Forex News
Bart Melek at TD Securities argues that money managers are heavily short crude based on what he views as misread market conditions, including pessimism on China demand and expectations of an oil glut. With deficits set to persist and deepen through summer and Brent breaking key resistance, the bank expects positioning to shift as short covering risks grow.
Managed money shorts at extremes
"We have long argued that ongoing inventory erosion later this summer would trigger a short-covering rally."
"That process now appears to be unfolding more rapidly than expected."
"We see $10–15/ bbl of additional upside in the not-too-distant future should the crisis continue to threaten oil supplies and force money managers to cover their short positions."
"Based on what we view as misplaced interpretations of market conditions, including expectations that China will have a cycle of demand destruction, persistently depressed import levels, the belief that seaborne inventories are not falling at a record pace, and forecasts for an "oil glut" in the coming months, money managers are heavily short."
"Short exposure in Brent is at levels not seen since late 2025, when the market was concerned about a three million b/d surplus."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Royal Bank of Canada (RBC) economist Claire Fan expects Canada’s economy to rebound in Q2 2026, supported by resilient household spending, recovering business investment and expanding net trade. Growth is projected to continue over the second half of 2026, with CUSMA exemptions still shielding most Canadian exports from U.S. tariffs. The Bank of Canada is expected to keep interest rates on hold throughout 2026.
Rebound supported by trade and spending
"Canada’s economy is on track to rebound in Q2, driven by resilient household spending, recovering business investment and expanding net trade."
"Growth is expected to continue over the second half of 2026 with CUSMA exemptions still protecting most Canadian exports from U.S. tariffs."
"The Bank of Canada is expected to remain on hold in 2026."
"Uncertainties around trade and energy prices are persisting but recent developments—broadly easing energy price growth and firming economic growth—have evolve broadly as expected, reaffirming the BoC’s steady stance."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- GBP/USD rises following softer-than-expected US inflation data.
- Traders scale back near-term Fed rate-hike bets, weighing on the US Dollar and Treasury yields.
- Renewed US-Iran tensions and rising Oil prices keep inflation risks alive.
The British Pound (GBP) strengthens against the US Dollar (USD) on Tuesday after US inflation data surprised to the downside, reducing expectations of a near-term Federal Reserve (Fed) interest rate hike. At the time of writing, GBP/USD trades around 1.3415, up nearly 0.50% on the day and hovering near a one-month high.
The US Consumer Price Index (CPI) fell 0.4% MoM in June, following a 0.5% rise in May. The reading came in below the forecast of a 0.1% decline. Annual inflation eased sharply to 3.5% from 4.2%, below the 3.8% forecast.
Core CPI, which excludes volatile food and energy prices, was flat on a monthly basis, missing expectations for a 0.2% increase. The annual core rate slowed to 2.6% from 2.9%, below the 2.8% forecast.
In reaction to the data, traders quickly scaled back Fed rate-hike bets, pushing the US Dollar and US Treasury yields lower. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 100.70, retreating from an intraday high of 101.32.
According to the CME FedWatch Tool, the probability of a July hike fell to 16% from 40% before the CPI release, while the odds of a September increase eased to 60% from 74%.
However, the softer inflation figures could prove temporary, as the decline was largely driven by lower energy prices following last month’s interim peace deal between the US and Iran.
With tensions rising again and Oil prices moving higher, inflation risks remain alive, keeping the possibility of a Fed rate hike later this year on the table.
Traders now await Fed Chair Kevin Warsh’s congressional testimony, along with speeches from Fed officials Michael Barr, Austan Goolsbee and Lisa Cook.
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.
Societe Generale notes Bank Indonesia’s (BI) reaction function is driven by the Indonesian Rupiah (IDR) and exchange rate stability. The report says the Rupiah faces pressure from a stronger US Dollar (USD) and hawkish Federal Reserve (Fed) pricing, with stress around USD/IDR 18,000. BI is ready to act if currency weakness becomes disorderly or threatens inflation expectations, keeping a hawkish stance.
