Forex News

TD Securities’ Ryan McKay and Bart Melek say Gold and broader precious metals have held firm despite higher near-term Fed hike probabilities. They stress that upcoming US inflation data will be pivotal for Fed pricing and discretionary flows, while structural supports such as Dollar-debasement themes, central bank buying and ETF demand suggest any hawkish shock may delay rather than derail the next leg higher.

Fed pricing hinges on inflation print

"Precious metals wait on inflation data."

"Precious metals have been able to maintain strength, even as the market grapples with the near-term increase in Fed hike probabilities."

"A stronger jobs report initially weighed on gold, but less hawkish Fedspeak and currency interventions then cooled the narrative, highlighting the market has an elevated sensitivity to incoming data and headlines."

"Inflation data is the next big catalyst, and an upside surprise would embolden Fed pricing and weigh on the yellow metal, while less worrisome inflation could ultimately be the first catalyst to see the next wave of discretionary positioning start to enter the market."

"With the precious metal landscape still broadly supported by the renewed dollar-debasement theme, elevated central bank buying and renewed ETF accumulation, a hawkish Fed may only postpone the timing of the next leg higher rather than catalyze material downside."

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

Scotiabank strategists Shaun Osborne and Eric Theoret report EUR/USD is flat in North American trade after touching a one-week high, with fundamentals supported by firmer European Central Bank (ECB) rate expectations on higher Oil prices. Markets fully price a 25 bp hike this Thursday and another in December. They anticipate a hawkish hike and see limited resistance until the 1.1680/1.1700 area, with support below 1.1580.

ECB pricing underpins tentative Euro recovery

"The EUR is entering Wednesday’s NA session unchanged vs. the USD following an overnight push to a fresh one week high. Fundamentals remain supportive as ECB rate expectations firm in response to the latest rally in oil prices, reflecting the ECB’s greater sensitivity to energy price risks in the current environment."

"A 25bpt rate hike is fully expected at Thursday’s meeting, and another 25bpts has been priced in for December. We anticipate a hawkish hike tomorrow, as President Lagarde unveils the latest forecast and signals ongoing concern about upside risk."

"In terms of data, releases have been limited to second-tier French industrial production data delivering an unexpected contraction in July. There are no major top-tier releases scheduled ahead of next week’s ZEW sentiment figures."

"Neutral/bullish – the latest recovery in the EUR is tentative and negligible, but there nonetheless as spot tests marginal one week highs in the mid-1.16s. The RSI is in the upper 50 area and climbing, leaning toward further near term gains."

"The 200 day MA (1.1634) looks to have provided modest closing resistance over the past week or so, however we note the absence of any meaningful resistance ahead of the 1.1680/1.1700 area. Near-term support is expected below 1.1580."

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DBS Group Research economist Ma Tieying expects the Bank of Japan (BoJ) to raise rates by 25bps at its September 17–18 meeting, describing a hike as almost certain given solid Gross Domestic Product (GDP), wage and inflation data. She argues a 50bps move or back‑to‑back hikes are unlikely, warning that outsized surprises could trigger renewed Japanese Yen (JPY) carry-trade unwinding and market volatility.

DBS sees cautious but hawkish BoJ path

"It is almost a done deal that the Bank of Japan will hike rates at the upcoming meeting on Sep 17-18."

“Recent data strongly support the case for a rate hike. Final 2Q GDP confirmed that the economy continued to grow at an on-trend pace of 1.4% QoQ saar, or 0.9% YoY, in 2Q. July wage data also surprised on the upside, with total wages and base wages rising 4.7% and 4.1% YoY, respectively. Meanwhile, underlying inflation measures [...] have converged with the 2% price target.”

"The most likely outcome is for the BoJ to deliver a hawkish 25bps hike while signalling a flexible pace of rate hikes at future meetings."

"An outsized 50bps hike at this meeting or back-to-back rate hikes at every meeting is not our base case."

"More importantly, the BoJ should remain mindful of the market impact of large policy surprises, given that the unexpected rate hike in July 2024 triggered a massive JPY carry-trade unwinding and jitters across global financial markets."

