Forex News
The US Dollar trades slightly lower on Wednesday as markets remain cautious amid escalating tensions surrounding Iran and the Strait of Hormuz. The US Dollar Index (DXY) slips toward 101.10, helping the Euro recover modestly, while most other major currency pairs remain relatively stable.
Risk sentiment remains fragile after US President Donald Trump warned that Washington could strike Iranian infrastructure if Iran attacks another ship in the Strait of Hormuz. Concerns about a wider conflict and possible disruptions to global energy supplies are supporting oil and precious metals.
DXY falls slightly toward 101.13 as investors prepare for Thursday’s US Initial Jobless Claims. Claims are expected to rise to 212K from 208K, although the figures would still suggest that layoffs remain limited.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | -0.01% | -0.02% | -0.18% | 0.02% | 0.13% | 0.19% | |
| EUR | 0.12% | 0.12% | 0.11% | -0.06% | 0.14% | 0.27% | 0.32% | |
| GBP | 0.00% | -0.12% | -0.02% | -0.17% | 0.00% | 0.14% | 0.20% | |
| JPY | 0.02% | -0.11% | 0.02% | -0.16% | 0.05% | 0.17% | 0.22% | |
| CAD | 0.18% | 0.06% | 0.17% | 0.16% | 0.21% | 0.38% | 0.38% | |
| AUD | -0.02% | -0.14% | -0.00% | -0.05% | -0.21% | 0.13% | 0.17% | |
| NZD | -0.13% | -0.27% | -0.14% | -0.17% | -0.38% | -0.13% | 0.04% | |
| CHF | -0.19% | -0.32% | -0.20% | -0.22% | -0.38% | -0.17% | -0.04% |
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).
EUR/USD advances toward the 1.1410 area as the Greenback loses modest ground. Investors remain cautious ahead of the European Central Bank’s monetary policy decision. The ECB is expected to leave the Main Refinancing Operations Rate at 2.40% and the Deposit Facility Rate at 2.25%. President Christine Lagarde’s press conference will be closely watched for signals about future policy changes.
GBP/USD trades marginally lower near 1.3380 despite the softer US Dollar. The pair lacks a strong domestic catalyst ahead of the UK GfK Consumer Confidence report, which is expected to improve to -21 in July from -23.
USD/JPY remains virtually unchanged near 163.15, holding close to multi-decade highs. Rising oil prices continue to represent a challenge for Japan, a major energy importer, while geopolitical uncertainty supports demand for the US Dollar. Japan’s upcoming inflation report could influence expectations surrounding further Bank of Japan policy tightening.
AUD/USD edges lower toward 0.6995 as traders avoid taking large positions ahead of Australia’s June labor-market report. Employment is expected to increase by 15K after rising by 40.3K in May. The Unemployment Rate and Participation Rate are forecast to remain unchanged at 4.4% and 66.7%, respectively.
USD/CAD declines toward 1.4090 as the Canadian Dollar benefits from higher oil prices. Canadian Retail Sales are expected to rise 1.0% MoM in May, accelerating from 0.5%, while sales excluding automobiles are forecast to increase 1.4% after a 0.1% gain.
West Texas Intermediate (WTI) Oil rallies above $86.40 per barrel, gaining more than 2% as concerns about the security of energy shipments through the Strait of Hormuz intensify.
Gold climbs toward $4,135, advancing more than 1% as geopolitical uncertainty increases demand for traditional safe-haven assets.
Thursday’s preview
Australia’s employment report will begin a busy session, followed by the ECB interest-rate decision and Lagarde’s press conference. Markets will also monitor Canadian Retail Sales, US Initial Jobless Claims and Eurozone Consumer Confidence.
Later in the session, Australia’s preliminary July PMIs, UK Consumer Confidence and Japan’s June CPI report will be released. Japanese core inflation excluding fresh food is expected to accelerate to 1.6% YoY from 1.4%.
BNY’s Geoff Yu highlights that the Philippine central bank has intervened as higher Oil prices pressure Asian importers. Reported US Dollar (USD) sales followed the Peso’s drop to a record low near 61.75, with reserves already down more than 5% this year. iFlow data show Philippine Peso (PHP) holdings close to year-to-date lows, underscoring rising vulnerability and the need for vigilant policy.
