Forex News
Deutsche Bank’s US economists expect the Federal Reserve to leave rates unchanged at a highly uncertain FOMC meeting, with markets pricing a significant chance of a hike. The report notes renewed Middle East tensions complicate the inflation outlook, while July hike probabilities have swung sharply as Chair Warsh avoids strong guidance, leaving investors focused on today’s policy decision and dissents.
Highly uncertain FOMC outcome
"All that leaves a volatile backdrop ahead of today’s FOMC decision, which is the most finely poised in years in terms of market pricing."
"With a 32% chance of a rate hike today priced as of last night, this is the most uncertain that the market has been on whether the Fed will change rates going into a meeting since December 2018, when the eventual 25bps rate hike was about 65% priced the day before."
"In terms of today’s decision, our US economists expect the Fed to leave rates unchanged but see the risks of a hike as significant with the renewed escalation in the Middle East complicating the inflation outlook."
"If the Fed holds rates steady, they expect at least a couple of dissents in favour of a hike."
"To the day ahead now, the main event will be the Fed’s policy decision."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- WTI rises as Middle East hostilities escalate following drone strikes on Saudi oil facilities and US retaliatory airstrikes in Iraq.
- Iran rejects a proposal for shared control of the strategic Strait of Hormuz.
- API reveals a 3.3-million-barrel crude draw last week, pointing to tighter global supplies.
West Texas Intermediate (WTI) oil price gains ground after three days of losses, trading around $81.00 per barrel during the European hours on Wednesday. Crude oil prices have rebounded as renewed hostilities in the Middle East reignite geopolitical tensions after several days of relative calm, fueling fresh concerns over potential disruptions to global energy supplies. The escalation began as the US military reported intercepting what it described as a surprise Iranian attack targeting American troops stationed across the Middle East.
Meanwhile, Iran-backed militias in Iraq launched drone strikes against oil facilities in Saudi Arabia’s Eastern Region for a second consecutive day, though the full extent of the damage remains unclear. The incident is believed to be a direct countermeasure against recent US strikes on Iranian naval assets, triggering immediate retaliation. CENTCOM subsequently executed precision airstrikes in Iraq aimed at neutralizing Iran-backed groups planning further operations against US forces and Saudi energy infrastructure.
Diplomatic efforts to de-escalate maritime tensions also hit a wall after Iran rejected a proposal from Oman for shared 50-50 control of the Strait of Hormuz, maintaining instead that Tehran must retain full control of the inbound shipping lane and part of the outbound route.
Meanwhile, fundamentals further supported the rally as API data indicated US crude oil inventories fell by 3.3 million barrels last week, highlighting ongoing tightness in global supply.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
ING analysts Warren Patterson and Ewa Manthey note Brent rebounded over 4% after recent losses as renewed attacks on US troops and Saudi energy infrastructure undermine prospects for a US–Iran deal. They highlight growing risks of prolonged supply disruptions, tight middle distillate markets, halted traffic through the Strait of Hormuz, and OPEC+ plans to unwind voluntary cuts while maintaining a broadly well-supplied market outlook through 2027.
Persian Gulf tensions tighten oil outlook
"After a heavy sell-off in the oil market over the last three days, prices popped higher in early morning trading, with Brent up more than 4% at the time of writing. Renewed strength comes after the US said it intercepted a surprise attack on US troops. Saudi Arabia intercepted drones from Iranian-backed groups in Iraq, which were targeting Saudi energy infrastructure."
"Clearly, with Saudi oil infrastructure increasingly targeted, the risk of more prolonged supply disruptions grows. There are reports that the 400k b/d Jazan refinery in Saudi Arabia has shut following Houthi attacks over the weekend. If confirmed, this will only add to tightness concerns in the refined products market already dealing with disruptions from the Persian Gulf, as well as Russia."
"The tightness, particularly in middle distillates, is well reflected in the ICE gasoil crack. It has now broken above $70/bbl to record levels. The prompt ICE gasoil timespread has surged to a backwardation of above $80/bbl."
