Forex News

• USD/JPY rebounds as the Japanese Yen struggles despite rising domestic bond yields.
• Weak Japanese growth complicates expectations of a BoJ rate hike in September.
• The risk of further intervention keeps the pair capped below 160.

USD/JPY rebounds on Monday after coming under selling pressure earlier in the day, as the Japanese Yen (JPY) struggles to gain traction despite a weaker US Dollar (USD). At the time of writing, the pair trades around 159.25, recovering from an intraday low of 158.85.

The Yen struggles despite the recent joint intervention by Japan and the United States and a rise in Japanese government bond yields to multi-decade highs. The intervention briefly pushed USD/JPY toward 155.00, but the pair has since recovered most of that decline.

Japanese yields are climbing as a weaker Yen and elevated energy prices worsen the inflation outlook. Yen depreciation raises import costs, particularly for energy, at a time when tensions in the Middle East and restricted shipping through the Strait of Hormuz are keeping Oil and gas prices elevated. Japan relies heavily on imported energy, leaving the economy exposed to rising global prices.

Against this backdrop, the Bank of Japan (BoJ) is expected to raise interest rates as early as September. The benchmark 10-year Japanese government bond yield touched 2.93% on Monday, its highest level since 1996.

Higher interest rates and bond yields would normally support the Yen by making Japanese assets more attractive and narrowing the yield gap with other major economies. However, they also raise concerns about Japan’s fiscal outlook. With the government carrying a heavy debt burden, sustained higher yields would gradually increase borrowing and debt-servicing costs, limiting their positive impact on the currency.

Weaker-than-expected Japanese growth data add another challenge for the BoJ. Preliminary Gross Domestic Product (GDP) expanded 0.3% QoQ in the second quarter, below the 0.5% forecast and the previous 0.5% increase. Annualized growth slowed to 1.1%, missing expectations of 2.0% and easing from 1.8%.

The softer data highlight the difficult balance the central bank faces. Raising interest rates could support the Yen and limit imported inflation but would also increase borrowing costs and place additional pressure on the economy and bond market. Keeping policy accommodative could ease pressure on bonds but risk additional Yen weakness.

Meanwhile, the US Dollar stays under pressure as recent US economic data point to weaker labour demand, softer consumer spending and easing inflation. Traders now expect the Federal Reserve (Fed) to keep interest rates unchanged in September, reversing earlier expectations of a hike.

The risk of another round of currency intervention also discourages buyers from pushing the pair decisively higher, keeping USD/JPY capped below the 160 psychological mark.

• Silver gains 2.47% on Monday and trades around $66.30 after rebounding from Friday’s lows.
• Disappointing US data reduces expectations of a September rate hike and weighs on the US Dollar.
• Minutes from the Fed’s July meeting, due on Wednesday, could provide fresh clues about the interest rate outlook.

Silver (XAG/USD) extends its advance on Monday and trades around $66.30 at the time of writing, up 2.47% on the day. The white metal continues to rebound from the $63.50 area reached on Friday, mainly supported by the weakening US Dollar (USD) and fading expectations that the Federal Reserve (Fed) will raise interest rates again in September.

The shift in monetary policy expectations follows a series of disappointing US economic releases. US Retail Sales declined by 0.6% in July, while markets had expected a 0.1% increase, following a 0.2% rise in June.

These figures add to the annual slowdown in the Consumer Price Index (CPI) and Producer Price Index (PPI), as well as the weak July Nonfarm Payrolls (NFP) report. The accumulation of signs pointing to a slowdown in the US economy is reducing pressure on the Fed to raise interest rates further.

According to the CME FedWatch tool, markets now see around a 70% chance that the US central bank will leave interest rates unchanged at its September meeting, up from 48% a week earlier.

This repricing weighs on the US Dollar and provides support to Silver. The US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, trades around 99.50 at the time of press after touching 99.30, its lowest level since June 5. A weaker US Dollar tends to make precious metals denominated in the US currency more attractive to investors using other currencies.

Investors remain attentive to geopolitical tensions in the Middle East, particularly around the Strait of Hormuz. Persistent risks to energy supplies are keeping Oil prices elevated and could fuel inflationary pressures, potentially limiting the Fed’s ability to adopt a more accommodative stance.

Market attention now turns to the Minutes of the July Federal Open Market Committee (FOMC) meeting, due on Wednesday. The document could provide further insight into the balance of risks within the Fed and determine whether the recent decline in rate hike expectations can persist, a factor likely to remain a key driver for Silver in the near term.

XAG/USD technical analysis

In the one-hour chart, XAG/USD trades at $66.36, retaining a bullish near-term bias as price holds well above the 100-period simple moving average (SMA) near $65.14 and the 200-period SMA around $64.04. The metal also respects an ascending trend-line support coming from $63.51 and now intersecting near $65.38, reinforcing the constructive structure, while the Relative Strength Index (RSI) around 65 suggests firm but not yet extreme upside momentum.

