Forex News

• Gold meets with a fresh supply on Friday as the USD rebounds from a one-and-a-half-month trough.
• Escalating US-Iran tensions keep inflation risks and Fed rate hike bets in play, supporting the USD.
• The technical setup seems tilted in favor of bearish traders and backs the case for further losses.

Gold (XAU/USD) extends its steady intraday descent through the first half of the European session on Friday and hits a fresh daily low, around the $4,060 area in the last hour. Inflation risks stemming from volatile crude oil prices keep bets of an interest rate hike by the US Federal Reserve (Fed) firmly on the table. This, in turn, helps the US Dollar (USD) regain positive traction following the previous day's decline to its lowest level since June and is seen exerting pressure on the non-yielding yellow metal. Furthermore, repeated failures to find acceptance above the $4,100 mark suggest that the path of least resistance for the bullion remains to the downside.

The US data released on Thursday pointed to moderating economic growth and signs of cooling inflation, which tempered bets for an immediate Fed rate hike and led to the overnight slump in the USD. In fact, the first estimate published by the US Bureau of Economic Analysis (BEA) showed that the US economy expanded at an annual rate of 1.5% in the second quarter, down from 2.1% in the previous quarter and consensus estimates. Moreover, the headline US Personal Consumption Expenditures (PCE) Price Index fell 0.1% in June, marking the first monthly decline since April 2020 as the temporary truce in the Iran war sent gas prices lower.

Adding to this, the yearly rate decelerated from 4.1% to 3.7%, in line with market expectations. Meanwhile, the core gauge – the Fed's preferred measure of underlying inflation – rose by 0.1% during the reported month compared to 0.3% in May and eased from 3.4% to 3.3% on an annual basis. However, volatile crude oil prices – due to the US-Iran standoff and concerns about significant disruptions to global energy supplies – suggest that inflation remains a concern. In the latest developments, the US military announced it had completed a heavy wave of strikes against Iran, in response to Iranian missile attacks on its forces in the Middle East.

Meanwhile, Iran rejected Oman's plan for a 50-50 joint management, which would see Tehran partially control the Strait of Hormuz and collect voluntary fees for using the waterway. On the other hand, Saudi Arabia is building an international coalition to protect key shipping routes in the Bab al-Mandab Strait, the Red Sea, and the Gulf of Aden from repeated attacks by Yemen's Houthi militias. This raises the risk of a wider regional conflict, keeping the geopolitical risk premium in play and supporting crude oil prices. Investors remain worried that rising energy prices would revive inflationary pressure and force the Fed to adopt a hawkish stance.

According to the CME FedWatch Tool, traders are still pricing in over an 85% chance that the US central bank will raise borrowing costs at least once by the end of this year. The outlook, in turn, remains supportive of elevated US Treasury bond yields, which helps revive the USD demand and drives some flows away from the non-yielding Gold. Traders now look to the University of Michigan US Consumer Sentiment and Inflation Expectations Index for some impetus. Nevertheless, the XAU/USD pair remains confined within a multi-week-old range, awaiting a fresh trigger before the next leg of a directional move.

XAU/USD daily chart

Technical Analysis: Gold's bearish technical setup backs the case for deeper losses

From a technical perspective, the range-bound price action witnessed over the past month or so might still be categorized as a bearish consolidation phase against the backdrop of a breakdown below the 200-day Simple Moving Average (SMA). That said, mixed momentum indicators warrant some caution. The Moving Average Convergence Divergence (MACD) histogram has eased slightly from recent highs but stays in positive territory, and the Relative Strength Index (RSI) hovers just under the 50 line, hinting at a weak recovery within a still-dominant downside backdrop.

On the top side, the top boundary of the trading range, around the $4,175 area, could act as an immediate hurdle ahead of $4,200, which, if cleared, should pave the way for additional gains to the 200-day SMA at $4,490.81. Bulls would need to clear the said barrier to ease the prevailing bearish tone and open the way for a more sustained recovery. Meanwhile, immediate support is inferred from recent swing lows around the $3,976–$4,000 area, where buyers previously emerged.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

• The British Pound’s strong recovery against the Yen hits barricades after Tokyo CPI and BoJ’s policy announcement.
• On Thursday, Japan MoF’s intervention lifted the Japanese Yen.
• Traders trim hawkish BoE bets as remarks from the UK central bank on inflation don’t appear alarming.

