Forex News
- ISM Manufacturing PMI ticked lower to 54.5 in September, missing consensus.
- The US Dollar further extends its move higher, approaching 102.00.
In September, the US manufacturing sector's economy lost some momentum. Indeed, the ISM Manufacturing PMI weakened to 54.5 in September from 54.6, which was also lower than analysts' predictions of 55.0.
The Employment Index climbed to 52.7 from 51.2, which means that the sector's payrolls remain healthy. The Prices Paid Index, which monitors inflation, rose to 77.9 from 71.1. Finally, the New Orders index advanced to 55.3 from 53.7 in the previous reading.
From the release: “The overall economy continued in expansion for the 23rd month in a row… The New Orders Index expanded for the ninth consecutive month after four straight readings in contraction, registering 55.3 percent, up 1.6 percentage points compared to August’s figure of 53.7 percent. The September reading of the Production Index (56.7 percent) is 1.6 percentage points lower than the 58.3 percent recorded in August. The Prices Index remained in expansion (or ‘increasing’ territory), registering 77.9 percent, a notable increase of 6.8 percentage points compared to August’s reading of 71.1 percent.)”, argued Susan Spence, MBA, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.
Market reaction
The US Dollar (USD) advances further on Thursday, lifting the US Dollar Index (DXY) to levels just shy of the key 102.00 hurdle for the first time since April 2025.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
- The Swiss Franc finds some support after annual inflation rises to 1.0% in September.
- USD/CHF remains near May 2025 levels as broad US Dollar strength limits the downside.
- Softer US PCE inflation lowers the chances of a Fed rate hike in October.
USD/CHF trades flat on Thursday as stronger Swiss inflation offers some support to the Swiss Franc, while a firm US Dollar (USD) keeps the pair near levels last seen in May 2025. At the time of writing, USD/CHF trades around 0.8354 after reaching an intraday high of 0.8382.
The US Dollar climbs to a fresh year-to-date high, supported by elevated US Treasury yields as traders assess the Federal Reserve’s (Fed) monetary policy path following the latest US economic data. At the same time, concerns about the US fiscal and debt outlook keep the bond market under pressure.
The US Dollar Index, which tracks the Greenback’s value against a basket of six major currencies, trades around 101.75 after touching a fresh yearly high of 101.99 earlier in the day. Meanwhile, the benchmark 10-year US Treasury yield holds around 5.32% after reaching 5.34%, its highest level since 2002.
Fresh labour-market data released on Thursday showed that Initial Jobless Claims fell to 197K in the week ending September 26, below expectations of 200K and the previous reading of 198K. The four-week moving average also declined to 200K from 202.5K.
The figures follow Wednesday’s ADP report, which showed that private-sector employment increased by 90K in September, beating the 70K forecast and accelerating from 36K in August. Second-quarter US Gross Domestic Product was also revised higher to an annualized rate of 2.2% from 1.5%.
The latest data points to continued resilience in the US economy and suggests that the Fed has room to raise interest rates again in the coming months. However, markets have scaled back expectations that the central bank will move this month following softer-than-expected US Personal Consumption Expenditures inflation data released on Wednesday.
Core PCE inflation rose 0.2% MoM in August, below the 0.3% forecast, while the annual rate remained unchanged at 3.0%, undershooting expectations of 3.3%. The CME FedWatch Tool shows that traders now see about a 36% chance that the US central bank will raise interest rates at its October 27-28 meeting, down from 70% earlier this week.
Still, policymakers remain concerned that inflation is running above the Fed’s 2% target, while high energy prices add to upside risks as US-Iran negotiations remain deadlocked.
Kansas City Fed President Jeff Schmid said on Thursday, “Officials have work to do on inflation,” adding, “Energy prices are one of the biggest challenges for monetary policy today.” Boston Fed President Susan Collins said, “Economic growth is near trend, if not more than that; labor market near full employment, but inflation is too high.”