On the topside, the immediate hurdle is the horizontal resistance at $66.80, where buyers could face profit-taking. On the downside, initial protection is seen at the rising trend-line support near $65.38, followed by the 100-period SMA at $65.14; a deeper retreat would expose horizontal support at $64.25 ahead of the 200-period SMA at $64.04, where broader bulls would be expected to defend the uptrend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

• The US Dollar is deeply out of favor, with August's run of soft data denting the case for a September Fed move.
• China's July Industrial Production and Retail Sales both came in weaker than the prior month and below forecasts, pointing to slowing domestic activity.
• AUD/USD is looking past the poor Chinese numbers and leaning on the Greenback's weakness.

AUD/USD extended its recovery on Monday, pushing to fresh 10-week highs and holding near the 0.7100 zone. At the time of writing, the pair is 0.40% up for the day, driven almost entirely by a broadly weak US Dollar (USD) rather than anything positive out of Australia.

The Greenback is on the back foot across the board. The batch of US data released so far in August on employment, inflation, and retail sales has consistently come in soft, and that has pared back expectations that the Federal Reserve (Fed) will raise rates at its September meeting. The Fed held its benchmark at 3.50%-3.75% in early August, with three officials dissenting in favor of a hike on inflation concerns.

Several Chinese releases landed between Sunday night and early Monday, including Industrial Production and Retail Sales. Both slowed from the previous month and missed expectations, a combination that points to slowing domestic activity in China. Factory output grew 4.5% in July, down from June and short of forecasts, while retail sales growth cooled to 0.6%.

For a currency as tied to Chinese demand as the Aussie, that would normally be a drag. Instead, AUD/USD has brushed the numbers aside, a sign of just how one-sided the story is right now, with the weak Greenback overriding everything else.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.7115, preserving a bullish near-term bias as it holds above the 20-period Simple Moving Average (SMA) at 0.7077 and the 100-period SMA at 0.7030. The pair is also trading just over horizontal support at 0.7108, while the Relative Strength Index (RSI) stands near 69, suggesting strong but slightly overbought upside momentum that could slow the advance without necessarily reversing it immediately.

On the topside, immediate resistance emerges at 0.7124, followed by a dense barrier at 0.7127 and 0.7129, where sellers are likely to defend the recent push higher. On the downside, initial support is seen at 0.7108, with the 20-period SMA at 0.7077 and the 100-period SMA near 0.7030 expected to act as deeper demand levels if a corrective pullback unfolds.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Scotiabank strategists Shaun Osborne and Eric Theoret note British Pound (GBP) is underperforming core European peers but has still reached a three‑month high against the US Dollar (USD). They see markets as cautious ahead of a heavy United Kingdom (UK) data calendar including wages, jobs, Consumer Price Index (CPI) and Retail Sales. Short‑term technicals for GBP/USD are described as bullish, with scope to retest the May high at 1.3660 and support at 1.3530/50.

Pound climbs but faces key UK data

"Sterling is lagging its core European peers somewhat on the day but gains are still enough to lift the pound to a three-month high against the USD."

"There are no major factors or note behind the pound’s intraday performance."

"Markets are perhaps a little cautious ahead of this week’s barrage of UK data—wages, jobs, CPI, Retail Sales etc.."

"Bullish—Minor new highs for Cable above the July peak alongside solid underlying trend momentum point to GBP gains pushing on to retest the May high at 1.3660. Short-term support is 1.3530/50."

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

According to ING’s Lynn Song, Chinese industrial production growth slowed more than expected in July but remains relatively resilient compared with other domestic indicators. Manufacturing and high-tech manufacturing continue to outperform, with strong gains in electronics, rail, aerospace, robotics, NEVs and semiconductors. Traditional property and infrastructure-linked sectors such as cement, steel and flat glass remain weak, reflecting the ongoing property downturn.

Upgrading and external demand support industry

"Industrial production rose 4.5% YoY in July, slowing from 5.3% in June and falling short of forecasts for a smaller moderation (market: 5.0%, ING: 5.0%). This brought year-to-date industrial production growth to 5.3% YoY, slightly lower than the 5.4% recorded in the first half, but still relatively resilient compared with other domestic activity indicators."

"Manufacturing continued to outperform the headline, growing 5.5% YoY in July, while high-tech manufacturing accelerated to 16.9% YoY, up from 14.1% in June. This reinforces the structural theme that China’s industrial growth is increasingly being driven by industrial upgrading and high-tech manufacturing, the strategic priorities for the country."