The British Pound (GBP) faces roadblocks in extending the early recovery against the Japanese Yen (JPY) above 216.33 during the European trading session on Friday. The cross rebounded strongly at THE open as profit-booking hit in the Japanese Yen (JPY), following a juggernaut decline the previous day.

The pair dived almost 1.7% on Thursday after Japan's Ministry of Finance (MoF) intervened to support the domestic currency.

The cross struggles to extend the upside after a strong opening as the JPY regains ground, following the release of the stronger-than-expected Tokyo Consumer Price Index (CPI) data for July and the Bank of Japan (BoJ) maintaining a hawkish rhetoric on the interest rate outlook after leaving them unchanged at 1%.

Tokyo’s CPI ex. Fresh Food arrived higher at 1.9% Year-on-year (YoY). The CPI growth rate was faster than the 1.7% estimate and the previous reading of 1.6%.

In spite of Japan’s intervention, higher Tokyo CPI growth, and BoJ’s hawkish monetary policy stance, market experts doubt that the JPY’s strength would be long-lasting.

Analysts at Commerzbank note that “the stage was set” ahead of Japan’s latest policy decisions, as “yesterday’s intervention in the foreign exchange market by the Ministry of Finance (MoF) clearly showed that the government is concerned about the Japanese yen being too weak.” They add that “support from the US Treasury Department also indicated that the move would likely be met with a favorable response internationally.”

Against this backdrop, Commerzbank highlights that “this morning’s inflation data for the Greater Tokyo Area further show that inflation is now slowly stabilizing at 2%, and the momentum of recent months points more toward an upside risk.” Even so, the Bank of Japan “stuck to its course this morning and acted (too) cautiously.” According to the bank, “the key interest rate remained unchanged, but this was to be expected. There were also slight hints toward a more hawkish monetary policy,” with the economic outlook at least mentioning “some upside risks regarding inflation.”

“All in all, however, it’s safe to say that this is unlikely to be enough for the market to change its expectations regarding the Bank of Japan,” Commerzbank argues. In their view, “all of this is likely to be insufficient to prevent the JPY from trading weaker again in the coming days and weeks.” The recent pattern suggests that “while the Ministry of Finance (MoF) is willing to intervene in the foreign exchange market, the exchange rate that triggers such intervention appears to be shifting higher and higher toward a weaker JPY,” leaving “little reason to believe that this will change in the coming weeks.”

Meanwhile, the British currency trades broadly lower as traders trim Bank of England (BoE) interest rate expectations.

Financial markets pare hawkish BoE bets as remarks from Governor Andrew Bailey in his press conference signaled that inflationary pressures didn't appear much concerning. "Encouraging that CPI is below where we thought it would be," Bailey said.

BoE repricing gathers pace as Deutsche Bank downplays hike risks

Analysts at Deutsche Bank stress that the BoE was not, in their words, “edging towards a rate hike,” despite the split vote on the MPC. They note that markets “dialed back expectations for BoE hikes in response,” with the implied probability of a September move dropping sharply, as “pricing of a September hike [fell] from 60% to 30% and 31bps of hikes priced by year-end (-11.4bps on the day).”

• USD/CAD struggles to attract buyers, though a combination of factors helps limit the downside.
• Sliding oil prices undermine the Loonie and lend some support amid a pickup in USD demand.
• The technical setup warrants some caution for bulls or positioning for any meaningful move up.

The USD/CAD pair seesaws between tepid gains/minor losses through the early European session on Friday, consolidating its recent losses to the lowest level since June 17, touched the previous day. However, a combination of supporting factors assists spot prices in holding above the 1.4000 psychological mark.

The US Dollar (USD) regains some positive traction as inflation risks stemming from volatile energy prices keep inflation risks and the US Federal Reserve (Fed) rate hike bets in play. Furthermore, retreating crude oil prices undermine the commodity-linked Loonie and act as a tailwind for the USD/CAD pair. The lack of any meaningful buyers, however, warrants some caution before confirming that a three-day-old downtrend has run its course.

From a technical perspective, this week's breakdown below the 200-period Simple Moving Average (SMA) on the 4-hour chart was seen as a key trigger for bearish traders. Adding to this, the Moving Average Convergence Divergence (MACD) sits below zero with the line in negative territory, while the Relative Strength Index (RSI) hovers near 37. Momentum indicators hint that downside momentum remains dominant despite the proximity of initial support.

However, it will be prudent to wait for some follow-through selling and acceptance below the 1.4000 mark before positioning for deeper losses. The USD/CAD pair might then weaken to the 38.2% Fibo. retracement around 1.3979, which is followed by deeper retracement levels at 1.3897 and 1.3814, where the 50.0% and 61.8% Fibo levels could slow further losses.

