Forex News
- The Euro trades slightly lower at around 1.1545 against the US Dollar.
- Investors keenly await the US NFP data for July.
- Weak US ADP Employment Change data has set a negative tone for the US NFP data.
The Euro (EUR) trades marginally lower at around 1.1545 against the US Dollar (USD) during the European trading session on Friday. The major currency pair edges down as the US Dollar ticks up, while investors shift their focus to the United States (US) Nonfarm Payrolls (NFP) data release on Friday.
At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally higher to near 99.73. However, it is still close to its two-day low of 99.63.
Investors will closely track the US NFP data as it will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook.
The US NFP report is expected to show that the economy created 80K fresh jobs in July, higher than 57K in June. The Unemployment Rate is seen remaining steady at 4.2%. Average Hourly Earnings, a key measure of wage growth, are expected to have grown steadily at 0.3% and 3.5%, monthly and yearly, respectively.
Though estimates from the FXStreet economic calendar indicate stronger NFP figures than previous ones, weaker-than-expected ADP Employment Change data for July has established a cautious backdrop for official employment.
On Wednesday, ADP reported that the private sector hired 44K new workers, lower than estimates of 70K and the prior release of 98K.
Meanwhile, the Euro trades broadly calm as investors seek fresh cues regarding the European Central Bank’s (ECB) monetary policy outlook.
EUR/USD technical analysis
In the daily chart, EUR/USD trades at 1.1540. The pair is holding above the 20-day exponential moving average (EMA) at 1.1470, but wobbles near the downtrend resistance line at around 1.1537, which together suggests a bullish near-term bias. The Relative Strength Index (14) at 61.37 stays in positive territory but below overbought conditions, hinting that upside momentum remains constructive without yet looking stretched.
On the downside, initial support is seen at the 20-day EMA at 1.1470. Looking up, the pair might attempt to extend the advance towards the May 29 high at 1.1686 if it manages to stabilize above the downward-sloping trendline at around 1.1537.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
ADP Employment Change
The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Next release: Wed Sep 02, 2026 12:15
Frequency: Monthly
Consensus: -
Previous: 44K
Source: ADP Research Institute
Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.
- GBP/USD consolidates above 1.3450, with recent price action showing a lack of clear bias.
- The Pound drew some support from upbeat UK services activity data on Wednesday.
- In the US, dwindling hopes of a Fed rate hike in September are keeping the USD on the defensive.
The British Pound (GBP) holds marginal losses against the US Dollar (USD) on Thursday, trading at 1.3460 at the time of writing, down from Wednesday's highs at 1.3486. This leaves the GBP/USD pair hovering within a 100-pip range, with bulls capped below 1.3500 while a weak US Dollar keeps downside attempts supported above the 1.3400 area.
The Sterling drew some support on Wednesday from an upward revision of July’s S&P Global Services PMI figures and another downbeat employment reading in the US, which cast doubts about Friday’s Nonfarm Payrolls report and cooled hopes of Federal Reserve (Fed) rate hikes further.
Strategists at Scotiabank describe the Pound’s tone as “neutral/bullish,” highlighting a “solid rise in Cable last week and bullish leaning (but still weak) trend oscillators suggesting some upside potential for the Pound, however.” In their view, “gains through the low 1.35 zone should allow spot to retest the recent peak around 1.3555/60,” while “support is 1.3390/00.”
US Dollar struggles amid fading Fed tightening bets
The US Dollar, on the other side, remains on its back foot amid lower US Treasury yields. Recent macroeconomic releases have not been particularly supportive of further monetary tightening and have prompted traders to dial down bets of a September rate hike to 54% from 67% earlier this week.
Beyond that, Analysts at MUFG suggest that doubts over Fed independence are putting additional pressure on the USD, and cite a Wall Street Journal report highlighting "repeated" meetings between President Donald Trump and Fed Chair Kevin Warsh since he took over at the Fed. WSJ points to “bursts” of calls “several times in a stretch of days,” a pattern that “will only reinforce the impression of greater political influence undermining Fed independence.”
MUFG also warns that “concerns that emanate from Washington over financial market developments will hardly instill confidence in global investors in holding US assets and could herald another spell of increased US [D]ollar hedging like January this year, which would be bad news for the [D]ollar.”
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.
ING’s Warren Patterson and Ewa Manthey highlight a sharp Gold rally of more than 4%, with prices moving closer to $4,300/oz as optimism grows that a US-Iran agreement and lower energy prices will ease inflation. A softer Dollar, reduced Federal Reserve (Fed) tightening expectations and ongoing Chinese investment demand are seen as key supports for bullion in the current environment.