"OPEC+ is expected to announce a supply increase of 188k b/d for September when the group meets on 2 August. This would see the full unwinding of the 1.65m b/d of voluntary cuts announced back in 2023. There are reports that the group will likely pause any further supply increases following the September increase."
"However, post-disruption, the announced supply increases from the group reinforce the view of a well-supplied market through 2027. The big uncertainty through 2027 will be around the group’s policy, with the potential for pushback on output quotas. Particularly given the disruptions that a number of producers have faced this year."
(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 Wednesday, July 29:
Markets turn risk-averse midweek as the crisis in the Middle East widens. Later in the American session, the Federal Reserve (Fed) will announce its interest rate decision and publish the policy statement following the two-day meeting.
Saudi forces have joined the conflict by launching attacks on Iran-aligned groups in Iraq alongside the United States (US), as retaliation to the Islamic Revolutionary Guard Corps' (IRGC) drone attacks on Saudi oil facilities. Meanwhile, Iran claimed an attack on a US military base located in Jordan. Following a two-day decline, crude Oil prices push higher on Wednesday, with the barrel of West Texas Intermediate (WTI) trading above $81, rising nearly 4% on the day.
Oil rebounds as Middle East attacks end recent truce-driven sell-off
According to Deutsche Bank, the recent calm in oil markets has been abruptly interrupted, with sentiment having "soured overnight as the US said that it intercepted an Iranian attack against its bases in the Middle East," effectively ending the brief pause in hostilities. The bank notes that this lull had seen Brent crude "decline from above $100/bbl last Thursday to only $84.09/bbl at yesterday’s close," a move they describe as its "sharpest three-day decline (-16.5%) since April 2020."
ING analysts add that "after a heavy sell-off in the oil market over the last three days, prices popped higher in early morning trading, with Brent up more than 4% at the time of writing." They attribute this "renewed strength" to the latest escalation, highlighting that it "comes after the US said it intercepted a surprise attack on US troops." ING further points out that "Saudi Arabia intercepted drones from Iranian-backed groups in Iraq, which were targeting Saudi energy infrastructure," underscoring how the emerging security risks are feeding directly back into crude prices.
The US Dollar (USD) Index struggles to benefit from risk-aversion and holds steady at around 101.30 in the European session, as investors refrain from taking large positions ahead of the Fed policy announcements. While the Fed is anticipated to keep the interest rate unchanged, the CME FedWatch Tool shows that there is about a 30% chance of a 25 basis points (bps) hike.
After posting small gains on Tuesday, EUR/USD trades in a narrow channel at around 1.1400 early Wednesday.
GBP/USD corrects higher and trades a few pips above 1.3300 in the early European session.
Fed risk keeps front-end Euro and Pound markets on edge
Analysts at ING argue that the FOMC is likely to stay on hold, stating, “We don't think the FOMC will hike rates, but markets see a 30% probability that it does.” They note that a more hawkish tone alone could see “the front end of the EUR and GBP markets… move even higher on a hawkish tilt,” while “longer-dated global rates, however, could find resistance to follow through, especially if the positive market sentiment gets challenged by a tightening of financial conditions.”
ING also flags the risk of a more adverse outcome if the Fed does deliver a surprise hike, warning that “market sentiment takes a hit if the Fed hikes as risk assets suffer from tighter financial conditions,” with “increasing jitters in equities on the back of AI uncertainties” already evident. In such a scenario, they suggest “the curve reaction should be of interest,” as investors reassess the balance between front-end repricing and the ability of long-end yields to keep pace.
The data from Australia showed earlier in the day that annual inflation, as measured by the change in the Consumer Price Index (CPI), declined to 3.8% in June from 4% in July. This print came in below the market expectation of 4%. AUD/USD remains under bearish pressure on Wednesday and trades at a fresh two-week low near 0.6950.
