Forex News
Here is what you need to know on Wednesday, July 22:
Markets remain on edge midweek as tensions in the Middle East escalate further, with the United States (US) and Iran continuing to exchange strikes. The economic calendar will not offer any high-impact data releases on Wednesday, allowing investors to stay focused on headlines surrounding geopolitics.
The US Dollar (USD) Index registered gains for the fourth consecutive trading day on Tuesday and reached its highest level in over a week above 101.20. Early Wednesday, the USD Index stays in a consolidation phase above 101.00.
Heightened tensions threaten carry trades as Oil shock risk builds
Analysts at OCBC say their “base case has been for a managed escalation in the Middle East, allowing low market volatility to persist, supporting FX carry trades and limiting further USD gains ahead of next week’s FOMC meeting.” However, they caution that “the risk of a broader conflict has risen following the deaths of three US soldiers in Iran-linked attacks,” shifting the balance of risks around energy markets and the Dollar.
OCBC warns that “a larger escalation could revive fears of a prolonged supply shock and drive oil prices back above USD100/bbl.” They note that, “for perspective, Brent crude reached USD126/bbl in late April, around 40% above current levels,” underscoring the potential scale of any renewed spike.
In such a scenario, the bank argues that “such an outcome would likely trigger higher market volatility, erode the appeal of FX carry trades, and support a renewed USD rally,” as investors reassess both geopolitical risk and the implications of higher Oil prices for the policy outlook.
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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.16% | 0.56% | 0.49% | 0.60% | -0.42% | 0.28% | 0.51% | |
| EUR | -0.16% | 0.41% | 0.26% | 0.44% | -0.58% | 0.11% | 0.34% | |
| GBP | -0.56% | -0.41% | -0.15% | 0.03% | -0.98% | -0.29% | -0.02% | |
| JPY | -0.49% | -0.26% | 0.15% | 0.21% | -0.85% | -0.25% | 0.13% | |
| CAD | -0.60% | -0.44% | -0.03% | -0.21% | -0.98% | -0.46% | -0.06% | |
| AUD | 0.42% | 0.58% | 0.98% | 0.85% | 0.98% | 0.70% | 0.96% | |
| NZD | -0.28% | -0.11% | 0.29% | 0.25% | 0.46% | -0.70% | 0.27% | |
| CHF | -0.51% | -0.34% | 0.02% | -0.13% | 0.06% | -0.96% | -0.27% |
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).
Crude Oil prices push higher early Tuesday, with the barrel of West Texas Intermediate trading at its higher level in over a month near $86, rising more than 1.5% on the day. The US military announced late Tuesday that it conducted more strikes on Iranian “military targets.” In the meantime, US Secretary of State Marco Rubio said that Iran is “not serious about talks” and argued that allowing Iran to control the Strait of Hormuz would create a "dangerous precedent."
Meanwhile, two tankers carrying Saudi Oil turned back after Houthi threats in the Red Sea, and US President Donald Trump said they could soon target the area of Pickaxe Mountain, where Iran is believed to have an underground facility for its nuclear programme.
Middle East risks keep Brent elevated as Hormuz and Saudi routes face disruption
Analysts at Rabobank warn that Middle East supply routes remain highly fragile, with “Hormuz remains on a knife-edge, with most flows halted save those taking the Iranian route.” They add that the situation has deteriorated further after “two tankers carrying Saudi crude made U-turns in the Red Sea after a Houthi warning,” describing this as “the first sign of the threatened blockade of Saudi ports.” Against that backdrop, Rabobank argues that the developing disruption “will not allow energy markets to ‘take the summer off’ rather than taking off.”
The UK's Office for National Statistics reported on Wednesday that annual inflation, as measured by the change in the Consumer Price Index (CPI), softened to 2.6% in June from 2.8% in July. This reading came in below the market expectation of 2.7%. The core CPI, which excludes volatile energy and food prices, rose 2.6% in this period, matching May's reading. Following a four-day decline, GBP/USD holds steady after inflation data and trades in a narrow range below 1.3400.
AUD/USD extends its sideways grind near 0.7000 after closing virtually unchanged on Tuesday. In the early Asian session on Thursday, June employment data from Australia will be watched closely by market participants.
Gold (XAU/USD) gathered bullish momentum and rose more than 1.5% on Tuesday. XAU/USD continues to stretch higher early Wednesday and trades at its highest level in nearly two weeks above $4,100.
EUR/USD corrects higher and clings to small gains above 1.1400 in the European session on Wednesday.