On the Swiss side, annual inflation accelerated to 1.0% in September from 0.8% in August, matching market expectations. Consumer prices were unchanged on a monthly basis after rising 0.4% previously. The figures offer some support to the Swiss Franc but are unlikely to force an immediate policy change, as inflation remains within the Swiss National Bank’s 0%-2% price-stability range. The SNB kept its policy rate unchanged at 0% at its September meeting.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.30% | 0.22% | 0.33% | 0.03% | -0.09% | 0.28% | -0.28% | |
| EUR | -0.30% | -0.07% | 0.04% | -0.31% | -0.41% | -0.05% | -0.58% | |
| GBP | -0.22% | 0.07% | 0.10% | -0.16% | -0.34% | 0.04% | -0.50% | |
| JPY | -0.33% | -0.04% | -0.10% | -0.32% | -0.43% | -0.08% | -0.62% | |
| CAD | -0.03% | 0.31% | 0.16% | 0.32% | -0.11% | 0.24% | -0.30% | |
| AUD | 0.09% | 0.41% | 0.34% | 0.43% | 0.11% | 0.38% | -0.16% | |
| NZD | -0.28% | 0.05% | -0.04% | 0.08% | -0.24% | -0.38% | -0.52% | |
| CHF | 0.28% | 0.58% | 0.50% | 0.62% | 0.30% | 0.16% | 0.52% |
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).
Rabobank's RaboResearch Global Economics & Markets updates its United States (US) Federal Reserve (Fed) outlook, adding a December 2026 rate hike after recent FOMC speeches. The team highlights increased Fed risk aversion to unanchored inflation expectations and a greater tolerance for demand destruction outside the energy sector.
Fed seen hiking once more
"After recent speeches by FOMC participants we change our Fed forecasts by adding a rate hike in December 2026."
"This is based on the Committee’s increased risk aversion to the unanchoring of inflation expectations and the higher willingness to accept demand destruction in sectors unrelated to energy, the sector where this year’s supply shock originated."
"However, with only one more rate hike to go, we still have fewer rate hikes in our forecasts than the new hiking cycle of 3-4 additional rate hikes that is priced in by the markets."
"Moreover, we now think that the Fed will remain on hold through 2027, followed by one rate cut per year in 2028-2030."
"We still think that the Fed will stop at a higher neutral rate than their current projection."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Rabobank's RaboResearch Global Economics & Markets discusses EUR/USD dynamics since the Iran war, highlighting how shifting expectations for Federal Reserve policy and the Euro’s underperformance have driven the pair.
Euro weighed by multi‑layered headwinds
"The turnaround from expectations of Fed easing to Fed tightening can account for much of the USD’s strong performance during the summer and into last month. However, in our view the lacklustre performance of the EUR has also played a part in driving EUR/USD in the months since the war commenced. Just as the attraction of the single currency likely underpinned flows out of the USD during parts of 2025, the EUR’s inability to draw strength from the hawkish position of the ECB since the start of the Iran war has likely helped underpin the USD."
"Even though the ECB brought forward its tightening cycle, and despite the resilience of the Eurozone economy this year, the market is concerned about growth risks in view of the Eurozone’s position as an energy importer. European political uncertainties are also likely contributing to the EUR’s lacklustre performance."
"Consequently, for many investors the EUR is likely appearing less like an alternative to the USD. By contrast, the rally in the USD at the start of the Iran war proved it retains its safe haven status, which many had started to doubt last year. In our view this is built around the greenback’s dominance in the global payments system which would take decades to challenge."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Gold remains subdued as a stronger US Dollar and surging Treasury yields limit demand.
- Softer-than-expected US inflation reduces October Fed rate-hike bets, offering limited support to Gold.
- The daily setup remains bearish while XAU/USD trades below the Bollinger middle band.
Gold (XAU/USD) treads water on Thursday as a stronger US Dollar (USD) and elevated US Treasury yields limit the upside. At the time of writing, XAU/USD trades around $4,79, up 0.54% on the day, as the precious metal struggles to build on its early recovery.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.75 after climbing to a fresh year-to-date high of 101.99 earlier in the day. Meanwhile, the benchmark 10-year US Treasury yield stands at 5.30% after reaching 5.34%, its highest level since 2002.
Higher Treasury yields increase the opportunity cost of holding non-yielding assets such as Gold, while a stronger US Dollar makes the precious metal more expensive for buyers using other currencies.