Bullion buoyed by energy and Fed hopes
"Gold rallied more than 4% on Wednesday. The strength has continued this morning, with the market moving closer to $4,300/oz amid growing optimism that a US-Iran agreement will ease inflation. A softer US dollar and rising expectations for lower US interest rates provided support for bullion."
"The market is increasingly focusing on the disinflationary implications of lower energy prices. Expectations for Federal Reserve tightening have eased, improving the outlook for non-yielding assets such as gold. Continued investment demand from China has also helped underpin the market."
"Gold is likely to take its cues from developments in US-Iran negotiations and shifts in Fed expectations. While geopolitical risk premiums may continue to fade, lower oil prices, a weaker dollar and potentially a more dovish-than-expected rates environment should remain supportive for bullion."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Brown Brothers Harriman’s Elias Haddad notes that the US Dollar (USD) has recovered part of its recent losses as concerns over the Federal Reserve’s (Fed) credibility ease, but sees limited scope for a sustained rebound. Balanced US labor market conditions, wage growth consistent with the Fed’s 2% inflation target, and strong productivity growth support the disinflation outlook, while upcoming Q2 non-farm productivity data could help shape near-term rate expectations.
Fed credibility gap and data focus
"USD recouped some of yesterday’s losses against most major currencies. SEK bucked the broad USD move as Sweden’s mixed July CPI kept a Riksbank hike by year-end firmly in play. Brent crude is holding just below $80 per barrel after a provisional Iran-Oman agreement raised the prospect of more energy flows resuming through the Strait of Hormuz."
"The drag to USD from the Fed’s credibility gap has eased. US 5y5y inflation swaps have retraced much of the rise triggered by Fed Chair Kevin Warsh’s failure to turn tough inflation rhetoric into credible policy. Comments from some Fed officials may have helped steady the ship."
"Nonetheless, USD relief rallies are likely to remain shallow. USD is trading in line with interest rate differentials, and we see limited scope for a more hawkish repricing in Fed funds rate expectations. The US labor market is in balance, wage growth is consistent with the Fed’s 2% inflation target, and Fed policy is restrictive, assuming a neutral rate of 3.00%."
"Given that services accounts more a much larger share of the US economy (around 80%), weaker services hiring argues for Fed patience, but the renewed pick-up in services price pressure suggests upside inflation risks have yet to fully recede. That raises the cost of waiting to raise rates, with the Fed increasingly at risk of falling behind the curve. Fed funds futures continue to imply about 60% probability of a September rate hike."
"More encouraging for the Fed is the disinflationary force from strong US productivity growth. The Employment Cost Index (ECI) wages & salaries - the Fed’s favorite wage data – was 3.2% y/y in Q2, consistent with the Fed’s 2% target given average annual labor productivity growth of 2.1%. Q2 non-farm productivity report is due today (1:30pm London, 8:30am New York)."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- The Indian Rupee drops against the US Dollar amid some recovery in oil prices.
- Iran and Oman are close to finalizing a proposed agreement to control navigation through Hormuz.
- Investors await the US NFP data for July, which will be released on Friday.
The Indian Rupee (INR) trades lower against the US Dollar (USD) on Thursday. The USD/INR pair rises to near 95.22 after rebounding from the fresh monthly low of 94.83 posted the previous day.
As of writing, the MCX Crude Oil contract expiring on August 19 trades 1.2% to near Rs. 7,200, but is close to its three-week low of Rs. 7,078 posted on Wednesday.
The Indian currency is expected to resume its upside journey on bearish oil price outlook amid firm expectations that navigation through the Strait of Hormuz, a critical chokepoint for almost one-fifth of global energy supply, will normalize.
Brent holds below $80 as Iran-Oman shipping deal hints at future energy flows
Analysts at Rabobank note that Brent crude prices "held steady just below the $80-level" after Iran announced it had reached an agreement with Oman on a proposed shipping route through the Strait of Hormuz. While they stress that "that’s not the Iran-US deal that Trump had been eyeing," Rabobank argues the accord nonetheless "raises the prospect of more energy flows resuming through the critical waterway," highlighting the potential significance of the arrangement for future regional oil shipments.