"The risk of carry-trade unwinding and excessive market volatility should not be underestimated if the BoJ were to surprise markets this time."

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

ING’s Chris Turner notes USD/BRL is drifting towards 5.05/5.07 as election polls show challenger Flavio Bolsonaro overtaking President Lula in a run-off, with prediction markets still favoring Lula but by a shrinking margin. ING highlights Brazil’s high real interest rates and expects the real to outperform the steep forward curve, with potential nominal appreciation if polls move further toward Bolsonaro.

Election dynamics and carry back Brazilian real

"USD/BRL is drifting towards the lower end of its two-month range at 5.05/5.07, helped by the latest opinion polls for October's presidential election."

"For the first time yesterday, a poll put challenger Flavio Bolsonaro ahead of President Lula in a second-round run-off. Polymarket still shows President Lula's chances of winning as some 7% ahead of Bolsonaro, but the gap is closing fast."

"Clearly, the benign global investment environment is also helping the real, which is backed by one of the highest real interest rates in the world."

"Those overweight the Brazilian real will be hoping for some kind of Colombian peso-style advance should Bolsonaro be successful and bring in some fiscal consolidation and deregulation."

"At the very least, we look for the real to continue outperforming the steep forward curve, if not deliver nominal appreciation should the polls shift even further to Bolsonaro."

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

Scotiabank strategists Shaun Osborne and Eric Theoret describe the Canadian Dollar (CAD) as steady despite renewed US–Canada trade tensions and targeted import bans. They highlight improving CAD fundamentals and a lower fair value estimate for USD/CAD near 1.3736. Technicals are described as USD-bearish, with resistance in the low/mid-1.39s and scope for a decline toward the 1.3500/1.3550 region.

CAD fundamentals improve as USD softens

"The CAD is all but unchanged on the session, a stoic response to the latest developments in the US/Canada trade spat."

"The CAD pushed higher in early trade yesterday as markets chewed over President Trump’s weekend post on “Canada’s (currency) dollar imbalance” but ultimately concluded, as we did ourselves, that there was not too much to read into the comment from the CAD perspective at this point."

"If the White House does have a beef with the low CAD, some further clarity is required. News late yesterday that the president was banning some Canadian dairy, alcohol and motorcycle goods has had little impact on the CAD."

"These latest US measures come into force on September 29th. Meanwhile, underlying CAD fundamental drivers continue to improve. Our fair value estimate for spot has edged down to 1.3736 today."

"Bearish—USD/CAD is maintaining a tight range on the day but underlying technical dynamics are USD-bearish. USD gains from the late August low stalled and reversed last week. That sets firm resistance in the low/mid 1.39 zone and suggests the USD downtrend from the mid-year peak is resuming."

"Trend momentum is USD-bearish across short-, medium-, and long-term studies, meaning that moderate USD gains (through the mid-1.38s) are likely to draw selling interest. USD support is 1.3715/35 ahead of the decline back to the 1.3500/50 region."

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

• Silver gains more than 2% on Wednesday and attempts to extend its rebound following recent weakness.
• Surging Oil prices fuel inflation concerns and strengthen expectations of higher US interest rates.
• US Dollar weakness supports the white metal, but rising Treasury yields limit its upside potential.

Silver (XAG/USD) rebounds on Wednesday and trades around $67.50 at the time of writing, up 2.64% on the day. The white metal benefits from broad weakness in the US Dollar (USD), but its recovery faces a challenging environment for precious metals as surging energy prices revive inflation concerns and strengthen expectations of higher US interest rates.

The US Dollar remains under pressure, notably due to a sharp appreciation of the Japanese Yen (JPY). The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, falls around 0.25% on Wednesday and trades near 98.61, close to its lowest level since August 21. A weaker US Dollar tends to support Silver by making the precious metal cheaper for investors using other currencies.

This support is nevertheless offset by the sharp rise in Oil prices amid escalating tensions between the United States (US) and Iran. The US military says it destroyed five Iranian Oil tankers after the Islamic Revolutionary Guard Corps (IRGC) attempted to attack a US Navy warship. Tehran responded by targeting several American vessels and Oil tankers, while concerns over the security of the Strait of Hormuz remain elevated. Persistently elevated energy prices could sustain inflationary pressures and force major central banks to maintain tighter monetary policies.