"The product-level industrial production data also point to continued strength in new economy sectors. Industrial robots rose 30.2% YoY, new energy vehicles rose 29.9% YoY, and semiconductor integrated circuits rose 20.7% YoY, This supports the view that the industrial cycle is being increasingly supported by robotics, semiconductors, NEVs and higher-end manufacturing."

"In contrast, traditional property and infrastructure-linked sectors remained weak. Cement output fell -11.6% YoY, steel products fell -4.1% YoY, and flat glass declined -3.6% YoY, underscoring the continued drag from the old property and construction-related industrial cycle."

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

Commerzbank’s Volkmar Baur notes that the US Dollar (USD) has weakened against the Euro (EUR) as markets steadily scale back expectations for further Federal Reserve (Fed) tightening relative to other G10 central banks. Since December, higher US rate expectations have supported the Dollar, but the recent reversal and Commerzbank’s forecast of three US rate cuts next year point to renewed Dollar downside.

Fed repricing threatens recent Dollar strength

"Since the end of December, the market has revised its expectations for the Fed significantly higher than was the case for the rest of the G10. In December, for example, the market still expected the Fed to cut rates by 60 basis points (bps), while the G10 average forecast called for 10 bps of hikes."

"Over time, however, this gap has gradually closed - particularly since the start of the Iran conflict - and most recently, the market had even anticipated a more substantial interest rate hike in the US."

"All of this has supported the US dollar in recent months and prevented it from depreciating further. However, should the trend of the past two weeks continue - as suggested by our economists’ forecasts, which still anticipate three interest rate cuts in the US next year - the US dollar should once again come under pressure, as we expect."

"If we compare market expectations for the Fed with those for the other G10 central banks (excluding the Nordic countries), it becomes clear that market expectations for the US central bank have been steadily scaled back since the last Fed meeting, whereas this has not been the case for the other developed countries."

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

TD Securities strategists note that money managers sharply increased long Gold exposure as modest inflation, soft United States (US) employment data and expectations that the Federal Reserve (Fed) will not hike rates this year weigh on the US Dollar (USD). Some investors still added shorts as protection, reflecting concern that higher Oil prices and interest rates remain possible given Persian Gulf geopolitical risks.

Specs boost longs on Fed pause hopes

"Speculation the Fed will not pull the trigger on higher interest rates and continued Middle East instability prompted investors to add gold and oil exposure."

"The combination of modest inflation, a lackluster U.S. employment environment, little market concern that oil will have another major rally, along with prices moving convincingly into a higher trading range prompted money managers to aggressively increase their long gold exposure."

"Traders are hypothesizing that the Fed will not pull the trigger on rate hikes this year, which has subdued interest rates on the short end of the curve and convinced specs that the USD is headed lower."

"Still, a small portion of money managers added to their short positions to protect against a move lower in gold prices, as they fear that higher oil andinterest rates are still a strong possibility considering the geopolitical instability in the PersianGulf region."

(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 the Euro (EUR) is firming as Eurozone economic resilience and narrowing yield spreads versus the US support EUR/USD. Short-term technicals are described as bullish, with intraday and daily momentum positive and the weekly study close to turning higher. They see a push through 1.1625/50 opening further gains toward the mid‑1.17s, with support at 1.1550/75.

Euro supported by resilience and yield spreads

"The firming trend in the EUR reflects economic resilience in the Eurozone despite headwinds from energy and drought conditions as well as the narrowing yield spreads between the Eurozone and the US."

"While the yield gap remains substantial in the USD, the 2Y spread has narrowed to –136bps this morning, the smallest US yield advantage since May."

"Bullish—The EUR is firmer for a fourth week running. Intraday and daily trend momentum is bullish and the weekly study is close to flipping to positive."

"The short-term bull objective will be an extension through the 1.1625/50 range which should then open up further gains to the mid-1.17s. Support is 1.1550/75."

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

Royal Bank of Canada (RBC) economists Abbey Xu and Nathan Janzen note that Canadian inflation rose to 3% year-over-year in July, mainly on higher energy costs, while underlying measures like CPI-trim and CPI-median stayed near the 2% target. They see limited pass-through from energy to broader prices and expect the Bank of Canada (BoC) to hold rates unchanged through 2026.

Inflation uptick with stable core gauges

"Canadian inflation edged up to 3% year-over-year in July from 2.8% in June, driven primarily by a renewed increase in energy prices."

"Underlying inflation pressures remained comparatively contained."

"There was still limited evidence that higher energy costs had spread significantly across the broader CPI basket."

"Overall, the July report remains consistent with a relatively favourable combination of firming economic growth and underlying inflation close to target."

"Against that backdrop, we continue to expect the Bank of Canada to keep the overnight rate unchanged through the remainder of 2026."

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