Fresh data released on Thursday showed that the US labour market remains on a solid footing. Initial Jobless Claims fell to 197K in the week ending September 26, below expectations of 200K and the previous reading of 198K. The four-week moving average also declined to 200K from 202.5K.
The figures follow Wednesday’s ADP report, which showed that private-sector employment increased by 90K in September, beating the 70K forecast and accelerating from 36K in August.
Minneapolis Fed President Neel Kashkari said on Thursday, “4.1% unemployment rate is good, labor market is healthy,” while noting that “consumer spending is strong across the economy.” Kashkari added, “We will do what we need to get inflation to the goal,” but cautioned, “If we keep raising rates, it will put different pressure on different parts of the economy.”
However, markets have scaled back expectations that the Federal Reserve (Fed) will raise interest rates this month following softer-than-expected US Personal Consumption Expenditures (PCE) inflation data released on Wednesday. Core PCE inflation rose 0.2% MoM, below the 0.3% forecast, while the annual rate remained unchanged at 3.0%, undershooting expectations of 3.3%.
The CME FedWatch Tool shows that traders now see about a 36% chance that the US central bank will raise interest rates at its October 27-28 meeting, down from 70% earlier this week. The dovish repricing offers some support to Gold, although traders are not ruling out another rate hike later this year.
An upward revision to US economic growth highlighted the continued resilience of the world’s largest economy. Annualized Gross Domestic Product (GDP) expanded by 2.2% in the second quarter, above economists’ forecast of 1.5%. Resilient economic growth and firm labour-market conditions give the Fed more room to tackle inflation, which remains above its 2% target.
Meanwhile, the lack of progress in US-Iran negotiations to reopen the Strait of Hormuz keeps Oil prices elevated and inflation risks tilted to the upside, supporting the case for tighter monetary policy.
Looking ahead, traders await the US ISM Manufacturing Purchasing Managers’ Index (PMI) and speeches from Fed officials later in American trading hours, followed by the Nonfarm Payrolls (NFP) report due on Friday.
Technical Analysis: Bearish bias holds as RSI remains below 50
On the daily chart, XAU/USD maintains a bearish near-term bias as it sits below the 20-day Bollinger Simple Moving Average (SMA) at $4,301. The metal is also capped well beneath the upper Bollinger band at $4,471, keeping rallies contained, while the Relative Strength Index (RSI) is around 40 and a negative Moving Average Convergence Divergence (MACD) reading both hint at limited bullish momentum and a corrective tone within a weakening trend, as suggested by the Average Directional Index (ADX) near 19.
On the downside, immediate support emerges at the lower Bollinger band near $4,131, ahead of the horizontal floor at $4,100, with a deeper bearish extension exposing the $4,000 level. On the topside, recovery attempts would first face resistance at the 20-day Bollinger SMA at $4,301, followed by the upper band at $4,471, while a stronger bullish reversal would only take shape on a sustained break above the structural barrier at $4,700.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
UOB Global Economics & Markets Research notes the DXY closed at 101.45 on Wednesday, delivering its best monthly gain since June with a 2.0% rise in September. Intraday Dollar strength was briefly tempered by softer US PCE data before recovering into the close. Major pairs such as EUR/USD, GBP/USD and AUD/USD held steady, while USD/JPY finished flat.
Dollar index holds firm into Q4
"The DXY closed at 101.45 on Wed, up modestly from 101.37 the prior day and posting its best monthly gain since Jun (+2.0% in Sep). The dollar's strength was tempered intraday by softer PCE data before recovering into the close."
"Asian currencies broadly strengthened against USD ahead of US PCE data release. IDR found support from Bank Indonesia's explicit commitment to stability through multi-instrument FX intervention with USD/IDR closing down 0.6% to 17,870."
"The S$NEER index is around 1.85% above the mid-point this morning. For today, the 1.5% to 2.0% above the estimated mid-point implies USD/SGD trading range of 1.2761-1.2824."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Initial Jobless Claims went down to 197K vs. the previous week.
- Continuing Jobless Claims went down to 1.701M.
