band that capped every rally from August 14 through August 28, and the early-August peak just short of 54,750, roughly 3.5% overhead.
Support: The rising 50-day Exponential Moving Average (EMA) near 52,800 is what the index is standing on, and the session low in the 52,700 area is the lowest trade of the month. Beneath that sit 52,500 and the 52,000 handle, with the June low near 51,300 behind them. The 200-day EMA near 50,200 is not in play.
Bias: Bearish while the index holds beneath 53,250, with the 52,700 area the first objective and 52,500 behind it. The session low has already erased the whole of the September 3 rally, and the daily Stochastic Relative Strength Index (Stoch RSI) near 41 has not reached oversold since July, so this leg has not spent its momentum. The five-minute reading near 62 rising off the low is the bounce rather than the turn. A daily close beneath the 50-day EMA near 52,800 puts the 52,000 handle in range before the meeting, and a daily close back above 53,250 voids the case and restores 53,500.
Dow Jones daily chart
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
The New York Fed revealed the August Survey of Consumer Expectations in which households' inflation expectations dipped in the medium-term, while expectations about the labor market remained mixed, as unemployment and job finding deteriorated, while job losses and quit expectations improved.
Key highlights:
1 Yr Inflation Expectations Actual 3.58% (Forecast 3.6%, Previous 3.63%)
5-year inflation expectations unchanged in august at 3%.
3-year-ahead expected inflation at 3.2% in august versus July's 3.3%.
Expectations in August of higher unemployment rate were highest since April 2020.
Labor market expectations were mixed in August.
Consumers in August projected higher future gasoline prices.
Views about current and future personal financial situations deteriorated in August.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.04% | -0.01% | -0.09% | -0.26% | 0.00% | 0.38% | -0.08% | |
| EUR | 0.04% | 0.03% | -0.05% | -0.21% | 0.03% | 0.42% | -0.04% | |
| GBP | 0.00% | -0.03% | -0.10% | -0.25% | 0.00% | 0.41% | -0.06% | |
| JPY | 0.09% | 0.05% | 0.10% | -0.14% | 0.12% | 0.50% | 0.05% | |
| CAD | 0.26% | 0.21% | 0.25% | 0.14% | 0.26% | 0.64% | 0.20% | |
| AUD | -0.00% | -0.03% | -0.00% | -0.12% | -0.26% | 0.40% | -0.06% | |
| NZD | -0.38% | -0.42% | -0.41% | -0.50% | -0.64% | -0.40% | -0.45% | |
| CHF | 0.08% | 0.04% | 0.06% | -0.05% | -0.20% | 0.06% | 0.45% |
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).
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.
TD Securities notes that the Colombian Peso (COP) has been a top high-yield performer but sees its supportive mix of tight monetary and loose fiscal policy fading. With Banco de la República’s (BanRep) hiking cycle nearing an end and fiscal consolidation expected under De La Espriella, TD argues domestic conditions will increasingly limit USD/COP downside below 3000, leaving the pair more exposed to asymmetric upside risks on risk-off shocks.
Supportive mix for COP fading
"COP sharply rallied following the Colombia Presidential election in Q2 '26. Current short and long-term fair values for USD/COP both sit within the 3200-3300 range, so it makes sense that the USD/COP selloff toward 3000 in August was quick to reverberate back to 3100-3200."
"More importantly, the domestic tight monetary/loose fiscal policy mix that has underpinned COP strength in recent years appears set to become less supportive. The BanRep hiking cycle is coming to an end soon, and we see little reason for BanRep to hike policy rate close to 2022 levels."
"Domestic inflation was more than 13% in 2022 vs 6% in 2026."
"On the fiscal side, market expects fiscal consolidation under De La Espriella, and it is difficult to see Colombia maintaining the same level of positive fiscal impulse as the past years."
"While Colombia is not immediately entering a regime of loose monetary/tight fiscal policy mix that would be outright bearish for its currency, the domestic conditions will likely evolve sufficiently to cut off any left tail below 3000 in USD/COP, making the pair more prone to asymmetrical upside risks on the back of any risk-off shocks."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- BoE Governor Bailey says the UK is not near a recession, citing solid data.
