Forex News
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.)
Chang Wei Liang at DBS Group Research highlights Korea’s strong September export performance, driven by an AI-led semiconductor boom and a record monthly trade surplus. While this backdrop should support the Korean Won (KRW), he cautions that KRW may not repeat its third-quarter gains as valuation has turned neutral and portfolio outflows could rise as hedging activity fades.
Semiconductor surge but gains may slow
"Korea’s Sep exports beat expectations again, rising by 83.5% y/y (exp: 62.5%, Aug: 68.7%)."
"The AI-led semiconductor boom exhibits no slowing in momentum, with semiconductor exports surging 263% y/y, up from an already massive 209% gain in Aug."
"The trade surplus also jumped to USD50bn in Sep from USD35bn in Aug, marking another record high monthly trade surplus."
"While we think the solid export performance should support the KRW, we don’t necessarily see the KRW repeating its Q3 gains as the KRW DEER valuation has turned neutral, and portfolio outflows are likely to pick up as hedging activity fades."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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