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.
- USD/CAD drops as the Canadian Dollar gains support from WTI crude holding gains near $86.00.
- President Trump downplayed immediate Tehran talks and pledged to respond to any Houthi waterway interference without specifying actions.
- Markets are currently pricing in over 69% odds of a 25 basis-point Fed rate hike this September, per CME FedWatch.
USD/CAD declines after to days of gains, trading around 1.4100 during the early European hours on Wednesday. The pair loses ground as the commodity-linked Canadian Dollar (CAD) receives support from higher oil prices.
West Texas Intermediate (WTI) oil price gains ground for the second successive day, trading around $86.00 per barrel at the time of writing. Crude oil prices surge as supply risks intensified across several key export routes, extending well beyond the Middle East.
US President Donald Trump downplayed the likelihood of immediate negotiations with Tehran, pledging to respond if the Houthi militants interfered with the waterway, though he did not outline specific action. In response, Iran's top military command stated via the Xinhua news agency that Tehran will expand its strikes to target US and allied assets across the region if the US attacks Iranian nuclear facilities.
The USD/CAD pair holds ground as the US Dollar (USD) struggles despite growing risk aversion tied to escalating geopolitical tensions between the United States and Iran. However, the Greenback may regain its ground as CME FedWatch Tool indicates that markets are currently pricing in over 69% odds of at least a 25 basis-point rate hike at the upcoming September meeting. However, the Fed is widely expected to leave the federal funds rate unchanged. Despite this anticipated pause, expectations for tighter policy remain elevated beyond July.
Fed Chair Warsh has repeatedly stressed that inflation remains a key concern for the central bank. This cautious stance has been echoed by several other Fed officials in recent weeks as they navigate ongoing economic pressures. Policymakers have now entered their customary blackout period ahead of next week's FOMC meeting.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
- Silver price struggled to recover further above $60.00 amid surging oil prices.
- The closure of the Bab el-Mandeb Strait has prompted energy supply risks.
- Investors await the ECB monetary policy announcement on Thursday.
Silver price (XAG/USD) gives back some of its early gains, but is still 0.8% higher at around $59.25 during the European trading session on Wednesday. The white metal struggles to extend the rally beyond the psychological level of $60.00 due to a fresh surge in oil prices amid escalating Middle East energy supply risks.
In European trade, the WTI Oil price is up more than 2% at around $86, the highest level seen in over five weeks.
Higher oil prices boost fears of hot inflation expectations, a scenario that forces global central banks to tighten monetary conditions. Theoretically, hawkish monetary policy expectations bode poorly for non-yielding assets, such as Silver.
Fears of a further squeeze in the energy supply from the Middle East are prompted by the closure of Bab el-Mandeb Strait, the southern gateway of the Red Sea, from which 7% of global energy is transported.
Yemen's Iran-aligned Houthis announced a 'maritime embargo' on Saudi Arabia in retaliation for a Saudi blockade of ports and airports in Houthi-controlled north-western Yemen, BBC News reported.
Going forward, the next trigger for the Silver price will be the European Central Bank’s (ECB) monetary policy announcement on Thursday, in which the central bank is expected to leave policy rates steady. Investors will pay close attention to commentary from ECB President Christine Lagarde regarding the inflation outlook.
Silver technical analysis
XAG/USD trades higher at around $59.34 at press time. The white metal has recovered to near the 20-day exponential moving average (EMA) at $59.68, improving its near-term bias.
The EMA slope is still declining, suggesting rallies are likely to face selling interest near that barrier, while the Relative Strength Index (RSI) at 45.49 stays below the neutral 50 line, hinting at subdued upside momentum rather than a decisive bullish reversal.
On the topside, initial resistance is clearly defined by the 20-day EMA at $59.68, and a daily close above this level would be needed to extend the recovery towards the July 6 high at $63.28. A decisive break above the latter would trigger a bullish reversal, confirming the checklist of the Double Bottom formation. Looking down, the July low at $54.77 will be the key support level.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Middle East tensions keep Brent elevated as Rabobank warns energy markets cannot take the summer off
Analysts at Rabobank underline that emerging signs of a “threatened blockade of Saudi ports” are already feeding through to energy pricing, cautioning that this development “will not allow energy markets to ‘take the summer off’ rather than taking off.” The bank notes that “we are at $91.5 on Brent at time of writing with crack spreads still round $70,” underscoring the degree to which geopolitical risk is being reflected in current market levels.