Iran and Oman close to finalizing Hormuz framework
Late Wednesday, Iran’s Foreign Ministry spokesperson, Esmaeil Baghaei, said that Iran and Oman are close to finalizing a proposed framework to manage navigation through the Strait of Hormuz. A senior Gulf official said there is a 50% chance that Iran and Oman will reach an agreement on the Strait of Hormuz by Friday.
Iran’s Baghaei has made it clear that the passage reopening depends on Washington fulfilling its commitment to end the naval blockade on Iranian sea ports.
Meanwhile, continuous attacks from Yemen’s Houthis group on Saudi Arabian tankers attempting to pass the Red Sea route are expected to keep energy supply concerns on the horizon.
Houthi military spokesperson Yahya Sarea said in a post on X that Yemen’s forces were able to target the Saudi oil tanker "Daisy" in the Gulf of Aden, adding that the targeting comes within the framework of imposing a maritime navigation ban on the Saudi enemy in accordance with the equation of "siege for siege."
RBI leaves policy rates steady
On Wednesday, the Reserve Bank of India (RBI) left its key Repo Rate unchanged at 5.25%, as expected, for the fourth time in a row. The RBI lowered its inflation forecast for the current year to 5%, but warned that core price pressures could accelerate to 5.9% in the third quarter, citing supply-side pressures from food and fuel.
Meanwhile, investors seek fresh cues regarding how long the RBI’s status quo will continue.
India MPC holds steady for longer as Standard Chartered sees high bar for rate hikes
Economists at Standard Chartered note that India’s Monetary Policy Committee (MPC) “kept the repo rate unchanged at 5.25% in a unanimous decision and maintained its neutral stance, broadly in line with our and consensus expectations.” However, they add that “we were surprised by the relatively dovish tone of the MPC’s statement compared with the April and June policy meetings.”
According to the bank, “while the MPC remains vigilant on future risks, particularly El Niño and crude oil prices, it is inclined to wait for greater clarity on the inflation trajectory and composition before considering rate action.” In their view, “for now, the bar for rate hikes appears high unless inflation materially exceeds expectations,” a conclusion they describe as “consistent with our baseline view of no change in the repo rate in FY27.”
US NFP hogs limelight
This week, the major trigger for global markets will be the US Nonfarm Payrolls (NFP) data for July, which will be released on Friday.
According to TD Securities, July payrolls are expected to show only a mild improvement, with the bank looking for "July NFP picked up modestly to 70k after surprising to the downside with 57k in June." The economists judge that "risks to our payrolls forecast appear balanced," suggesting no strong bias toward either a significant upside or downside surprise. On the unemployment side, TD Securities anticipates that "the UE rate likely went sideways at 4.2% after declining in June," pointing to a broadly steady labor market backdrop.
Technical Analysis: USD/INR trades inside Wednesday's trading range
USD/INR trades at around 95.22, keeping a bearish near-term tone as it remains below the 20-day exponential moving average (EMA) at 95.60. The pair has retreated from recent highs, and price holding under this short-term EMA suggests upside attempts are being capped despite the Relative Strength Index (RSI) hovering in a broadly neutral zone around 42, hinting at modest but not extreme selling pressure.
On the topside, immediate resistance is located at the 20-day EMA at 95.60, which is the key barrier that bulls would need to reclaim to ease the current downside bias and open the way for further recovery toward 96.00. Looking down, key support levels are the August 5 low at 94.83 and the June low at 94.15.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
Nonfarm Payrolls
The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.
Read more.Next release: Fri Aug 07, 2026 12:30
Frequency: Monthly
Consensus: 80K
Previous: 57K
Source: US Bureau of Labor Statistics
America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.
- Silver price remains firm near $62.00 as oil prices are expected to resume the decline.
- Investors await key US NFP data for June, which will be released on Friday.
- Absent the Fed’s forward guidance, the NFP data will significantly influence the central bank’s interest rate prospects.
Silver price (XAG/USD) holds onto two-day gains at around $62.00 during the European trading session on Thursday. The white metal trades firmly amid hopes of a further decline in oil prices.
In the European trade, the WTI Oil price trades 0.9% higher at around $75, but is closer to its three-week low of $73.51 posted on Wednesday.
Lower oil prices keep global inflation expectations in check, a scenario that diminishes fears of interest rate hikes by central banks. Such a case bodes well for non-yielding assets, like Silver.
