Forex News

ING strategists Francesco Pesole and Frantisek Taborsky note that rising back-end yields and risk-off sentiment are helping consolidate recent Dollar gains, even if they look stretched versus short-term fundamentals. They highlight resilient Oil prices, scepticism over US-Iran talks, and increased Federal Reserve hike pricing, suggesting the USD rally may persist with Brent potentially reaching $110/bbl before month-end.

Dollar rally tied to bonds and oil

"The global bond sell-off continues to leave its mark on FX. The dollar is benefiting from the knock-on effect on global risk sentiment, allowing a consolidation of recent gains even as they start to look stretched relative to short-term fundamentals. Oil prices remain bid after the UN summit failed to generate tangible optimism about a resolution in the Gulf."

"Reports that the US and Iran are discussing a phased deal to reopen the Strait of Hormuz prompted a correction in oil, but losses were fully recouped within a couple of hours, underlining growing scepticism about any imminent de-escalation. It is a dynamic that argues against any material rebound in bonds for now."

"By extension, we remain cautious about calling the end of this USD rally. We may see $110/bbl for Brent before the end of the month, with the dollar finding fresh support from the energy story, especially in an environment where the Fed's hawkish remarks are allowing markets to price in more rate hikes. A testament to that is the 2-year SOFR, which is up almost 20bp over the past 48 hours."

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

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that political comments from US and Japanese leaders helped push USD/JPY back below its 200-day moving average. Haddad sees wide US-Japan yield differentials and the Bank of Japan’s cautious tightening as supportive for USD/JPY, but warns that intervention risk and Japan’s policy mix are headwinds. BBH expects the pair to trade in a 155.00–160.00 range near term.

Yield gap vs intervention risk

"USD/JPY dropped back below its 200-day moving average (158.47) on political jawboning. Japan’s Finance Minister Satsuki Katayama said US President Donald Trump raised concerns about yen weakness and Japanese Prime Minister Sanae Takaichi called the undervalued yen an issue."

"Wide US-Japan yield gap (Fed funds rate at 3.75%-4.00% vs. BoJ at 1.25%) and the BoJ’s cautious tightening cycle keep USD/JPY supported."

"But ongoing risk of official intervention to strengthen JPY and Japan’s favorable currency mix of loose fiscal/tight monetary policy are key headwinds for USD/JPY."

"Bottom line, we expect USD/JPY to trade within a 155.00-160.00 range in the near term."

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

UOB’s Quek Ser Leang and Lee Sue Ann observe that AUD/USD extended its recent slide to 0.7006, with positive divergence hinting at slowing momentum but not yet a clear base. They maintain a negative short-term stance, seeing scope for a test of 0.6970, while intraday moves are expected to stay within 0.6995–0.7035 unless resistance at 0.7075 breaks.

Australian Dollar still under pressure

"24-HOUR VIEW: After staging a sharp decline two days ago, AUD extended its decline yesterday with a low of 0.7006. While the weakness has not quite stabilised, positive divergence is forming, pointing to slowing downward momentum. In other words, AUD is unlikely to weaken much further. Today, AUD is more likely to edge lower within a 0.6995/0.7035 range."

"1-3 WEEKS VIEW: We turned negative on AUD two weeks ago. In our most recent narrative from Tuesday (22 Sep, spot at 0.7120), we highlighted that while “we will maintain our negative stance for now, the likelihood of AUD reaching 0.7050 has diminished considerably.” AUD subsequently plunged below 0.7050 and reached a low of 0.7006 yesterday. While the decline over the past two weeks has been substantial, there is scope for AUD to edge lower and test 0.6970 before stabilisation is likely. On the upside, a breach of 0.7075 would indicate that the weakness is stabilising."

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

Commerzbank’s Michael Pfister and Norman Liebke describe how Swedish government tax and fuel measures have temporarily suppressed inflation, keeping the Riksbank on hold at 1.75% with hikes only expected late in the year. As fuel subsidies expire and counterfactual inflation already hovers near 2%, they see good reasons for a year‑end rate increase, while questioning market pricing of roughly 120bp hikes over 12 months.

Temporary measures mask price risks

"Unlike Norges Bank, the Riksbank did not issue any hawkish statements yesterday. The key interest rate was left unchanged at 1.75%, with the first rate hike not expected until the end of the year. "

"The measures adopted by the Swedish government since the start of the conflict in Ukraine are also playing a role here: i) Since April, the value-added tax on food has been temporarily reduced from 12% to 6%. According to consumer price data, businesses have passed this reduction on almost one-to-one. ii) Starting in May, gasoline and diesel prices at gas stations were reduced by 1 and 0.4 kronor per litre, respectively. iii) A further reduction in gas station prices of 3 kronor per litre was implemented in July. It is therefore unsurprising that Sweden is experiencing extremely low inflation, with the rate falling further at times since the start of the war."