United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann note USD/JPY has surged past 163 for the first time since 1986, raising intervention risks as the Japanese Yen (JPY) weakens. Intraday, they see upside risk with support at 163.00 and 162.75, while its 1–3 week view targets 163.50, contingent on holding above 162.40. On a 1–3 month basis, further gains are possible if the pair stays above the 21‑day EMA near 161.00.
Dollar-Yen extends rally toward 163.50
"24-HOUR VIEW: USD traded in a range two days ago. Yesterday, we pointed out that “while the price movements appear to be part of a range-trading phase, the firmer underlying tone suggests USD is likely to trade in a higher range of 162.30/162.70 today.” We did not expect upward momentum to build so quickly, as USD soared and broke above 163.00, printing a high of 163.23. The risk for today remains on the upside, but it is too early to determine whether USD can reach 163.50. On the downside, support is at 163.00, followed by 162.75."
"1-3 WEEKS VIEW: We have been expecting USD to trade in a range for two weeks now (as annotated in the chart below). In our most recent narrative from last Friday (17 Jul, spot at 162.35), we highlighted that “a narrower 161.30/163.00 range is likely sufficient to contain USD for now.” Yesterday, USD broke above 163.00. The price action suggests USD is likely to rise further to 163.50. USD must close above 163.50 before sustained advances can be expected. To sustain the rapid buildup in momentum, USD must hold above 162.40 (‘strong support’ level)."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/CAD stalls this week’s goodish recovery move from an over one-month trough.
- The bullish fundamental backdrop backs the case for the emergence of dip-buying.
- A move beyond the 200-SMA on H4 is needed to reaffirm the constructive outlook.
The USD/CAD pair remains on the back foot through the early European session on Wednesday and, for now, seems to have stalled this week's goodish rebound from the 1.4000 psychological mark, or over a one-month low. Spot prices, however, lack follow-through selling and currently trade around the 1.4100 mark, down only 0.05% for the day.
Hopes that the US-Iran diplomacy could ease energy prices and temper hawkish US Federal Reserve (Fed) expectations keep a lid on the US Dollar's (USD) four-day-old rally. Furthermore, rallying crude oil prices offer some support to the commodity-linked Loonie and act as a headwind for the USD/CAD pair. However, bets that the US central bank will hike interest rates in 2026 amid concerns about energy-driven inflation help limit the downside for the Greenback amid a further escalation of tensions between the US and Iran.
From a technical perspective, the overnight strength beyond the 38.2% Fibonacci retracement level of the recent pullback from the year-to-date high, touched in June, favors bullish traders. The USD/CAD pair now awaits a move beyond the 200-period Simple Moving Average (SMA) on the 4-hour chart before the next leg up. Meanwhile, the Relative Strength Index (RSI) around 60 hints at a constructive bias, while the Moving Average Convergence Divergence (MACD) shows the line above its signal with a modest positive histogram.
Improving momentum indicators together suggest bullish pressure that has yet to clear overhead structure. A sustained strength above the 200-period SMA at 1.4104 should pave the way for additional gains to the 50.0% retracement at 1.4128 and the 61.8% Fibo. level at 1.4158, with 1.4200 and 1.4253 marking deeper Fibonacci barriers into the recent swing high.
On the downside, initial support emerges at the 23.6% Fibo. retracement at 1.4062, ahead of the structural floor near 1.4004. A convincing break below these levels would undermine the current consolidation and reopen a broader corrective phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
USD/CAD 4-hour chart
Canadian Dollar Price This week
The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies this week. Canadian Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.14% | 0.55% | 0.47% | 0.59% | -0.43% | 0.24% | 0.49% | |
| EUR | -0.14% | 0.41% | 0.26% | 0.45% | -0.58% | 0.09% | 0.34% | |
| GBP | -0.55% | -0.41% | -0.15% | 0.03% | -0.98% | -0.31% | -0.03% | |
| JPY | -0.47% | -0.26% | 0.15% | 0.21% | -0.85% | -0.27% | 0.13% | |
| CAD | -0.59% | -0.45% | -0.03% | -0.21% | -0.98% | -0.48% | -0.06% | |
| AUD | 0.43% | 0.58% | 0.98% | 0.85% | 0.98% | 0.68% | 0.95% | |
| NZD | -0.24% | -0.09% | 0.31% | 0.27% | 0.48% | -0.68% | 0.29% | |
| CHF | -0.49% | -0.34% | 0.03% | -0.13% | 0.06% | -0.95% | -0.29% |
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 Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).