Brent holds below $80 as hopes build for US–Iran deal on Strait of Hormuz
Analysts at ING highlight that "ICE Brent continues to trade below $80/bbl as the market pins its hopes on a deal between the United States (US) and Iran" that would "resume energy flows through the Strait of Hormuz." They note that Iran has "signalled progress toward this goal," having announced it has reached "an agreement with Oman on new shipping arrangements for the strait," with "a joint statement on the deal now being prepared," reinforcing market expectations of a potential easing in supply-route tensions.
Meanwhile, investors await the US Nonfarm Payrolls (NFP) data for July, which will be released on Friday. Investors will pay close attention to the official employment data, as its impact is likely to be significant on the Federal Reserve’s (Fed) interest rate expectations, given than the central bank has stopped providing forward guidance.
ADP slowdown reinforces TD Securities view of moderating US job gains
According to TD Securities, July ADP employment data "surprised to the downside, moderating to 44k (TD: 50k, cons: 65k)," reinforcing their view that job growth is cooling after a strong start to the year. The bank stresses that it does "not put much weight on ADP when it comes to m/m moves in NFP," but notes that "the trend in the data is in line with what we are expecting." They highlight that "both the monthly and weekly ADP data have moderated this summer," and judge that "a similar trend is likely to occur with NFP job gains," consistent with their expectation of softer official payrolls prints ahead.
Silver Technical Analysis
XAG/USD trades at around $61.85, holding a bullish near-term bias as it remains above the 20-day exponential moving average (EMA) at $59.43. The metal has reclaimed higher ground after its recent pullback, and the positioning over the short-term EMA suggests underlying demand remains in place.
Momentum, as reflected by the Relative Strength Index (14) at 55.71, stays in mildly positive territory, hinting that buyers retain the upper hand while avoiding overbought conditions.
On the downside, initial support emerges at the 20-day EMA at $59.43, where a break would signal fading bullish pressure and force a return to the July 17 low at $54.77. Looking up, the July high at $63.28 is the key hurdle for the Silver price; above that, it could extend the advance towards the June 22 high at $67.17.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
- Gold holds gains at $4,270 after hitting resistance at the $4,300 area.
- Lower US Treasury yields amid fading hopes of Fed rate hikes are buoying precious metals this week.
- XAU/USD bulls are targeting mid-June highs in the $4,380 area.
Gold (XAU/USD) consolidates gains after appreciating nearly $200 this week, buoyed by lower US Treasury yields as traders dial down bets of immediate Federal Reserve (Fed) rate hikes. The precious metal trades at $4,270 at the time of writing, after pulling back from $4,300 earlier on Thursday, with bulls aiming for mid-June highs in the $4,380 area.
Analysts at MUFG note that political interference is increasingly being priced into the Dollar. They highlight Wall Street Journal reporting that President Trump has spoken to Fed Chair Warsh “repeatedly” since he took over at the Fed, with “bursts” of calls “several times in a stretch of days, which, in their opinion, “will only reinforce the impression of greater political influence undermining Fed independence.”
Technical Analysis: Gold confirms a trend shift
XAU/USD trades at $4,230, holding gains after breaking above a descending triangle, which suggests that the precious metal is heading through a bullish reversal. Momentum indicators in 4-hour charts show overstretched conditions, but dips are likely to find buyers. Relative Strength Index (14) is entrenched in overbought territory around 77, while the Moving Average Convergence Divergence (MACD) gauge remains firmly positive, which warns about a corrective pause.
On the topside, immediate resistance emerges at session highs in the $4,300, ahead of the June 17 high, around $4,380. Further up, the early June highs,m above $4,500, would come into focus.
Bearish reversals, on the other hand, are likely to be tested at previous highs around $4,200 (June 22, July 6 highs) ahead of the broken trendline resistance, now around $4,130 and Monday's low, near $4,020.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
Rabobank's Senior Macro Strategist Bas van Geffen discusses renewed Japanese Yen (JPY) weakness following recent joint US-Japan FX intervention that briefly pushed USD/JPY below 156. He highlights Japan’s planned food sales tax cut and household handouts, noting funding uncertainties and criticism from markets and politicians. He stresses that these measures do not structurally improve Japan’s growth, leaving the Yen lacking durable support.
Fiscal plans and FX intervention
"Days after the Japanese Ministry of Finance –and the US Treasury– intervened in FX markets to prop up the yen, the cabinet approved a plan to cut the sales tax on food for two years. On top of that, the government is planning handouts to lower-income households. High costs of living are weighing on PM Takaichi’s popularity."
