Forex News

BNY’s Geoff Yu says softer June Consumer Price Index (CPI) has reduced immediate inflation concerns, but limited Fed guidance continues to support policy uncertainty and US Dollar (USD). Wednesday’s Federal Open Market Committee (FOMC) decision and Thursday’s Personal Consumption Expenditures (PCE) Price Index release could produce significant moves in front-end rates, FX and risk assets.

FOMC uncertainty underpins Dollar outlook

"This week is dominated by Wednesday’s FOMC decision, which is notable precisely because the Warsh Fed has offered less forward guidance than markets are used to. That leaves the meeting unusually open to interpretation for this late stage in the cycle, with pricing still reflecting roughly a one-third chance of a hike and close to two hikes by year end. We think the below-expectation June CPI print will allow the Fed to remain on hold, but the resurgence of the conflict might push inflation higher later in the year."

"The FOMC is the central event for rates, FX, and risk assets. With limited communication from the new Fed leadership, we’ll watch the statement and press conference closely for any hint about the Committee’s thinking and whether market pricing for hikes later this year makes sense. Given the current setup, even small shifts in tone could move front-end rates materially."

"PCE on Thursday is the most important U.S. data point, but mostly as a second-stage catalyst after the Fed. A softer print would reinforce the disinflation impulse seen in CPI and further weaken the case for hikes, while an upside surprise would affirm the current more hawkish end-of-year pricing. Canadian GDP should matter primarily for the BoC path and CAD, though unless it meaningfully surprises, it will likely be secondary to the Fed/PCE combination."

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

HSBC argues that GBP/USD faces renewed downside as UK disinflation and a softer labour market reduce urgency for further Bank of England tightening, even though markets still price hikes out to 2027. The bank highlights geopolitical risks via higher Oil and gas prices and domestic policy uncertainty, which could undermine recent Pound resilience despite support from higher UK yields.

Pound pressured by data and geopolitics

"With headline CPI down to 2.6% y-o-y, the case for near-term Bank of England (BoE) hikes looks less urgent, even though markets still price tightening through April 2027."

"Yet, with a softer labour market, HSBC Economics sees a high bar for the BoE to turn decisively more hawkish."

"GBP has nonetheless held up over the last month supported by higher yields."

"The key risk remains geopolitics."

"With recent strength in the rear-view mirror, this mix leaves GBP vulnerable, especially if energy risks persist and policy credibility wobbles."

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

BNP Paribas strategists project Eurozone Gross Domestic Product (GDP) growth to slow to 0.8% in 2026 from 1.5% in 2025 due to spillovers from the Middle East conflict and weaker consumption. Inflation is seen rebounding to 2.7% in 2026, prompting one more 25 bp European Central Bank (ECB) hike, lifting the deposit rate to 2.5%. Despite softer growth, they expect EUR/USD to rise gradually through 2027.

Eurozone slowdown with modest ECB tightening

"Eurozone growth would slow in 2026 due to spillovers from the Middle East conflict."

"GDP growth, which reached 1.5% in 2025, would slow down to 0.8% in 2026, before picking up at 1.6% in 2027."

"Inflation would rebound to 2.7% in 2026 (compared to 2.1% in 2025) on the back of the energy shock and plateaued at 2.6% in 2027."

"As inflation rebounds, we continue to expect one further 25-basis-point hikes in the ECB’s policy rate in Q3 2026– pushing the deposit facility rate to 2.5%."

"We forecast EUR/USD to reach 1.16 by Q4 2026 and 1.20 by Q4 2027."

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

• NZD/USD trades around 0.5790, virtually unchanged on Monday despite a supportive backdrop for the New Zealand Dollar.
• Renewed diplomatic efforts between the US and Iran are weighing on safe-haven demand and pressuring the US Dollar.
• Markets now turn their attention to this week's Federal Reserve meeting and further developments in the Middle East.

NZD/USD trades around 0.5790 at the time of writing on Monday, virtually unchanged on the day. The pair is struggling to extend its rebound despite a less supportive backdrop for the US Dollar (USD), as investors remain cautious ahead of the Federal Reserve (Fed) monetary policy decision on Wednesday.