Oil shock drives FX defense
"The Philippine and Indian central banks have both intervened to support their currencies as surging oil prices put renewed pressure on Asian oil importers. In the Philippines, the central bank reportedly sold dollars after the peso fell to a record low of 61.75 to the dollar, with higher oil prices threatening to widen the current account deficit and add to inflation pressure."
"Our flow data confirm that pressure is building. Sales have already pushed PHP holdings close to their lowest level YTD. The currency does not have the carry anchor seen elsewhere, which may require much greater BSP vigilance on interest rates, despite the obvious dampening impact on growth."
"Asia’s oil-importing currencies are already absorbing the shock. Japan remains at the verbal intervention stage, while the Philippines and India have moved into reported dollar selling to lean against FX weakness. This is not intervention from strength, but an attempt to slow the passthrough from higher oil into currencies, inflation and confidence."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann note USD/SGD is trading just above 1.29 after a quiet session, with momentum only tentatively firmer. They expect intraday consolidation between 1.2900 and 1.2930, while the broader 1–3 week view still flags a risk of a break below 1.2860, though odds are low as long as resistance at 1.2930 caps the pair.
USD/SGD stuck in tight band
"24-HOUR VIEW: Following Monday’s price action, we highlighted yesterday that “momentum indicators remain mostly flat,” and we expected USD to “trade in a range between 1.2895 and 1.2925.” Our view was not wrong, as USD traded within a range of 1.2893/1.2925. USD closed little changed at 1.2923 (+0.08%). There has been a tentative increase in upward momentum, but it is insufficient to indicate a continued rise. Today, USD is more likely to trade within a higher range of 1.2900/1.2930."
"1-3 WEEKS VIEW: Last Thursday (16 Jul, spot at 1.2885), we indicated that “downward momentum is starting to build, and should USD close below 1.2860, it could trigger a deeper decline.” Yesterday (21 Jul, spot at 1.2910), we highlighted the following: “USD traded in a quiet manner over the past few days, and downward momentum is starting to ease. However, as long as 1.2930 (‘strong resistance’ level) is not breached, the risk of USD breaking and closing below 1.2860 remains, though the odds are not high.” We continue to hold the same view."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- GBP/JPY breaks support trendline, signaling downside risk below 218.00.
- RSI slopes toward 50, showing bullish momentum is fading.
- Break below 217.53 exposes 216.60 and 215.09 SMA.
GBP/JPY holds firm on Wednesday, with the cross-pair trading above the 218.00 figure, as sellers seem to have the upper hand, after a break of a key support trendline, which could open the door for further losses. At the time of writing, the cross trades at 218.16, down 0.05%.
GBP/JPY Price Forecast: Technical outlook
After reaching a yearly high of 219.61, GBP/JPY retreated 150 pips to the current exchange rate, opening the door for further downside.
The Relative Strength Index (RSI) remains bullish, but it is aiming lower, approaching the 50-neutral level, which could open the door to further downside. However, the market structure suggests that the downtrend stays intact.
For a bearish reversal, if GBP/JPY drops below the July 21 daily low of 217.53. A breach of the latter will expose the April 30 high of 216.60, followed by the 216.00 mark. Below, the next support would be the 50-day Simple Moving Average (SMA) at 215.09, followed by the 100-day SMA at 214.12.
Conversely, if GBP/JPY reaches 219.00, this opens the door to challenge the year-to-date (YTD) high at 219.61, followed by the 220.00 psychological level.
GBP/JPY Price Chart – Daily
Japanese Yen Price This week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.15% | 0.61% | 0.51% | 0.51% | -0.41% | 0.32% | 0.76% | |
| EUR | -0.15% | 0.46% | 0.28% | 0.37% | -0.56% | 0.17% | 0.61% | |
| GBP | -0.61% | -0.46% | -0.17% | -0.11% | -1.01% | -0.29% | 0.19% | |
| JPY | -0.51% | -0.28% | 0.17% | 0.09% | -0.86% | -0.20% | 0.37% | |
| CAD | -0.51% | -0.37% | 0.11% | -0.09% | -0.87% | -0.31% | 0.30% | |
| AUD | 0.41% | 0.56% | 1.01% | 0.86% | 0.87% | 0.73% | 1.21% | |
| NZD | -0.32% | -0.17% | 0.29% | 0.20% | 0.31% | -0.73% | 0.48% | |
| CHF | -0.76% | -0.61% | -0.19% | -0.37% | -0.30% | -1.21% | -0.48% |
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 Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Commerzbank’s FX research notes USD/CNY trading around 6.77, slightly lower on the day. The combination of weaker Chinese growth and expectations of further policy easing is seen generating a modest depreciation bias for the Yuan, though authorities are expected to cap volatility via the daily fixing mechanism.