Gold holds steady above $4,000 after posting losses for two consecutive days.
USD/JPY edges lower and trades at around 163.50 in the European morning on Wednesday.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Commerzbank’s Antje Praefcke argues that the FOMC under Chair Kevin Warsh is likely to deliver a "hawkish hold", with markets already pricing at least one Fed rate hike by year-end. She highlights that recent declines in energy prices and a softer June inflation print reduce the odds of an immediate hike, limiting upside for the US Dollar and leaving EUR/USD sensitive to any scaling back of Fed tightening expectations.
Dollar vulnerable if hawkish hold disappoints
"In all likelihood, this overall situation should lead to a “hawkish hold” this evening. The market expects at least one interest rate hike from the Fed by the end of the year and sees a chance that more could follow next year as well. It does not want to completely rule out an interest rate hike even today, even though it sees only a low probability for this to happen."
"After all, it is unlikely that Warsh will adopt an extremely hawkish stance given the recent drop in energy prices and a surprisingly low June inflation rate."
"For EUR/USD today, the key question is whether these expectations will be fueled - or not."
"If the market scales back its expectations because the (possibly shorter than usual) FOMC statement or Warsh’s press conference suggests that the Fed views price risks as manageable and, above all, temporary, a correction in the USD is certainly possible."
"Consequently, upward pressure on the US dollar driven by rising expectations of interest rate hikes is also unlikely."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
BNY’s Geoff Yu highlights that INR faces strong selling pressure from a rebalancing perspective, as Indian bonds have outperformed major peers. With INR flows broadly flat, FX exposure has risen and investors are advised to keep hedging elevated after strong duration gains. Yu sees higher-beta currencies particularly exposed to July’s fixed-income moves.
Indian bonds outperformance lifts FX risk
"Selling pressure is strongest in INR. Like many emerging market (EM) bond markets, Indian duration benefited from lower oil prices during the first weeks of the ceasefire as real rates improved. The latest re-escalation has not erased those gains, and Indian bonds have outperformed the major markets we track."
"With INR flows broadly flat over the month, FX exposure has risen and hedging demand has increased with it."
"July’s duration gains are creating meaningful rebalancing needs, especially across higher-beta currencies. The real-rate outlook is more difficult, however, as central banks show growing reluctance to tighten further."
"Global supply chains will take time to normalize, leaving non-U.S. real rates vulnerable if current market pricing persists. This strengthens the case for greater FX hedging across fixed-income portfolios."
"Keep INR hedging elevated after strong bond returns and treat any rotation away from U.S. assets as a shift within equities rather than a broad move into fixed income."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
MUFG’s Lloyd Chan expects the Federal Open Market Committee (FOMC) to deliver a hawkish hold, with the Federal Reserve (Fed) keeping rates unchanged while stressing elevated inflation risks. He notes softer recent US data but highlights that markets still price some probability of a July hike. Chan argues this stance should keep US yields and the Dollar supported, reinforcing USD resilience.
Fed stance seen backing Dollar strength
"US macro data surprised on the softer side yesterday. The ADP weekly employment rose 15,000, slightly below market expectations of 16,500. Wholesale inventories held steady at 0.3%mom, below 0.4%mom consensus."
"Consumer sentiment also softened, with the Conference Board's Consumer Confidence Index falling to 90.8 in July from 92.2 in June, missing expectations of 92.4. US 2-year and 10-year yields were about 4bps lower yesterday. Meanwhile, markets have priced in around 34% chance of a 25bps Fed rate hike at the July meeting, though somewhat lower than the 38% being priced in a couple of days ago."
"The FOMC rate decision is coming up next. Our base case is for a hawkish hold, with the Fed likely to keep rates unchanged and emphasized that inflation risks remain high. This could keep US yields and the dollar supported, in turn weighing on Asia FX broadly."
"The balance of risks remains tilted toward USD resilience should the Fed continue to emphasize its high-for-longer policy stance."