The Greenback is weakening following reports of renewed diplomatic efforts between the United States (US) and Iran, reducing demand for safe-haven assets. The improvement in market sentiment has also triggered a sharp decline in Oil prices, helping to ease US inflation concerns and reinforcing expectations of monetary easing by the Fed. US Treasury yields are also moving lower, adding further pressure on the US Dollar.

US economic data released on Monday failed to provide additional support for the Greenback. Durable Goods Orders rose by just 0.3% in June, well below the market expectation of a 1.6% increase, pointing to weaker momentum in manufacturing investment. However, the market reaction remained limited as investors preferred to wait for the outcome of the Federal Open Market Committee (FOMC) meeting.

Geopolitical developments continue to discourage aggressive positioning. While the current pause between Washington and Tehran has improved market sentiment, risks to global energy supplies remain, particularly after Ansar Allah claimed responsibility for attacks on Saudi facilities along the Red Sea.

On the New Zealand side, the outlook remains relatively supportive for the New Zealand Dollar (NZD). Stronger-than-expected inflation data has reinforced expectations that the Reserve Bank of New Zealand (RBNZ) will deliver another rate hike at its September meeting. This more hawkish outlook continues to limit the downside potential for NZD/USD, although investors remain reluctant to establish fresh positions ahead of the Fed's policy announcement.

• Durable Goods Orders in the US rose less than expected in June.
• US Dollar Index stays in daily range below 101.50.

New orders for manufactured Durable Goods in the United States (US) rose by $1.1 billion, or 0.3%, to $334.8 billion in June, the US Census Bureau announced on Monday. This reading followed a 4% decline recorded in May and fell short of the market expectation for an increase of 1.6%.

"Excluding transportation, new orders increased 0.6 percent," the press releases noted. "Excluding defense, new orders increased 0.3 percent. Computers and electronic products, up nine of the last ten months, led the increase, $0.9 billion or 3.1 percent to $31.1 billion."

Market reaction

This data failed to trigger a noticeable market reaction. At the time of press, the US Dollar (USD) Index was down 0.05% on the day at 101.40.

• GBP/JPY slips as broad Pound weakness offsets subdued Japanese Yen demand.
• The British Pound loses ground as traders reduce exposure before the BoE monetary policy decision.
• Markets expect both the BoE and BoJ to keep interest rates unchanged this week.

GBP/JPY edges lower on Monday as the British Pound (GBP) weakens across the board following its recent advance, with traders trimming exposure ahead of the Bank of England’s (BoE) interest rate decision on Thursday. At the time of writing, the cross trades around 217.84, down 0.23% on the day.

Sterling also faces pressure from lower UK government bond yields after Oil prices opened the week sharply lower. The temporary pause in attacks between the United States (US) and Iran has eased near-term inflation concerns, reducing expectations that the BoE will need to tighten policy aggressively.

The BoE is widely expected to leave its benchmark interest rate unchanged at 3.75%. So far, the recent energy shock has had only a limited impact on UK inflation, with the Consumer Price Index (CPI) falling to a 15-month low of 2.6% in June.

However, upside risks to inflation have not disappeared. The decline in Oil prices could prove short-lived in the absence of concrete negotiations between Washington and Tehran, while energy supplies through the Strait of Hormuz remain heavily disrupted.

ING analyst Francesco Pesole said, “If inflation is still expected to remain contained, we believe the BoE will leave rates unchanged for the rest of the year.”

“With markets pricing 38 [bps] of tightening by year-end, dovish repricing remains, in our view, the clearest near-term risk for sterling,” Pesole added.

Concerns over the UK’s fiscal outlook also weigh on the Pound. Prime Minister Andy Burnham has signaled plans for higher spending on defence, social care and housing, leaving investors questioning whether the measures will require additional borrowing or tax increases.

However, the downside in GBP/JPY remains limited as the Japanese Yen (JPY) stays structurally weak. Japan’s low interest rates and reliance on imported energy continue to weigh on the currency, with Oil prices still elevated despite Monday’s decline.