- BoE split persists as markets price in strong hold odds.
- US PPI and CPI remain key Sterling-Dollar catalysts.
The Pound Sterling (GBP) registers modest gains of over 0.08% on Tuesday as Bank of England (BoE) policymakers testify before the UK Treasury Select Committee, while a light economic docket in the US keeps the Greenback with a negative tone. The GBP/USD pair trades at 1.3548 after bouncing off the daily low of 1.3521.
GBP/USD rises as BoE testimony offsets soft retail sales
BoE Governor Andrew Bailey said at the Monetary Policy Committee hearing that the UK is not "on the verge of a recession,” adding that the latest data was solid. He added that the jobs market is softening because the hiring rate has declined.
Other BoE members, like Alan Taylor, commented that keeping rates at a “moderately restrictive level” provides insurance. At the same time, David Ramsden said that domestic inflation is relatively benign, while Megan Greene added that the length of time Oil prices have been higher worries her regarding potential second-round effects.
Given the backdrop, the BoE’s Monetary Policy Committee seems to remain split, but expectations that the UK’s central bank will increase rates in September 17 remain far from happening, with money markets pricing in a 86% for holding the Bank Rate.
In the last meeting, the vote split was 6-3, and it is expected to remain the same for next week’s meeting, one day after the Federal Reserve (Fed) announces its policy decision.
Data-wise, the UK’s retail sales growth dipped to a four-month low in August, as figures from the British Retail Consortium trade body showed on Tuesday.
In the meantime, the Middle East conflict sent energy prices higher, following attacks on Saudi Arabia's energy facilities by the Houthis.
In the US, the New York Fed released its Consumer Survey, which showed that households are becoming slightly more optimistic about inflation, despite projecting higher future gasoline prices.
The data release barely moved the needle as traders' eyes are on the release of US inflation data on the producer and consumer sides.
GBP/USD Price Forecast: Technical outlook
In the daily chart, GBP/USD trades at 1.3543. The pair holds a mild bullish bias as spot trades above the Simple Moving Average Triple around 1.3466 and above the latest downtrend resistance line turn-support near 1.3508, suggesting buyers remain in control while the Relative Strength Index around the low-50s hints at modest, rather than exuberant, upside momentum.
On the topside, immediate resistance appears at the nearby descending trend line around 1.3544, with further hurdles seen at the upward-sloping supports now acting as caps near 1.3606 and 1.3631. On the downside, a pullback towards 1.3508 would test the reclaimed descending trend line, while a deeper retracement could expose the clustered Simple Moving Averages around 1.3466 as the next key support band.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling Price Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.05% | -0.01% | -0.11% | -0.26% | -0.02% | 0.36% | -0.08% | |
| EUR | 0.05% | 0.03% | -0.05% | -0.18% | 0.02% | 0.40% | -0.03% | |
| GBP | 0.01% | -0.03% | -0.08% | -0.24% | -0.03% | 0.39% | -0.06% | |
| JPY | 0.11% | 0.05% | 0.08% | -0.13% | 0.11% | 0.50% | 0.06% | |
| CAD | 0.26% | 0.18% | 0.24% | 0.13% | 0.23% | 0.62% | 0.19% | |
| AUD | 0.02% | -0.02% | 0.03% | -0.11% | -0.23% | 0.40% | -0.05% | |
| NZD | -0.36% | -0.40% | -0.39% | -0.50% | -0.62% | -0.40% | -0.43% | |
| CHF | 0.08% | 0.03% | 0.06% | -0.06% | -0.19% | 0.05% | 0.43% |
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 British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
- The Australian Dollar trades flat against the US Dollar near its highest level in more than three months.
- RBA Deputy Governor Hauser keeps the door open to additional policy tightening.
- US inflation data could decide whether the Fed raises interest rates next week.
AUD/USD holds firm on Tuesday as the US Dollar (USD) struggles to gain traction, while the Reserve Bank of Australia’s (RBA) hawkish stance further supports the Australian Dollar (AUD). At the time of writing, the pair trades around 0.7220, rising for a fifth consecutive day and hovering near levels last seen in mid-May.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 98.82 near its lowest level in more than two weeks after briefly reclaiming the 99.00 mark. The Greenback strengthened alongside Oil prices earlier in the day as traders reacted to attacks on Saudi energy facilities.