"Our analysis suggests that SGD, KRW, and MYR have exhibited the strongest correlation with DXY movements over the past 30 weeks, implying that shifts in Fed expectations, US yields and broad dollar sentiment have been key drivers of these currencies."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Iraqi Prime Minister (PM) Ali Faleh al-Zaydi has called for an urgent security meeting on Wednesday following a joint military operation from Saudi Arabia and the United States (US), according to a statement. The nation also reported that at least 20 of Iraq’s Iran-backed Shi’ite popular mobilization forces members were killed.
Earlier, Saudi Arabia said that it carried out targeted strikes against Iran-backed armed groups in Iraq, in coordination with US Central Command (CENTCOM), Al Jazeera reported.
Market reaction
There seems to be no immediate reaction by the US Dollar (USD) following the news release. At press time, the US Dollar Index (DXY) trades subduedly near 101.30.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Deutsche Bank analysts note that lower oil prices and bond yields supported US equities, helping the equal-weighted S&P 500 reach a record high as investors rotated into defensive and non-tech sectors. However, continued weakness in semiconductor stocks left the NASDAQ 100 close to correction territory, while a deepening chip-led sell-off in South Korea pushed the KOSPI down around 12% and triggered another circuit breaker. Elsewhere in Asia, markets were mixed, with Australian equities advancing after softer-than-expected inflation reduced expectations of further RBA tightening.
Equities gain as chips sell off
"The decline in oil and rates also helped support equities, with the S&P 500 closing +0.21% higher. And the broader market mood was more clearly positive, with the equal-weighted version of the S&P (+1.14%) posting its best day in over a month and hitting a new record high."
"This came amid a broad rotation into non-tech and defensive sectors, though it was partially offset by continued losses for chipmakers. A -4.49% decline for the Philly semiconductor index left the gauge -24.6% below its June 22 high, though it is still up +55.8% YTD. Yesterday’s decline also left the NASDAQ 100 (-0.98%) just half a percent from technical correction territory."
"But it was not all bad news for tech yesterday, with Apple (+0.94%) exceeding the $5trn market cap for the first time, though it ended the session just below it at $4.995trn. The company is set to report its earnings tomorrow along with Amazon, after reports from Microsoft and Meta this evening."
"The KOSPI is seeing another dramatic sell-off, triggering a circuit breaker for the second time in two days after tumbling by -11.0% yesterday. A reassessment in Korea’s AI-driven valuations has been boosted by results from semiconductor heavyweight SK Hynix, which is down -16.5% as its +557% surge in quarterly profits failed to meet elevated market expectations. Shares in Samsung, which reports tomorrow, are down -11.0%."
"The Nikkei (-2.29%) is also extending Tuesday’s decline, while in mainland China the CSI 300 (-0.24%) and Shanghai Composite (-0.50%) are posting more modest declines. In contrast, the Hang Seng (+1.34%) is outperforming the broader regional trend, while the S&P/ASX 200 (+1.10%) is advancing after softer-than-expected inflation data eased concerns about further RBA tightening."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Forex Market News
Our dedicated focus on forex news and insights empowers you to capitalise on investment opportunities in the dynamic FX market. The forex landscape is ever-evolving, characterised by continuous exchange rate fluctuations shaped by vast influential factors. From economic data releases to geopolitical developments, these events can sway market sentiment and drive substantial movements in currency valuations.
At Rakuten Securities Hong Kong, we prioritise delivering timely and accurate forex news updates sourced from reputable platforms like FXStreet. This ensures you stay informed about crucial market developments, enabling informed decision-making and proactive strategy adjustments. Whether you’re monitoring forex forecasts, analysing trading perspectives, or seeking to capitalise on emerging trends, our comprehensive approach equips you with the insights needed to navigate the FX market effectively.
Stay ahead with our comprehensive forex news coverage, designed to keep you informed and prepared to seize profitable opportunities in the dynamic world of forex trading.