Policy easing weighs but fixing caps swings
"China's State Council committed to meeting the full-year growth target after Q2 GDP came in at 4.3% yoy, missing the official 4.5%-5.0% target range. Premier Li Qiang chaired the State Council executive meeting, with the readout calling for fiscal funds to be deployed with maximum efficiency and for policy implementation to be accelerated through the remainder of the year."
"The State Council meeting is widely read as a preparatory signal ahead of the July Politburo meeting, expected to be held in the final week of July. It is set to define the macroeconomic policy stance for H2."
"The Politburo is expected to signal an easing rhetoric and accelerate implementation of already-planned demand-side measures, while maintaining the strategic focus on high-tech sectors and key supply chains. With local governments nearing completion of their debt-swapping programme at around 94% of the CNY6trn allowance, local governments are expected to deploy more growth-supporting investment in H2."
"In FX, USD/CNY was slightly lower by 10 pips to 6.77 and offshore USD/CNH was little changed at 6.77 yesterday. The combination of a growth shortfall and prospects of further policy easing is leading to a slight depreciation bias for CNY. However, PBoC is expected to limit excessive CNY volatility through its daily fixing mechanism."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/CHF extends higher as buyers reclaim 0.8100 resistance.
- RSI confirms bullish momentum, supporting higher-high continuation structure.
- Break above 0.8149 exposes 0.8172 and 0.8200 resistance.
USD/CHF registers solid gains on Wednesday, with buyers reclaiming the 0.8100 figure amid a trading session in which the Greenback loses ground against most G8 FX currencies but posts gains versus the safe-haven status of the Swiss Franc. The pair trades at 0.8146, up more than 0.20%.
USD/CHF price forecast: Technical outlook
The market structure remains bullish, with USD/CHF forming a series of higher highs and higher lows. Also, the Relative Strength Index (RSI) is bullish, indicating that buyers are gaining momentum and opening the door to further upside. Hence, the path of least resistance is upwards.
The first ceiling level for USD/CHF to clear is the July 13 high at 0.8149. Once surpassed, the next stop would be the August 1, 2025, high at 0.8172, followed by 0.8200. On further strength, the next area of interest will be the June 19, 2025, peak at 0.8215, ahead of the June 4, 2025, daily peak at 0.8250. Once those levels are taken out, the next stop is 0.8300.
On the flip side, to turn bearish, the USD/CHF needs to clear the latest cycle low seen at 0.8061, the July 17 low of the day (LOD), followed by the July 10 swing low of 0.8030. Below lies the 0.8000 mark.
USD/CHF daily price chart
Swiss Franc Price This week
The table below shows the percentage change of Swiss Franc (CHF) against listed major currencies this week. Swiss Franc was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.14% | 0.59% | 0.49% | 0.50% | -0.42% | 0.30% | 0.75% | |
| EUR | -0.14% | 0.46% | 0.28% | 0.37% | -0.55% | 0.15% | 0.60% | |
| GBP | -0.59% | -0.46% | -0.17% | -0.11% | -1.00% | -0.30% | 0.19% | |
| JPY | -0.49% | -0.28% | 0.17% | 0.10% | -0.85% | -0.21% | 0.36% | |
| CAD | -0.50% | -0.37% | 0.11% | -0.10% | -0.87% | -0.32% | 0.29% | |
| AUD | 0.42% | 0.55% | 1.00% | 0.85% | 0.87% | 0.71% | 1.20% | |
| NZD | -0.30% | -0.15% | 0.30% | 0.21% | 0.32% | -0.71% | 0.49% | |
| CHF | -0.75% | -0.60% | -0.19% | -0.36% | -0.29% | -1.20% | -0.49% |
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 Swiss Franc from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CHF (base)/USD (quote).
- EUR/JPY trades slightly higher near 186.20 as the Yen remains weak and investors await the ECB policy decision.