The Bank of Japan (BoJ) also announces its interest rate decision on Friday and is widely expected to keep its policy rate unchanged at 1%.

ING’s Frantisek Taborsky expects upcoming Czech and Hungarian Gross Domestic Product (GDP) data to confirm improving growth momentum, while Polish inflation should re-accelerate on higher fuel prices. Taborsky argues that reduced US–Iran tensions and signs of peace talks could support a recovery in Central and Eastern European (CEE) rates and benefit high-beta currencies like the Hungarian Forint (HUF) and Polish Zloty (PLN), while the Czech Koruna (CZK) may weaken above 24.200 EUR/CZK.

Improving data and calmer geopolitics in CEE

"The lack of further escalation in the US-Iran conflict over the weekend, together with signs of peace talks, should support some recovery in CEE rates after aggressive rate hike pricing returned on Thursday."

"The end of the month is typically quieter in the CEE region. This week, Thursday brings key growth releases. We expect Czech 2Q GDP at 0.5% QoQ and 2.1% year-on-year, compared with 0.2% QoQ and 2.2% YoY previously, pointing to stronger sequential growth momentum despite slightly softer annual growth. "

"The same day, we expect Hungary's 2Q GDP to accelerate to 1.2% QoQ and 2.4% YoY from 0.8% QoQ and 1.7% YoY, consistent with stronger activity than indicated by earlier estimates and supporting a more constructive growth outlook."

"On Friday, we expect Poland's July inflation at 0.9% MoM and 3.1% YoY, up from -0.5% MoM and 2.5% YoY, marking a notable acceleration in headline inflation, largely reflecting higher fuel prices following the expiry of retail fuel support measures."

"The Czech National Bank's blackout period ahead of the August meeting starts on Thursday, so board members may provide further signals in the coming days. Last week, Jan Kubicek said another rate hike remains under consideration, but there is no urgency for now. That points to no change in August, in line with our forecast."

"High-beta currencies such as the forint and zloty should benefit from this backdrop. By contrast, the koruna could come under pressure and move back above 24.200 EUR/CZK, given its strong link to rate differentials and the extent of recent rate hike pricing."

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Commerzbank’s Tatha Ghose reports the Russian central bank cut its key rate to 14.0% despite raising its 2026 inflation forecast and projecting stagflationary macro conditions. He argues the easing cycle suggests political pressure and would normally hurt FX valuation, but stresses USD/RUB and EUR/RUB are artificial rates, so the move should not significantly affect the Ruble’s market value.

Rate cuts under stagflationary outlook

"The Russian central bank (CBR) cut its key rate by 25bp on Friday to 14.0% even after raising its inflation forecast. The outcome was not expected by the majority, but was always a scenario within the range of expectations. CBR raised its 2026 inflation forecast to 6.0%-7.0% from 4.5%-5.5%, blaming the considerable rise in fuel prices, while still claiming that inflation will return to the 4% target in 2027."

"CBR lowered its 2026 GDP forecast to 0.0%-1.0% from 0.5%-1.5%, cut the oil-price assumption for taxation to USD 60/bbl from USD 65/bbl, and reduced the current-account surplus projection to USD 48bn from USD 72bn. In short, the macroeconomic outlook is stagflationary."

"CBR appears to ex-post justify the rate cut by arguing that underlying inflation will be contained: SAAR inflation averaged 5.0% in Q2 after 8.7% in Q1 (core inflation slowed to 4.2% from 6.2%). Measures of underlying inflation reportedly continue in the 4%-5% annualised range."

"But this defence is not fully convincing. Recent inflation accelerated in June-July, reaching 5.9% as of 20 July, and inflation expectations of households, businesses and financial market participants went up. If expectations remain elevated, CBR itself admits that this may impede a sustainable slowdown in inflation."

"Still, the FX market does not like a central bank which is under political pressure to lower interest rates. In any normal market, a central bank cutting rates while raising inflation forecast would hurt credibility and weigh on FX valuation. Russia is not a normal market. USD/RUB and EUR/RUB are artificial exchange rates, and this decision will not impact RUB valuations noticeably."

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