In the United States, these developments are also fueling expectations of further tightening by the Federal Reserve (Fed). According to the CME FedWatch Tool, markets currently price in around a 62% chance of a 25-basis-point rate hike at the September 15-16 meeting. This prospect represents a headwind for Silver, a non-yielding asset that tends to become relatively less attractive when interest rates rise.

US Treasury yields also reflect these expectations. The benchmark 10-year US Treasury yield trades around 4.80%, near its highest level since November 2023. The combination of elevated yields and expectations of tighter monetary policy therefore limits the metal's ability to fully benefit from the weaker US Dollar.

On the economic front, Automatic Data Processing (ADP) data shows that US private employers added an average of 12K jobs per week during the period ending August 22, compared with a downwardly revised 10K previously. Investors now turn their attention to the Producer Price Index (PPI), due on Thursday, and the Consumer Price Index (CPI), scheduled for Friday. Hotter-than-expected inflation figures could reinforce expectations of a Fed rate hike and put renewed pressure on Silver.

• EUR/USD trades higher as a sharp rally in the Japanese Yen weighs on the US Dollar.
• Markets have fully priced in a 25-basis-point ECB rate hike on Thursday.
• US PPI and CPI data will help shape expectations for next week’s Fed decision.

EUR/USD trades on the front foot on Wednesday as broad US Dollar (USD) weakness, led by a sharp rally in the Japanese Yen (JPY), supports the pair. At the time of writing, EUR/USD trades around 1.1647, up 0.20% on the day.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 98.65, near its lowest level since August 21. USD/JPY hovers near 153.35, around levels last seen in February, and has fallen about 4% so far this month.

Still, traders avoid placing aggressive bullish bets on EUR/USD ahead of key risk events this week, including the European Central Bank’s (ECB) monetary policy announcement on Thursday and the latest United States (US) inflation data.

Both events come at a crucial time as the war in the Middle East enters its seventh month and keeps energy prices elevated. West Texas Intermediate (WTI) Oil trades around $93.50 per barrel, near its highest level since June 8.

The ECB is widely expected to raise interest rates by 25 basis points (bps) on Thursday, which would mark its second increase this year. The move comes as higher Oil prices add to inflationary pressure across the Eurozone. Headline Harmonized Index of Consumer Prices (HICP) inflation accelerated to 3.3% YoY in August from 2.9% in July.

However, as a quarter-point hike is already fully priced in, the decision itself may draw a limited market reaction. Traders will instead focus on ECB President Christine Lagarde’s press conference for signals on whether policymakers are considering additional rate increases in the coming months.

Analysts at Nomura expect that “we do not forecast further rate hikes from the ECB after September,” the team stresses that “risks to our forecast are skewed squarely towards further hikes due to ongoing tensions in the Middle East,” and adds that “we do not foresee any ECB rate cuts in the coming years.”

On the US side, traders currently price in around a 60% chance of a 25-bps rate hike at next week’s meeting, according to the CME FedWatch Tool. A resilient labour market gives the Federal Reserve (Fed) more room to focus on inflation.

Strategists at Brown Brothers Harriman stress that Friday’s US August CPI release is “the main market driver that will decide the Fed’s September 16 rate decision.” They argue that “a hot CPI print would all but seal a September hike and underpin a firmer USD,” whereas “a cooler reading would strengthen the case for a hold and leave USD vulnerable to a dovish Fed repricing.”

Even so, elevated Oil prices could keep rate hike expectations alive, as Fed officials have repeatedly stressed the need to return inflation to the 2% target. Concerns over persistent price pressures are also reflected in the bond market, with the benchmark 10-year US Treasury yield trading around 4.80%, near its highest level since November 2023.