On the topside, any recovery would first need to overcome resistance at the 23.6% retracement near 1.4082, with the 200-period SMA at 1.4130 capping the broader upside. Failure to clear the said hurdle will reinforce the prevailing bearish structure while the USD/CAD pair remains below it.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

USD/CAD 4-hour chart

Nomura strategists highlight that Euro area Gross Domestic Product (GDP) excluding Ireland has been growing around potential despite the Iran war. They expect Euro area Harmonised Indices of Consumer Prices (HICP) inflation to hold at 2.8% and forecast the European Central Bank (ECB) to raise the depo rate by 25bp to 2.50% in September, with future policy dependent on the conflict’s duration.

ECB tightening signalled despite war

"The ECB can take comfort in the euro area’s economic resilience. We forecast the ECB to raise rates again in September, lifting the depo rate by 25bp to 2.50%. The path for monetary policy beyond September is largely dependent on the longevity and severity of the Iran war."

"The ECB can take comfort from the fact that economic growth held up in H1 2026, with euro area excluding Ireland GDP growing by 0.3% q-o-q each quarter, despite the Iran war."

"We expect the euro area figures to be unchanged at 2.8%, the consensus and markets pencil a marginally higher euro area figure, though this is because of their expectation for Italy, which is marginally higher than our own."

"We forecast the ECB to hike rates again in September, lifting the depo rate by 25bp to 2.50%. We believe this is a done deal, owing largely to the first Iran war shock, but has since been cemented by the re-escalation since the beginning of July. ECBspeak of late has confirmed that the ECB will likely raise rates in September, even if the re-escalation resolves swifty and even without seeing second-round inflation effects."

"Beyond September, the longevity of the re-escalation is what matters and will determine the path for monetary policy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Here is what you need to know on Friday, July 31:

The Japanese Yen (JPY) loses some strength early Friday after rallying in the American session on Thursday, possibly fuelled by a foreign exchange market intervention by Japanese authorities. Later in the session, preliminary July Harmonized Index of Consumer Prices (HICP) data from the Eurozone will be feature in the economic calendar. In the second half of the day, the University of Michigan (UoM) will publish its revision to the July Consumer Sentiment Index data.

USD/JPY turned south during the American trading hours on Thursday and plunged to its lowest level since mid-May below 158.00, losing about 3% in less than an hour. The intensity of the decline pointed to a potential intervention in the currency market but there was no official confirmation. Although USD/JPY recovered a small portion of its losses toward the end of the day, it still closed with a dialy loss of nearly 2.5%. Reflecting the broad JPY strength, EUR/JPY fell 1.9% on the day and GBP/JPY lost about 1.7%.

Meanwhile, the Bank of Japan (BoJ) announced that it left its monetary policy settings unchanged following the July meeting. In its policy statement, the BoJ noted that significant downside risks to economic activity and significant upside risks to prices have decreased but acknowledged that there is still a risk of underlying Consumer Price Index (CPI) inflation deviating upward to a level above the price stability target of 2%. BoJ Governor Kazuo Ueda reiterated in the post-meeting press conference that the year-on-year rate of increase in CPI likely to accelerate to level "clearly above" 2% from second half of FY 2026. Regarding the policy outlook, Ueda said that they expect to keep raising rates and adjusting degree of easing in response to the economy, prices and financial conditions.

Yen volatility intensifies as BoJ tweaks forecasts and Dollar stumbles

Analysts at Deutsche Bank highlight that, according to the Nikkei, “Japan’s government and the BoJ had intervened in the FX market and that the US also carried out a rate check on the yen,” underscoring the authorities’ growing discomfort with recent Yen moves. They note that “while the yen spiked, the Dollar fell against all G10 currencies yesterday in what was the worst day for the Dollar index (-1.01% after -0.52% on Wednesday) since the post-Liberation Day sell off in April 2025,” marking a sharp setback for the greenback.

On the policy front, Deutsche Bank point out that the “BoJ’s board raised its median GDP growth forecasts for both the current and next fiscal years, and now expects the economy to expand by 0.6% this fiscal year,” even as the central bank simultaneously “lowered its core inflation forecast to 2.5% from 2.8%, attributing the downward revision primarily to the impact of government subsidy programs.”