- The ECB is expected to keep its refinancing rate at 2.40% and deposit rate at 2.25%, with Lagarde’s press conference key for the Euro outlook.
- Japan’s core CPI is forecast to rise to 1.6% YoY from 1.4%, with stronger inflation potentially supporting BoJ tightening expectations and the Yen.
EUR/JPY trades marginally higher near the 186.20 area on Wednesday as the Japanese Yen (JPY) remains under pressure near multi-decade lows. The Euro (EUR) is relatively stable as investors avoid taking large positions ahead of the European Central Bank’s (ECB) monetary policy announcement.
The ECB is expected to leave the Main Refinancing Operations Rate unchanged at 2.40% and the Deposit Facility Rate at 2.25%. The central bank raised its three key rates by 25 basis points in June, making President Christine Lagarde’s press conference particularly important for signals about further policy tightening.
Eurozone Consumer Confidence will also be monitored and is expected to improve to -16.8 in July from -17.7. A stronger reading and a hawkish ECB message could support the Euro, while concerns about economic growth may limit gains.
In Japan, attention will turn to the June Consumer Price Index report, scheduled for Friday. Core CPI Excluding Fresh Food is expected to accelerate to 1.6% YoY from 1.4%. Headline inflation previously stood at 1.5%, while CPI Excluding Food and Energy was recorded at 1.8%.
Stronger-than-expected Japanese inflation could reinforce expectations of additional Bank of Japan tightening and support the Yen. However, a softer report combined with a hawkish ECB stance could keep EUR/JPY elevated.
Short-term technical analysis:
On the 4-hour chart, EUR/JPY trades at 186.17 with a bullish near-term bias, as the pair holds above both the 20-period Simple Moving Average (SMA) at 185.83 and the 100-period SMA at 185.32. A tight cluster of nearby horizontal levels between 185.91 and 186.07 reinforces this underlying demand zone just beneath spot, while the Relative Strength Index (RSI) at 63 shows firm but not extreme positive momentum, suggesting the risk remains skewed toward further gains while these supports are defended.
On the topside, immediate resistance is located at the horizontal barrier at 186.19, where a clear break would open the way for a continuation of the uptrend. On the downside, initial support is seen at the 186.07–186.04 band, followed by the prior reaction floor at 185.91 and the 20-period SMA at 185.83; a deeper pullback would expose the 100-period SMA at 185.32 and then the lower structural supports at 184.06, 183.82 and 183.67.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
- Gold cracks key trendline and hits two-week high.
- Dollar weakness supports XAU/USD despite rising Treasury yields.
- Jobless claims, PMIs, Fed decision to shape Gold’s next move.
Gold price (XAU/USD) surges over 1.50% on Wednesday, cracks a key resistance trendline and hits a new two-week high as the Greenback weakens. This Bullion price action comes despite rising tensions and hostilities between the US and Iran. The XAU/USD trades at $4,146 after bouncing off a low of the day (LOD) of $4,076.
XAU/USD jumps as buyers overpower yield and Oil risks
Sentiment remains neutral, though the yellow metal gets a tailwind from the fall of the US Dollar Index (DXY). The DXY, which tracks the performance of the American currency against six other currencies, is down 0.07% to 101.12.
It's worth noting that tensions in the ongoing Gulf war remain high after US President Donald Trump warned Iran that if they attack more ships, the US would retaliate by attacking bridges or power plants, including those located near the country’s capital.
As the news broke, West Texas Intermediate (WTI), the US crude benchmark, rose over 6% to $86.80 per barrel. Surprisingly, the positive correlation between Crude prices and the US Dollar appears to be breaking, as the latter is registering losses.
The US 10-year Treasury yield is up nearly three basis points to 4.654%. Meanwhile, money markets had priced in a 65% chance that the Fed will keep rates unchanged at the July 29 meeting, down from 78% a day earlier, according to Prime Terminal data.
Bullion buyers bought the dip, sending XAU’s price past $4,100, opening the door for further upside. However, a larger-scale war against Iran could prompt investors to book profits as high energy prices increase the Dollar’s safe-haven appeal.
The US Secretary of State, Marco Rubio, said that the US is willing to negotiate an end to the conflict but added that Tehran is not serious about talks.
In the US, the economic docket is absent, yet traders are waiting for the release of Initial Jobless Claims for the week ending July 18. Alongside this, traders are also bracing for S&P Flash PMIs and the Federal Reserve’s (Fed) monetary policy decision next week.