Currency weakness keeps hike risk alive
"Also, BI still has room to manage currency depreciation pressure through non-rate instruments."
"We expect BI to maintain a hawkish policy bias, emphasising its willingness to act again if rupiah weakness becomes disorderly or begins to threaten inflation expectations."
"The rupiah remains under pressure from a stronger US dollar and more hawkish Fed pricing, with renewed stress around the USD/IDR 18,000 in early July."
"First, if the currency depreciation accelerates despite intervention, BI may need to raise rates to rebuild carry, stabilise expectations and limit portfolio outflows."
"Secondly, BI has already tightened meaningfully in a short period, and the macroeconomic trade-off is becoming more visible. Consumer confidence eased to 117.8 in June from 120.9 in May, even though it remains in optimistic territory."
"Third, a renewed rise in US yields, a more hawkish Fed, higher oil prices or a deterioration in Indonesia’s external balance could force BI to prioritise currency stability over growth."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
ING economists Peter Virovacz and Frantisek Taborsky turn more optimistic on Hungary’s growth outlook, noting positive surprises in high-frequency data and stronger consumption. They still project 1.5% GDP growth in 2026 but now see clear upside risks. Industry and retail are recovering, though net exports and demographics may constrain expansion, while the Finance Ministry expects 1.6–2.0% GDP growth.
GDP forecast with upside risks
"Our latest GDP forecast projects a 1.5% increase in 2026. However, this generally gloomy outlook is now accompanied by a clear upside risk, given the latest positive surprises in high-frequency economic activity data. Consumption is expected to drive Hungarian growth this year."
"Although the surge in new export capacity could substantially improve the industrial outlook, current data does not suggest a broad-based recovery. Hungarian industry could achieve an average growth rate of around 4% in 2026. In other words, after three years of industrial recession, the sector could contribute positively to the overall performance of the Hungarian economy once again."
"Consumer confidence is approaching historical highs, with persistently low inflation and strong wage growth providing a favourable foundation for sustained growth in the retail sector, and consequently in consumption. We anticipate retail sales growth of around 5-6%, so household consumption will remain the main driver of the economy in 2026."
"In the absence of any demographic shift, a significant proportion of companies are likely to continue to hoard labour, keeping the market tight. As the end of the year approaches, the issue of next year's wages is becoming increasingly pressing. The three-year minimum wage agreement is entering its final year in 2027 and will certainly need to be revised."
"Regarding the balance of payments, we see the current account turning negative in 2026 following an improvement driven by export capacity in the years ahead."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- EUR/USD climbs after US inflation data comes in softer than expected.
- The US Dollar falls as traders scale back Fed rate-hike bets.
- Attention turns to Fed Chair Kevin Warsh’s congressional testimony later on Tuesday.
EUR/USD snaps a two-day losing streak on Tuesday as softer-than-expected United States (US) inflation data weighs on the US Dollar (USD) and prompts traders to scale back expectations of a near-term Federal Reserve (Fed) interest rate hike.
At the time of writing, the pair trades around 1.1450, up nearly 0.60% on the day. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 100.70, retreating from an intraday high of 101.32.
The US Consumer Price Index (CPI) declined 0.4% MoM in June, marking its largest decline since April 2020. Markets had expected a smaller 0.1% decrease following May’s 0.5% rise. Annual inflation eased sharply to 3.5% from 4.2%, below the 3.8% forecast.
Underlying inflation also cooled more than markets expected. Core CPI, which excludes volatile food and energy prices, was flat on a monthly basis, missing expectations for a 0.2% increase. The annual core rate slowed to 2.6% from 2.9%, below the 2.8% forecast.
Traders quickly reacted to the data by scaling back Fed rate-hike bets. According to the CME FedWatch Tool, the probability of a July hike fell to 16% from 40% before the CPI release, while the odds of a September increase eased to 60% from 74%.