The Japanese Yen (JPY) continues to build upward momentum, pushing USD/JPY down to 152.88 before consolidating around 153.26 as markets fully price in a 25-basis-point rate hike from the Bank of Japan (BoJ) in September. Unlike previous rally attempts driven by official currency intervention, the recent strengthening reflects organic shifts in Japan's economic fundamentals — including rising real wages, expanding JGB yields, and resilient economic growth. As traditional carry trade assumptions face increased scrutiny, institutional strategists are evaluating whether domestic capital repatriation and BoJ policy guidance will transform this tactical unwinding into a structural trend reversal.

Fundamental shift in Japanese yields and wages challenges funding status

Jane Foley at Rabobank emphasizes that the appreciation of the Yen represents a structural shift driven by strengthening domestic fundamentals rather than short-term central bank intervention. Rising JGB yields, expanding real wages, and semiconductor sector strength are eroding the incentive for Japanese investors to export capital into foreign assets like US Treasuries.

"A second factor impacting sentiment relates to market speculation as to whether there has finally been a sea-change in the value of the JPY. This has implications for long-standing views on the carry trade... Even though there were some unconfirmed suspicions regarding price checking in USD/JPY by the Japanese authorities last week, the more recent surge in the value of the JPY appears to have happened without the aid of the authorities. This is more powerful than a move triggered by intervention since it signals that the market may be reflecting a change in Japanese fundamentals."

Domestic drivers keep carry trade resilient as BoJ hike gets fully priced

Michael Wan at MUFG observes that while USD/JPY has experienced heightened volatility near 152.88, the underlying driver remains firmly grounded in Japanese policy normalization. Despite mixed economic data, markets have fully discounted a September rate increase, leaving forward guidance and international policy coordination as the key factors for sustained momentum.

"Overall, these numbers do not seem to have changed the pricing of BOJ rate hike for September, with markets essentially fully priced for a 25bps hike, and with the focus of the markets likely to be on the BOJ’s communication for the longer-term rate path... So far, the moves are more consistent with domestic drivers in Japan as the dominant factor, and as such EM in general and also carry trades have remained very resilient, but this is still a risk to watch for moving forward."

Based on the combined perspective of both financial institutions, the Japanese Yen's rapid appreciation reflects an evolving macroeconomic backdrop rather than temporary intervention noise. While MUFG highlights that a 25 bps BoJ rate hike in September is fully priced into USD/JPY near 153.26, Rabobank warns that any lack of hawkish guidance from central bankers could create short-term volatility, even as rising JGB yields and real wage expansion support a broader medium-term JPY recovery.

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

Societe Generale economist Kunal Kundu expects India’s August Consumer Price Index (CPI) inflation to rise to around 4.8% year-on-year from 4.4% in July, the highest reading under the new CPI series. The report highlights persistent food and fuel inflation, rising input costs and signs of broader cost pass-through, suggesting India’s inflation dynamics are becoming less benign and warrant close RBI and market attention.

Inflation pressures seen broadening

"We expect India's CPI inflation to rise to around 4.8% yoy in August 2026, up from 4.4% in July, marking the highest reading under the newly launched CPI series. If realised, this would represent the third consecutive month of inflation above the RBI's 4.0% target, further reinforcing the view that inflationary pressures are no longer confined to a few volatile categories but are gradually becoming more broad-based."

"With input price pressures remaining elevated and little evidence of relief from global commodity markets, the risk of broader pass-through into consumer prices appears to be rising."

"Food inflation is likely to have exceeded 6.0% yoy in August and should remain the single largest contributor to headline CPI. Available price trends suggest continued pressure from categories such as sugar, cereals, milk, eggs, edible oils and selected vegetables."

"A second source of upward pressure is likely to come from fuel inflation. Elevated global energy prices, coupled with the lagged effects of earlier domestic fuel price adjustments, suggest that the fuel basket should continue to exert upward pressure on headline inflation. Survey-based expectations also point towards firmer fuel inflation in August relative to July."

"Taken together, the August CPI print is likely to signal that India's inflation dynamics are becoming less benign. Food inflation remains elevated, fuel inflation continues to firm, and early signs of broader cost pass-through are beginning to emerge. A print around 4.8% yoy would not only mark a new high under the revised CPI series but would also reinforce concerns that inflationary pressures are gradually broadening beyond a narrow set of categories."

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