The US Dollar (USD) Index extended its slide on Thursday and dropped to its lowest level since mid-June. Early Friday, the USD Index stays in positive territory above 100.00. The data from the US showed on Thursday that the Gross Domestic Product (GDP) expanded at an annual rate of 1.5%, missing the market expectation of 2.1% by a wide margin. Additionally, the core Personal Consumption Expenditures (PCE) Price Index, rose 3.3% on a yearly basis in June, compared to 3.4% in May.

The Bank of England (BoE) announced on Thursday that it maintained the bank rate at 3.75% after the July meeting, as anticipated. Three members of the Monetary Policy Committee (MPC) voted for a 25 basis points rate increase against six MPC members that preferred the policy hold. Although GBP/USD's initial reaction was muted, the pair gathered bullish momentum on broad USD weakness and rose more than 0.7% on the day.

Bailey flags tentative second-round risks, keeps GBP anchored to data

FXS Speechtracker showed BoE Governor Andrew Bailey’s tone was modestly above the historic average (6.2 vs 5.6), signalling a slightly more cautious and data-dependent stance. The emphasis on subdued UK activity, a soft labour market, weak demand limiting pass-through, and spare capacity curbing wage gains leans dovish, but the warning that persistent Mideast conflict plus second-round effects could still require rate hikes injects a conditional hawkish bias.

By stressing that the assessment of second-round effects is tentative, that indirect inflation effects could add 0.5 percentage points in H2-2026, and that household expectations remain elevated, Bailey keeps GBP sensitive to upside inflation surprises. The remark that the UK rate curve is in a “reasonable position” and consistent with the BoE’s reading, while risk premia dominate current pricing and the central scenario carries unusually low probability, supports a balanced, wait-and-see stance that limits immediate repricing but leaves GBP vulnerable to renewed rate-hike speculation if geopolitical shocks intensify.

EUR/USD registered strong gains for the second consecutive day on Thursday before entering a consolidation phase above 1.1500 in the European session on Friday.

Gold (XAU/USD) extended its rebound on Thursday and closed the day slightly above $4,100, rising about 1% on the day. Early Friday, XAU/USD remains under pressure and trades below $4,070.

Oil volatility contained as US and Iran avoid wider escalation

Analysts at Deutsche Bank observe that, against the broader geopolitical backdrop, “the continued volatility in oil markets was modest by comparison.” They note that “shipping through the strait has been disrupted but it hasn’t completely stopped,” adding that the US and Iran “currently look to be avoiding a move from low-level escalation to all-out war,” which has helped limit the scale of the market reaction.

At the time of press, the barrel of West Texas Intermediate was trading slightly below $81, losing about 2.3% on the day.

MUFG’s Derek Halpenny and Abdul-Ahad Lockhart note that the Japanese Yen surged as USD/JPY dropped from 163.00 to 158.00, in a move they attribute to probable Ministry of Finance intervention during New York trading. They highlight BoJ’s unchanged 1.00% policy rate, modestly more hawkish inflation outlook, and limited guidance for faster tightening, suggesting USD/JPY buyers may soon return despite intervention risks.

Yen gains, BoJ steady, MoF active

"The yen surged yesterday with USD/JPY dropping around 5 big figures from 163.00 to 158.00 before then rebounding. The initial move didn’t catch the eye on a day when the US dollar was weakening more generally but it quickly became clear that this was likely action from the MoF."

"The decision to keep the key policy rate unchanged at 1.00% was no surprise and the 8-1 vote too was not surprising given Hajime Takata is a known hawk. The BoJ also released its updated Outlook for Economic Activity and Prices and there were some hawkish elements to the release."

"The summary page made reference to upside inflation risks as before but we certainly see evidence in the wording of the report that foreign exchange developments are a larger part of the contribution to the upside risks. In addition to FX, AI demand is also cited with the need to “pay attention”. The forecast for core nationwide CPI for FY2026 was lowered from 2.8% to 2.5% but the FY2027 forecast was actually higher at 2.4% (2.3% prev) underlining the building inflationary pressures."

"The MoF intervention yesterday had triggered speculation of a much more hawkish communication that would reinforce yesterday’s yen buying. While today’s BoJ communication indicates further monetary tightening, it doesn’t necessarily signal a plan to up the pace of tightening from the current every 6mths pace."

"The MoF often acts on a second occasion when intervening and hence there will likely be some reluctance in the market to buy USD/JPY now but there is a risk that buyers will soon return given the lack of conviction from the BoJ on the potential necessity for upping the pace of monetary tightening."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)