"The Riksbank expects prices to start rising again in spring, which is why it will keep an eye on counterfactual inflation despite current low inflation. With inflation currently at around 2% without the temporary measures, there are good reasons to raise the key interest rate at the end of the year in order to counter impending price risks."

"The only question is whether the market's expectation of rate hikes totalling nearly 120 basis points over the next 12 months is realistic. However, this will likely only become clear over time, and in any case, the krona is showing a complicated reaction to rate hikes that have been priced in more heavily"

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

• EUR/GBP heads for a weekly gain as the Bank of England’s cautious stance weighs on the British Pound.
• The cross holds a bullish technical setup as RSI and MACD point to positive momentum.
• A sustained move above 0.8600 could confirm a bullish breakout and shift focus toward the 200-day SMA at 0.8639.

EUR/GBP trades flat around 0.8600 on Friday and is heading for a weekly gain as the Bank of England’s (BoE) wait-and-see stance weighs on the British Pound (GBP). The BoE has remained on hold so far this year, leaving its benchmark rate unchanged at 3.75% at last week’s meeting. This has left the BoE lagging behind the Federal Reserve and European Central Bank (ECB) in raising interest rates.

BoE Governor Andrew Bailey reiterated on Friday that “there has been a tightening of financial conditions.” He added that the UK is seeing “quite subdued pass-through of energy prices.” However, Bailey warned that “the longer we go on with high energy prices, the harder it gets to maintain no hike in the Bank Rate stance.”

Strategists at Brown Brothers Harriman highlight a growing disconnect between market pricing and their assessment of the UK policy outlook. They note that “the swaps curve continues to imply about 100bps of BoE rate hikes in the next twelve months to 4.75%,” but argue that “the BoE may not need to tighten as much as markets expect.” In their view, “the UK economy is already operating below capacity, the Bank Rate at 3.75% is near the top of the BoE’s estimated 2% to 4% neutral range, and fiscal policy will likely turn more restrictive,” all of which point to a lower-for-longer policy path than current market assumptions.

The ECB has already raised interest rates twice this year, while markets are pricing in additional tightening. Against this backdrop, the outlook for EUR/GBP remains tilted to the upside, with technical indicators also pointing to a bullish bias.

On the daily chart, EUR/GBP is testing the key 0.8600 zone after consolidating several weeks below it following a rebound from below 0.8500 in mid-July.

The 0.8600 level previously acted as multi-month support and has now turned into resistance. A decisive close above would strengthen the bullish outlook and expose the 200-day Simple Moving Average (SMA) at 0.8639, followed by the 0.8700 barrier.

An RSI (14) reading near 60 suggests positive but not overextended momentum, and the Moving Average Convergence Divergence (MACD) indicator remains slightly positive, hinting that dips could attract buying interest as long as price stays above the short- and medium-term averages.

On the downside, initial support is seen at the 100-day SMA at 0.8592, followed by the 50-day SMA at 0.8566. A break below this area could expose deeper support at 0.8530 and 0.8450.

Societe Generale notes Central and Eastern European (CEE) currencies, including the Hungarian Forint (HUF), are set to weaken about 3% against the Euro (EUR) this week as EUR/USD falls below 1.14. The central bank of Hungary Magyar Nemzeti Bank (MNB) kept rates at 5.50% and cut its inflation target to 2.5% from 2028, aligned with Hungary’s Euro adoption goal in 2030. This hawkish signal briefly pushed EUR/HUF to its 100-day moving average and lifted 10-year HUFGB yields.

MNB stance and HUF reaction

"CEE3 currencies are on course to weaken around 3% against the EUR this week, tracking the drop in EUR/USD below 1.14."

"The MNB kept rates on hold at 5.50% and lowered the inflation target from 3% to 2.5% (starting in 2028), consistent with the country’s euro-adoption target in 2030. The hawkish signal briefly squeezed EUR/HUF to the 100dma at 359.76 and lifted 10y HUFGB yields by 11bp to 5.87%."

"EUR/PLN briefly topped 4.40 for the first time in two years after Moody’s downgraded Poland to A3 with a negative outlook, citing fiscal deterioration, large deficits and rising debt. Poland also reported a 42-second Russian helicopter airspace violation, days after PM Tusk warned that Russia was planning strikes against NATO allies."

"The 10y CZKGB yield approaches 4-year highs of 5.40% after the cabinet approved the CZK386bn budget deficit for 2027, the second largest on record. The government reintroduced fuel price regulation plus a temporary diesel excise tax cut for October."

"EUR/RON rose above 5.27 and the 10y RONGB yield exceeded 7.45% as pressure intensifiers of a ratings downgrade to junk amid political deadlock. S&P will review the rating in late October or early November but an unscheduled announcement is not ruled out. PM-designate Muresan seeks a confidence vote next Tuesday and is trying to win Social Democrat support, leaving scope for concessions."

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