According to a report from the US Department of Labour (DOL) released on Thursday, the number of US citizens submitting new applications for unemployment insurance decreased to 197K for the week ending September 26. The latest print came in below initial estimates (201K) and was lower than the previous week’s 198K (revised from 197K).
Additionally, the 4-week moving average went down by 2.5K to 200K vs. the previous week’s revised prints (202.5K).
The report also indicated that Continuing Jobless Claims dropped by 11K to 1.701M for the week ending September 19.
Market reaction
The Greenback keeps its march north unabated, sending the US Dollar Index (DXY) to fresh tops near the 102.00 barrier, levels last seen in April 2025 as investors continue to assess the latest data releases
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
Bank of England (BoE) policymaker Catherine Mann argued on Thursday that they can't rely on risk premia to do the work of monetary policy and added that they need to raise the bank rate, per Reuters.
BoE’s Mann flags need for higher rates despite tighter conditions
FXS Speechtracker assigns this speech a 9.4/10, notably above BoE’s Mann historic average of 8.1/10, signaling a stronger-than-usual policy signal. The insistence that the Bank of England “needs to raise bank rate” and cannot rely on risk premia to substitute for monetary tightening marks a clear hawkish shift, as tighter financial conditions are framed as problematic when driven by higher inflation and policy uncertainty premia rather than deliberate rate hikes.
By highlighting that tighter conditions offer “no comfort” if rooted in inflation risk and uncertainty, the remark underscores a preference for explicit Bank Rate increases over passive market-driven tightening, reinforcing hawkish sentiment for the Pound. The admission that the Bank of England may not have clearly articulated the reaction function to the Middle East shock, and that not publishing a baseline forecast in April likely added to uncertainty, suggests a desire to restore credibility and clarity, which typically supports expectations of more decisive future policy action.
Key takeaways
"Tighter financial conditions are no comfort when they reflect higher inflation risk premium, possibly also monetary policy uncertainty premium."
"BoE may not have clearly articulated its reaction function to Middle East shock in March, not publishing baseline forecast in April likely did not help either."
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.
- EUR/GBP remains under pressure after last week’s rejection from the 0.8600 mark.
- BoE policymaker Catherine Mann calls for higher interest rates to bring inflation back to 2%.
- Stronger Eurozone manufacturing activity offers the Euro limited support.
EUR/GBP trades on the defensive on Thursday, remaining on the back foot for the fifth consecutive day following last week’s rejection from the 0.8600 psychological mark. At the time of writing, the cross trades around 0.8537, its lowest level since mid-August.
The British Pound (GBP) strengthened across the board on Wednesday after UK second-quarter Gross Domestic Product (GDP) was revised higher to 0.5% QoQ from 0.4%, while the annual growth rate was raised to 1.4% from 1.2%. The figures showed that the UK economy remains resilient, giving the Bank of England (BoE) more room to raise interest rates to counter inflation. The BoE has kept rates unchanged this year, but markets increasingly expect it to begin tightening in the coming months as high energy costs keep price pressures elevated.
BoE policymaker Catherine Mann said on Thursday, “Current stance is not sufficiently tight.” She added, “Can’t rely on risk premia to do the work of monetary policy, need to raise the bank rate,” and “Raising rate can ensure sustainable return to 2%.”
The Euro (EUR), meanwhile, remains weighed down by political and fiscal concerns in France. Rising government borrowing costs and uncertainty surrounding the country’s budget outlook have raised concerns about debt sustainability, limiting demand for the shared currency.
The European Central Bank (ECB) has already raised interest rates twice this year, but traders expect it to proceed more cautiously as elevated energy prices pose threats to Eurozone economic growth. ECB President Christine Lagarde said on Monday, “We see higher inflation ahead but no signs yet that it is becoming embedded,” adding that the ECB considers “a measured response as appropriate to keep inflation in check.”
However, Thursday’s manufacturing data offers the Euro some support, leaving EUR/GBP trading within a narrow range near its recent low. The Eurozone HCOB Manufacturing PMI rose to 52.9 in September from 52.7, reaching its highest level since May 2022 as new orders and production strengthened. In contrast, the UK S&P Global Manufacturing PMI eased to 51.9 from 52.0. The focus now shifts to the Eurozone’s preliminary inflation report for September on Friday.