"The tax cut costs JPY 4 trillion (around 0.6% of GDP) in lost revenues annually, and the government did not specify how it would fund this shortfall. The prime minister tried to reassure investors that the measures are temporary, and Finance Minister Katayama pledged to refrain from financing this tax cut through Japan’s deficit."
"The unfunded tax plan has drawn criticism from both the opposition and people within the ruling LDP, as well as market participants - although today’s 30-year bond auction showed little sign of concern or investor fatigue. Having said that, the real litmus test may be the currency."
"Over the past couple of days, the yen has been gradually depreciating again after the joint US-Japan intervention briefly pushed USD/JPY below 156 on Friday. The FX market is probably watching for signs of new interventions, or signs of more structural support for the currency."
"Yet, these tax cuts do not lead to investments that could structurally improve Japan’s economic growth – which could have lent JPY some of the necessary support. But, paradoxically, the cost of effective growth-enhancing policies would probably eclipse the budgetary implications of Takaichi’s food tax cuts."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
OCBC’s Christopher Wong and Sim Moh Siong note that softer US inflation and debate over the Fed’s reaction function have eroded US Dollar upside momentum, even as the Fed remains data dependent. Upcoming US employment data are seen as critical for policy direction. Continued US economic resilience is expected to eventually revive Fed tightening risks and support a moderately bullish US Dollar over the next one to two quarters.
Fed risks and USD outlook
"The Fed remains firmly data dependent. Encouraging inflation readings in June have given policymakers room to wait for further evidence before adjusting policy. At the same time, growing debate over whether the Fed’s reaction function has shifted has contributed to a loss of USD upside momentum."
"The market is increasingly positioned for lower oil, lower real rates and a softer USD. Gold is leading that trade. But resilient US data could ultimately revive Fed tightening concerns and lend support to the USD."
"Near-term momentum has improved, with Friday’s upcoming US payrolls report now key to whether the decline in yields, USD and gold’s breakout can be sustained."
"Even so, the Fed has missed its inflation target for more than five years and is unlikely to tolerate a renewed lack of progress on inflation, regardless of whether recent price pressures were driven by exogenous shocks. We remain mindful of that risk. Upcoming data, particularly Friday’s employment report, will be critical in shaping the Fed’s next move. Continued US economic resilience should eventually bring Fed tightening risks back into focus, supporting our moderately bullish USD view over the next one to two quarters."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/JPY ticks up to levels near 158.00 after hitting 155.23 lows earlier this week.
- Concerns about the Japanese Government's tax-cutting plans are weighing on the JPY.
- Weak UDS data and dwindling hopes of immediate Fed rate hikes are keeping the USD from rallying further.
The Japanese Yen (JPY) is ticking lower against the US Dollar (USD) on Thursday, trimming gains after an exceptional US-Japan coordinated intervention triggered a 4.5% appreciation late last week. The USD/JPY pair has returned to levels a few pips shy of 158.00 after hitting lows at 155.23 on Monday, despite the broad-based US Dollar weakness.
Analysts at Rabobank note that "days after the Japanese Ministry of Finance –and the US Treasury– intervened in FX markets to prop up the Yen, the cabinet approved a plan to cut the sales tax on food for two years." In parallel, "the government is planning handouts to lower-income households," in response to the high costs of living that are weighing on PM Takaichi’s popularity.
Rabobank highlights that "the unfunded tax plan has drawn criticism from both the opposition and people within the ruling LDP, as well as market participants," even though "today’s 30-year bond auction showed little sign of concern or investor fatigue." In their view, "the real litmus test may be the currency," with investors likely to judge the credibility of the policy mix through the Yen’s performance.
Markets await US Nonfarm Payrolls figures
All this notwithstanding, the Yen remains supported by a weak US Dollar, as US macroeconomic data has failed to convince investors, fuelling concerns about a soft Nonfarm Payrolls reading on Friday. The market consensus forecasts 80K new payrolls in July, up from June's 57K, but recent data has cast doubt about the momentum of the US labour market.
Wednesday's ADP Employment Change report disappointed with a 44K net employment growth in July, less than half of June’s 98K rise and well below the 70K anticipated by the market consensus. Also on Wednesday, the ISM Services Purchasing Managers’ Index (PMI) confirmed a healthy growth rate but missed estimates, with employment contracting.
Against this background, traders have cut back hopes of a Federal Reserve (Fed) rate hike to 54% from 67% earlier this week, according to the CME Group's FedWatch Tool, which is keeping US Dollar bulls subdued.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Forex Market News
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