However, the pair’s advance lacks strong follow-through, with neither the Australian Dollar nor the Greenback attracting aggressive buying. Traders appear reluctant to take large positions ahead of this week’s US inflation data, which could prove pivotal in deciding whether the Federal Reserve (Fed) delivers a rate hike next week.
The New York Fed’s latest Survey of Consumer Expectations showed a slight decline in inflation expectations. One-year expectations eased to 3.58% in August from 3.63%, while the three-year measure fell to 3.2% from 3.3%. Five-year expectations were unchanged at 3.0%.
Expectations of a Fed rate hike increased after Friday’s stronger-than-expected US employment report eased concerns about the labour market. Higher Oil prices add to inflation risks and strengthen the case for tighter policy. According to the CME FedWatch Tool, markets see around a 60% chance of a 25-basis-point rate hike at the September 15-16 meeting.
On the Australian side, the RBA has raised interest rates three times this year and could tighten policy again at its September 28-29 meeting. Speaking on Tuesday, RBA Deputy Governor Andrew Hauser said, “The question for us is whether we have done enough on rates or need to do more.” He added that there is “much to like about the economy, but inflation is a major issue.”
Strategists at Brown Brothers Harriman highlight that Australia’s inflation and growth data are running ahead of the RBA’s projections, reinforcing the case for further policy tightening. They note that “Australia's trimmed mean CPI held at 3.6% y/y in July, above the RBA’s 3.3% year-end forecast. Meanwhile, real GDP growth reached 2.1% y/y in Q2, beating the RBA’s 1.9% forecast.”
In their view, “the data supports the case for a 25bps hike to 4.60% on September 29 (70% priced-in),” though they caution that “the RBA could wait until November 3, allowing it to assess both the August and Q3 CPI prints on September 30 and October 28, respectively.” More structurally, BBH adds that “Australia’s attractive carry alongside the country’s strategic exposure to commodities linked to energy, AI, and defense remain key AUD tailwinds.”
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
National Bank of Canada's (NBC) Stéfane Marion and Kyle Dahms note that the US Dollar (USD) has weakened broadly in Q3 even as the United States (US) economy remains at full employment. They argue that sharply higher long-term Treasury yields are tightening financial conditions and limiting scope for renewed Fed hikes. Their fixed-income team expects the Federal Reserve to stay on hold this year, keeping the trade-weighted Dollar near recent lows.
Higher yields curb Fed tightening risk
"Under these circumstances, one might ask what would prevent the Fed from soon raising its policy rate for the first time since 2023 and, in the process, putting a floor under the greenback. As Fed Chair Kevin Warsh recently put it in his inaugural Jackson Hole speech, “yesterday’s news has a way of getting mistaken for what is happening right now.” That observation is particularly relevant in the bond market."
"While markets continue to price some risk of additional Fed tightening, our fixed-income strategists still expect the central bank to remain on hold this year. A key reason is the significant rise in long-term yields, which has already tightened financial conditions. Importantly, much of that increase appears to reflect a higher term premium stemming from a deteriorating fiscal backdrop rather than a renewed surge in inflation expectations."
"It is certainly not weaker economic growth that is undermining the currency. The labour market surprised sharply to the upside in August, with payrolls surging by 162,000, nearly three times the consensus expectation of 55,000, while the unemployment rate held at 4.1%. That remains below the Congressional Budget Office’s estimate of the non-accelerating inflation rate of unemployment (NAIRU), suggesting that the U.S. economy remains at, if not beyond, full employment."
"Moreover, the weakness has been broad-based, with all major currencies except the Swiss franc gaining ground against the U.S. dollar so far in Q3."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Scotiabank strategists Shaun Osborne and Eric Theoret note that the Canadian Dollar (CAD) is trading close to its fundamental equilibrium, with USD/CAD hovering near fair value around 1.38. They highlight that recent US Dollar (USD) gains have stalled, reinforcing a broader downtrend from mid-year peaks, while technical resistance in the low/mid 1.39s and support near 1.37 guide near-term trading expectations.