Pound Sterling Price This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.72% | 0.02% | 0.36% | 0.76% | 0.88% | 0.83% | 0.84% | |
| EUR | -0.72% | -0.76% | -0.30% | 0.01% | 0.15% | 0.10% | 0.10% | |
| GBP | -0.02% | 0.76% | 0.27% | 0.74% | 0.87% | 0.83% | 0.83% | |
| JPY | -0.36% | 0.30% | -0.27% | 0.27% | 0.44% | 0.38% | 0.35% | |
| CAD | -0.76% | -0.01% | -0.74% | -0.27% | 0.17% | 0.07% | 0.09% | |
| AUD | -0.88% | -0.15% | -0.87% | -0.44% | -0.17% | -0.05% | -0.06% | |
| NZD | -0.83% | -0.10% | -0.83% | -0.38% | -0.07% | 0.05% | -0.01% | |
| CHF | -0.84% | -0.10% | -0.83% | -0.35% | -0.09% | 0.06% | 0.00% |
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 US Dollar (USD) continues to display underlying strength, with the US Dollar Index (DXY) touching its June year-to-date high near 101.80 despite recent data showing a deceleration in core Personal Consumption Expenditures (PCE) inflation. While revised inflation metrics show slowing price momentum, robust underlying economic activity — marked by resilient consumer spending and firm capex — is keeping market expectations anchored to a firm US macroeconomic backdrop. As traders look ahead to upcoming Nonfarm Payrolls (NFP) and Consumer Price Index (CPI) releases, institutional strategists are debating whether softer inflation trends will prompt a more gradual Federal Reserve (Fed) tightening cycle or if sticky underlying price pressures will preserve the Greenback's upward momentum.
TD Securities expects sticky inflation and 3.0% Q3 GDP to keep Fed hawkish
Oscar Munoz and Eli Nir at TD Securities maintain that despite downward revisions to PCE inflation figures, the broader economic signal remains undeniably hawkish. Upgrading their Q3 GDP forecast to 3.0% annualized, they argue that resilient consumer demand, firm corporate profits, and sticky price pressures keep an October Fed rate hike firmly on the table.
"PCE and GDP revisions were a mixed bag with hawkish backward adjustments to growth and dovish adjustments to inflation. However, the underlying trend is the key story, and robust growth with rising inflation risks should continue to dominate the Fed's outlook... We have upgraded our Q3 GDP growth forecast to 3.0% q/q AR on the back of still firm consumer spending and capex. Domestic demand is strong... We now expect core PCE inflation will close 2026 at 3.0% Q4/Q4, and at 2.5% next year."
MUFG notes US Dollar resilience at 101.80 peak as softer PCE dampens aggressive hike bets
Lee Hardman at MUFG highlights that while the US Dollar Index reached its June year-to-date high of 101.80, softer inflation data and dovish central bank messaging are easing expectations for rapid monetary tightening. With 3-month annualized core PCE slowing to 2.1%, the likelihood of a back-to-back rate hike in October ahead of the US midterm elections has diminished, placing greater weight on upcoming labor market and CPI data.
"The US dollar’s upward momentum has continued even after recent Fed rhetoric and softer US inflation data should help to dampen expectations for more aggressive Fed hikes... After the downward revisions, there is clearer evidence of a slowdown in the Fed’s preferred measure of underlying inflation pressures. The three-month annualized rate of growth has fallen to just 2.1%. Looking back at the period since the US-Iran conflict began, the six-month annualized rate of growth has slowed to 2.7%... It makes it less likely that the Fed will hikes rates as aggressively as currently priced..."
The takeaway
The US Dollar's resilience near 101.80 highlights a foreign exchange market that is prioritizing robust US economic growth over decelerating short-term inflation metrics. While MUFG cautions that a slowdown in 3-month annualized core PCE to 2.1% removes the urgency for aggressive back-to-back Fed rate hikes, TD Securities projects that strong domestic demand — reflected in a 3.0% Q3 GDP forecast — and sticky 3.0% core PCE inflation by year-end will sustain Federal Reserve hawkishness and preserve the US Dollar's broader upward momentum.
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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