Still, the broader inflation outlook remains uncertain as renewed tensions between the US and Iran push energy prices higher. West Texas Intermediate (WTI) crude Oil trades around $80.00, up nearly 12% so far this week. If Oil prices remain elevated, the Fed could still consider raising interest rates later this year.
Attention now turns to Fed Chair Kevin Warsh’s congressional testimony, due later in the American session. In prepared remarks, Warsh said the Fed has “no tolerance for persistently elevated inflation” while describing the labor market as broadly stable. He added that if policymakers get policy right, the inflation surge of the past five years will become “a thing of the past.”
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
TD Securities’ Julie Ioffe and James Rossiter argue that the European Union already possesses key ingredients for stronger long-term growth, including wealthy consumers, productive workers, deep private savings and solid fiscal capacity. They stress that policy is shifting toward reducing Single Market barriers, deepening capital markets and improving competitiveness to better deploy existing strengths across the 450 million-person EU market.
EU strengths and reform-driven upside
"If upcoming reforms manage to unlock capital, scale, and competitiveness, the EU could turn overlooked resilience into under-priced growth and profits."
"We believe Europe's challenge is not a lack of demand, talent, or productivity but its ability to deploy these strengths efficiently across a market of 450 million people."
"In this report, we argue that Europe possesses the foundations for stronger growth and that the upside from better integration and capital allocation is currently underappreciated by markets."
"This distinction matters. The region is not stagnant or weak as it has already assembled most of the ingredients associated with stronger long-term growth."
"If successful, Europe could begin converting its already solid fundamentals into stronger growth, investment, and competitiveness."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Rabobank revises its TTF Natural Gas and JKM forecasts higher for Q3 and Q4 2026, citing a structurally tight LNG market and deeper Qatari export losses following renewed Hormuz disruption. The bank still expects a winter premium, warning Europe may enter winter with storage only just above 70% capacity, leaving buyers more exposed to spot LNG pricing and supply shocks.
Qatar shortfall tightens global balances
"The renewed fighting reinforces our view that the LNG market remains structurally tight and that any expectation of a rapid normalization in global balances is becoming unattainable."
"Even under the optimistic assumption that flows gradually resumed through the Strait of Hormuz by August, Qatar was still on track to lose around 37 million tonnes of LNG production and exports by year-end."
"With the latest breakdown in the US-Iran understanding and the resumption of military action, that shortfall is now likely to increase further as it hampers the recovery of Hormuz flows."
"If Qatar can only export a fraction of normal volumes, the global LNG deficit could expand materially, driving stronger competition for available cargoes and leaving Europe and Asia increasingly exposed to supply shocks."
"Taken together, the larger expected LNG shortfall, slower European storage injections and renewed risk premium around Hormuz justify a modest upward revision to our TTF and JKM forecasts for Q3 and Q4 (to €48/MWh and $16.85/MMBtu and Q4 prices to €52/MWh and $18/MMBtu, respectively)."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
MUFG’s Lee Hardman reports the New Zealand Dollar is the top G10 performer overnight, helped by a hawkish shift in RBNZ rate expectations. After last week’s hike, RBNZ's Chief Economist Paul Conway flagged upside risks to the September inflation forecast from Middle East developments and warned of a response if pressures persist. Markets now anticipate a back-to-back rate increase in September.
Kiwi benefits from rate hike risks
"The top performing G10 currency overnight has been the New Zealand dollar which has also been boosted by the hawkish repricing of RBNZ rate hike expectations."
"After hiking rates for the first tie last week, the RBNZ’s Chief Economist Paul Conway stated that “I think developments in the Middle East over the last week suggest upside risks to our September quarter forecast”."
"He warned that “if inflation pressures stemming from the Middle East conflict prove to be more persistent than expected, we will respond”."
"The comments have reinforced market expectations that the RBNZ will deliver a back-to-back rate hike at the next policy meeting in September.
"The latest unfavourable developments in the Middle East have refocused market attention on upside inflation risks for the global economy."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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