XAU/USD technical outlook: Gold price reclaims $4,100, eyes on 50-day SMA
Gold stages a recovery, breaking a downtrend resistance line and clearing the path to test the $4,200 mark. Momentum as measured in the Relative Strength Index (RSI) turned bullish. Hence, XAU/USD might test the 50-day Simple Moving Average (SMA) at $4,253 in the near term. Once those levels are cleared, the next resistance is the key psychological levels of $4,300 and $4,400. Once breached, the next stop is the 200-day SMA at $4,496.
For a bearish reversal, Gold must drop below $4,100. Below this area sits the July 21 daily low of $3,999, ahead of the October 28, 2025, low of $3,886.
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.
- Silver struggles to hold above $60 after reaching a two-week high of $60.94.
- A positive MACD points to mild bullish momentum, while the ADX near 39 signals a strong underlying trend.
- The upper Bollinger Band at $62.39 caps the upside, with the 20-day SMA at $58.86 offering support.
Silver (XAG/USD) trades with modest gains on Wednesday, supported by a slight pullback in the US Dollar (USD). However, the metal lacks strong upside momentum as traders weigh energy-driven inflation risks and their impact on the Federal Reserve’s (Fed) interest-rate outlook.
At the time of writing, XAG/USD trades around $59.90 after hitting a two-week high of $60.94 earlier in the day.
Traders expect the Fed to keep monetary policy restrictive for longer, while pricing in at least one interest-rate hike this year. Higher borrowing costs typically weigh on non-yielding assets such as Silver.
From a technical perspective, Silver bulls are struggling to hold above the psychological $60.00 mark. Still, XAG/USD trades above the 20-day Simple Moving Average (SMA), the Bollinger middle band, near $58.86, suggesting that buyers retain some control.
Moving Average Convergence Divergence (MACD) is modestly positive, suggesting a slight bullish tilt in short-term pressure, but Average Directional Index (ADX) at 39 indicates the underlying trend remains fairly strong, limiting the scope for abrupt reversals.
On the upside, initial resistance is seen at the intraday high of $60.94, followed by the upper Bollinger Band near $62.39. A sustained break above this area could open the door toward the $70.00 barrier.
On the downside, the 20-day SMA near $58.86 offers immediate support, followed by the lower Bollinger Band at $55.34. A deeper decline could expose the psychological $50 level.
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
- EUR/GBP edges higher as softer headline inflation and weak labour-market data weigh on the British Pound.
- UK fiscal concerns add pressure on Sterling as investors assess Prime Minister Andy Burnham’s spending plans.
- The ECB is expected to hold rates on Thursday, with markets pricing another hike in September.
EUR/GBP edges higher on Wednesday as a mixed UK inflation report weighs modestly on the British Pound (GBP). At the time of writing, the cross trades around 0.8533, extending its recovery after falling to its lowest level in more than a year earlier this month.
The Consumer Price Index (CPI) rose 0.1% in June, matching expectations but slowing from May’s 0.2% increase. Annual inflation eased to 2.6% from 2.8%, below the 2.7% forecast. However, core inflation held at 2.6%, above expectations of 2.5%.
The data follows Tuesday’s UK labour report, which pointed to cooling wage pressures and weak hiring. Taken together, the data make a near-term Bank of England (BoE) rate hike less likely. However, inflation risks remain elevated as renewed US-Iran fighting disrupts Oil flows through the Strait of Hormuz and pushes energy prices higher.
According to BBH, “The swaps curve prices in a full 25bps BoE rate hike to 4.00% in November and a total of 75 bps of tightening in the next twelve months.” However, analysts cautioned that “restrictive monetary policy when the UK economy is operating well below potential raises the likelihood of a downward adjustment to BoE rate expectations against GBP.”
Meanwhile, concerns over the UK’s fiscal outlook also weigh on the Pound as investors assess how new Prime Minister Andy Burnham will fund his spending plans.
Across the Channel, the European Central Bank’s (ECB) monetary policy decision on Thursday is the main risk event for the Euro (EUR). The central bank is widely expected to leave the Deposit Facility Rate unchanged at 2.25% after raising it by 25 basis points in June. Markets expect another ECB rate hike in September as higher Energy prices keep inflation risks in focus.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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