BNY’s Geoff Yu argues that the Euro (EUR) offers limited risk-reward compared with Eurozone assets as European Central Bank (ECB) policy pivots back toward growth. He notes EUR exposures are unusually high because hedge ratios have fallen sharply, even while equity and bond ownership remains subdued. Yu expects an ECB pullback to support Eurozone assets and drive a rebuilding of currency hedges rather than a sustained EUR rally.
Currency exposures outpace asset ownership
"The EUR is holding its ground heading into the ECB decision. There are already tentative signs of recovery, and we maintain the view that a pro-growth message from the ECB is far more beneficial to the Eurozone economy. Governing Council rhetoric is clearly shifting in that direction, with some major exceptions, and guidance in that direction would encourage further rotation back into the Eurozone."
"We remain cautious on chasing EUR outright, however. Our analysis indicates that current net EUR exposures are at the highest levels since 2024 and there has been decoupling in currency performance relative to ownership. By netting off the cross-border EUR holdings position (normally net short to reflect hedges) against changes in a standard 60:40 sovereign bond/equity portfolio, we can track the change in EUR exposures relative to portfolio performance."
"Recently net exposures have surged into positive, which is a rarity. This has been led by significant unwinding of EUR holdings relative to changes in portfolio holdings: current EUR hedges are 0.6x the rolling 12-month average, which is the lowest hedge level in our tracking period from 2024 onwards. Overall portfolio holdings are not high – equities are less than 2% above the rolling 12-month average and sovereign bonds 2% below (27th and 25th percentile respectively)."
"The ECB is unlikely to favor a significantly weaker EUR while residual inflation remains high. Any step back from tightening will be framed as just that and targeted at credit conditions. The German government’s complaints against CNH suggests concern over valuations against a Chinese shock."
"iFlow indicates that current EUR holdings strength is largely due to buying on the crosses (ex-EUR/GBP) due to the ECB’s recent hike, so a pullback will help avoid EUR exposures becoming excessive. Even with a more cautious growth outlook, the EUR has not fallen materially, which supports the view that holdings remain firm. Eurozone assets stand to benefit far more from an ECB pullback, and we expect hedge ratios to naturally increase."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- NZD/USD retreats to the lower range of the 0.5800s after hitting seven-week highs at 0.5874.
- Concerns about the escalation of the war in Iran have soured market sentiment, hurting the risk-sensitive Kiwi,
- Analysts at Brown Brothers Harriman affirm that the hawkish RBNZ stance is underpinning the NZD.
The New Zealand Dollar (NZD) is trading lower against the US Dollar (USD) for the second consecutive day on Wednesday, as the US-Iran conflict overshadows the Reserve Bank of New Zealand’s (RBNZ) hawkish monetary policy stance. The NZD/USD pair trades at 0.5818 at the time of writing, after pulling back from 0.5874 highs on Tuesday, although it remains about 3.3% above late-June lows.
Traders are cutting back NZD longs amid the sour market sentiment, as the conflict in Iran threatens to escalate out of control. The US pounded targets in Iran for the 11th consecutive day, and US President Donald Trump flagged attacks on Pickaxe Mountain, an area believed to be connected with Iran’s nuclear facilities.
Meanwhile, Reuters reported that three Saudi Arabian vessels turned around in the Red Sea after the “maritime embargo” announced by the Iran-backed Houthis on Tuesday. This has boosted concerns about disruptions in Crude supply, pushing Oil prices higher and increasing risk-aversion.
RBNZ tightening bias underpins Kiwi
Kiwi's downside attempts, however, have been limited so far, as hopes of further RBNZ monetary tightening are underpinning the pair. Strategists at Brown Brothers Harriman note that NZD/USD has “rallied to near a seven-week high” despite a “mixed” New Zealand Q2 CPI print, with headline inflation rising more than expected in Q2 but "marginally lower than the RBNZ projected in May.”
BBH analysts are convinced that “above target inflation and a more favorable domestic growth outlook argue for additional RBNZ rate hikes, which is NZD supportive.” At its last July 8 meeting, the RBNZ “raised the Official Cash Rate (OCR) 25bps to 2.50% and indicated that ‘further OCR increases appear likely at upcoming meetings,’” reinforcing the constructive backdrop for the Kiwi.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.
- US Dollar Index weakens to around 101.10 in Wednesday’s early European session.
- The DXY maintains a constructive bias above the 100-day SMA, with bullish RSI momentum.