CAD trades near fair value
"The CAD is shrugging off heightened trade tensions with the US. President Trump has taken aim at Bombardier jets and the CAD in recent days though it's not clear what, if any, action will result."
"The president suggested a boycott, or perhaps a ban, on Bombardier jets in one social media post and earlier complained about the “unacceptable” CAD “imbalance” with the US in another."
"Given the Treasury’s recent attentiveness to the JPY, the focus on the CAD now perhaps indicates that the administration’s mercantilist policy focus is creeping towards more traditional levers— exchange rates."
"By our estimation, the CAD is currently trading close to its fundamental equilibrium. Spot dipped briefly below 1.38 in early Asian trade before rebounding slightly but the overnight low effectively equates to our fair value estimate currently of 1.3768, the lowest since early June. "
"Neutral/bearish—The USD has rebounded handily from the intraday low below 1.38, setting a bullish “hammer” signal on the intraday chart. That may provide some short-term relief for the USD."
"But more broadly, price action last week suggests that the USD rebound from the August 21 low (1.3733) stalled and reversed Wednesday. That sets firm resistance in the low/mid 1.39 zone and suggests the USD downtrend from the mid-year peak is resuming."
"USD-bearish trend momentum was close to stalling last week but USD losses have reinvigorated bearish oscillator signals, likely meaning that moderate USD gains (through the mid/upper 1.38s) will start to draw selling interest. USD support is 1.3715/35 ahead of the decline back to the 1.3500/50 region."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Societe Generale’s Kenneth Broux highlights a sharp USD/JPY pullback, with the pair breaking key graphical support at 155 and trading below its 200-day moving average. The bank flags resistance near 156.25 and downside objectives at 152.00/151.60 and 149.50. They stress that positioning, momentum and technicals, rather than a repeat of 2024’s volatility episode, are currently driving the Japanese Yen’s revival.
Yen rebound driven by momentum and flows
"USD/JPY has experienced a sharp pullback after dipping below its 200-DMA (158.40) recently."
"The pair has breached the graphical support (155) formed by the May and August lows, highlighting the persistence of steady downward momentum."
"If a brief recovery develops, the peak achieved earlier this week at 156.25 may act as a resistance."
"The next potential objectives could be located at the January lows of 152.00/151.60 and projections of 149.50."
"A correction of almost 7% in USD/JPY since the start of August is roughly half only of the collapse in the summer of 2024 when unilateral intervention and the unwinding of leveraged carry trades in equity and currency markets flushed out Yen shorts, caused a spike in volatility incl the VIX and reinforced the appeal of Gold as diversification asset."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Andrew Bailey believes the latest UK economic data is slightly stronger and rules out an imminent recession.
- The Governor warns that inflation risks remain on the upside, particularly from energy and food prices.
- Rising energy costs could keep pressure on prices and complicate future monetary policy decisions.
Bank of England (BoE) Governor Andrew Bailey said on Tuesday that he does not think the United Kingdom (UK) economy is on the verge of a recession, with the latest data showing slightly stronger activity, according to Reuters.
Bailey stressed, however, that activity remains weak by historical standards and said that risks to inflation remain tilted to the upside. He pointed in particular to energy and food prices, as geopolitical tensions fuel the risk of renewed price pressures.
Key takeaways
I do not think we are on the verge of a recession.
Latest data is looking a bit stronger.
Activity has been reasonable resilient but weak by historic standards.
Risks to inflation are to upside.
Market's boe rate curve reflects investors' concern about further energy price rises.
I want to dispel idea that we have secret plan to raise rates, unconditionally.
Risks to food price inflation are to the upside.
Us Iran war has LED to high energy prices, they could be higher still.
Ukrainian attacks on Russian refineries also pushing up cost of refined oil products.
Rise in UK mortgage rates is larger than almost anywhere in G7.
Market reaction
The British Pound (GBP) edged slightly higher following Bailey's comments, with GBP/USD gaining 0.11% on Tuesday to trade around 1.3555 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.
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