- The immediate resistance level emerges at 101.50; the initial support level to watch is 101.05.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 101.10 in the early European trading hours on Wednesday. The DXY declines as traders have largely priced out expectations of a US Federal Reserve (Fed) rate hike this month following softer-than-expected US June consumer and producer price inflation data.
Cleveland Fed President Beth Hammack said on Friday that interest rates may need to rise to beat back persistent inflation. However, markets continue to expect no change to rates at the Fed's next meeting on July 29, with Fed funds futures pricing an implied 74.9% odds of a rate hold, compared to a 61.5% probability a month ago, according to the CME FedWatch tool.
Technical Analysis:
In the daily chart, the near-term bias of the Dollar Index Spot is bullish as price holds above the 100-day simple moving average (SMA) and the Bollinger middle band, suggesting ongoing demand on minor pullbacks. The Bollinger upper band caps the upside in the very short term, while the Relative Strength Index (RSI) at 57 stays in positive territory, hinting at constructive but not overextended momentum.
On the topside, immediate resistance is located at the Bollinger upper band near 101.50. A clear break above this level would open the way for the June 24 high of 101.80.
On the downside, initial support emerges at the Bollinger middle band at 101.05, followed by the lower band near 100.55, with deeper support at the 100-day SMA around 99.62, which reinforces the medium-term bullish structure as long as it holds.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Hammack flags broad-based inflation pressures, supporting a more hawkish Fed tone
Fed’s Hammack delivers a notably more hawkish tone, with a 7.2/10 FXS Speechtracker score standing above the 6.6/10 historical average, underscoring heightened concern about persistent inflation. The emphasis on businesses calling for action to curb inflation and consumers unable to make ends meet, alongside references to energy, supply chains, insurance, and AI data center pressures, points to broad-based and socially sensitive price strains even amid solid growth and stable consumer spending. Persistently high inflation being framed as the “bigger concern” reinforces a bias toward keeping policy restrictive for longer, which is supportive of the Dollar.
The FXS Fed Sentiment Index has risen by 2.06 points to 128.64, firmly in hawkish territory and consistent with the above-baseline FXS Speechtracker score. An index level well above 100 signals that, despite decent growth and spending data, the balance of Fed communication is skewing toward inflation vigilance, a backdrop that typically underpins the Dollar against the Euro and Yen.
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.
Commerzbank’s Thu Lan Nguyen notes that recent optimism around United Kingdom (UK) Prime Minister Burnham faded quickly, with British Pound (GBP) gains versus Euro fully reversed. Markets are focused on his plans to cut the cost of living via tax relief and more social housing, while avoiding major tax hikes. This raises concerns about UK debt sustainability and suggests a volatile period for Pound investors.
Debt concerns weigh on Pound
"On Monday I had already warned that the euphoria around Burnham would at some point give way to a certain sobering. This then materialised more quickly than expected. Yesterday, sterling fully gave back its gains against the euro accumulated since the middle of last week."
"The trigger was the first insight into the new Prime Minister’s policy plans: one of his first stated goals is to reduce the cost of living. Among other things, this is to be achieved through tax relief (temporary suspension of VAT on electricity, an increase in the tax-free allowance). In addition, he has declared war on homelessness and held out the prospect of expanding social housing. At the same time, there are still to be no major tax increases."
"One of the first questions the market is clearly asking itself in this context is: who is going to pay for this? And thus concerns about the UK’s long-term debt sustainability are back in the spotlight."
"The big question remains: how will this new government handle the difficult balance between fiscal sustainability and stimulating growth?"
"At the very least, Burnham’s promise of a “new economic model” for the UK does not suggest that he will shy away from major measures. This, in turn, entails considerable risks for an already fragile market sentiment. Pound investors may face a volatile period."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Forex Market News
Our dedicated focus on forex news and insights empowers you to capitalise on investment opportunities in the dynamic FX market. The forex landscape is ever-evolving, characterised by continuous exchange rate fluctuations shaped by vast influential factors. From economic data releases to geopolitical developments, these events can sway market sentiment and drive substantial movements in currency valuations.
At Rakuten Securities Hong Kong, we prioritise delivering timely and accurate forex news updates sourced from reputable platforms like FXStreet. This ensures you stay informed about crucial market developments, enabling informed decision-making and proactive strategy adjustments. Whether you’re monitoring forex forecasts, analysing trading perspectives, or seeking to capitalise on emerging trends, our comprehensive approach equips you with the insights needed to navigate the FX market effectively.
Stay ahead with our comprehensive forex news coverage, designed to keep you informed and prepared to seize profitable opportunities in the dynamic world of forex trading.
