Forex News

• The Oil price trades close to its three-week high of $87.38 amid ongoing energy supply concerns.
• Both the US and Iran seem not interested in resuming talks regarding Hormuz reopening.
• US warns of economic consequences to nations for maintaining financial or commercial ties with Iran.

West Texas Intermediate (WTI), futures on NYMEX, trade flat near $86.00 during the European trading session on Friday, closer to its over three-week high of $87.38 posted the previous day. Oil prices remain firm as the global energy supply remains squeezed due to the closure of the Strait of Hormuz and the Bab el-Mandeb Strait, which together account for 27% of global energy supply.

Energy prices seem unlikely to retreat in the near term amid the absence of efforts from both the United States (US) and Iran to resume talks regarding the reopening of the Hormuz.

Meanwhile, tensions between the US and Iran are expected to remain escalated as President Donald Trump has warned of isolating Iran from the global financial system, and has also threatened severe economic consequences to other nations in case they support Iran.

Analysts at Danske Bank note that the latest US rhetoric on Iran has sharpened significantly, with President Trump warning of "severe consequences" for countries that maintain financial or commercial ties with Tehran. Treasury Secretary Scott Bessent reinforced the message, stating that the US intends to impose the "toughest sanctions in history".

According to Danske Bank, Bessent also suggested that a stronger sanctions push could actually "reduce the likelihood of a renewed large-scale military escalation" and argued that oil markets are "misinterpreting the message", potentially overstating the risk of a further geopolitical flare-up.

WTI Technical Analysis

In the daily chart, WTI US Oil trades at $85.74, maintaining a bullish near-term bias as price holds above the 20-day exponential moving average (EMA) at $82.03. The positioning of spot above this short-term trend indicator suggests underlying demand remains in control, while the Relative Strength Index (14) at 58.54 stays in positive territory without yet signalling overbought conditions, hinting that the latest advance could still have room to run.

On the downside, immediate support is seen at the 20-day EMA around $82.03, if broken lower, it would point to a deeper corrective phase. As long as WTI holds above the $82.03 zone, the technical picture favours further consolidation with an upside bias, while a clear daily close below this support would weaken the current constructive structure.

Looking up, the oil price is expected to extend its advance towards the two-month high at $92.25.

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

ING’s Chris Turner, Francesco Pesole and Frantisek Taborsky argue that recent US Treasury buy-backs are primarily a signalling tool against high yields, pointing to a softer Dollar in a risk-friendly environment. They see DXY capped below 99.00, with high-beta commodity and emerging market currencies likely to outperform, while warning that a sharp sell-off in Treasuries and equities would revive safe-haven FX demand.

Treasury signalling points to softer Dollar

"Many commentators seem to be treating this week's US Treasury intervention in bond markets as a heinous financial crime. We prefer to take the view offered by a former US Treasury official interviewed in the Financial Times today that this was a signalling exercise. Yes, these buy-back operations were originally designed to address market liquidity issues and the off-cycle nature of the adjustment has raised eyebrows."

"But the main takeaway has to be that higher longer-dated Treasury yields are firmly on the Treasury's radar and need to be addressed. US Treasury Secretary Scott Bessent suggested yesterday that there might be some new fiscal consolidation plans incoming. These could centre on a task force to cut back on fraud in the same way that Elon Musk's DOGE tried to cut back on government spending."

"For the dollar, quite a few are comparing this week's Treasury buybacks to President Donald Trump's 'Liberation Day' tariffs and concluding this again undermines US policy credibility. During that period in April 2025, the Swiss franc, the euro and the yen led the charge against a weaker dollar. We see this week's developments less as a policy credibility story and more as a soft dollar, pro-risk story if the US Treasury is taking a greater interest in protecting the long end."

"That probably means a gentler dollar decline and some outperformance of high-beta commodity currencies and emerging market currencies in general. If we're wrong and Treasuries and equities start selling off hard, then the story would revert to a lower USD/CHF, higher EUR/USD and high-yield FX selling off as volatility rises."

"On today's US calendar are the S&P PMI readings for August – all expecting continued expansion in activity. DXY has support in this 98.65/70 region and will probably struggle to make it back above 99.00 now."

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

• Gold regains positive traction as the USD hangs near a three-month low amid receding Fed rate-hike bets.
• Inflation risks stemming from higher oil prices support US bond yields, which could help limit USD losses.
• The US-Iran standoff keeps geopolitical risk premium in play and warrants some caution for USD bears.

Gold (XAU/USD) builds on the intraday breakout momentum above a technically significant 200-day Simple Moving Average (SMA) and climbs to its highest level since late May during the first half of the European session on Friday. The precious metal remains on track to register gains for the third straight week and appreciate further amid a broadly weaker US Dollar (USD). Traders scaled back their bets on an immediate interest rate hike by the Federal Reserve (Fed) after the latest US inflation data released last week signaled signs of cooling price pressures. This keeps the USD depressed near its lowest level in over three months, touched on Thursday, and is seen as a key factor supporting the non-yielding bullion.

Investors, however, remain worried about inflation risks stemming from higher oil prices, bolstered by the US-Iran standoff over the Strait of Hormuz. Adding to this, Yemen’s Iran-backed Houthi militant group claimed to have targeted eight oil tankers since declaring a maritime blockade on Saudi shipping in late July, raising the risk of a broader regional conflict and lifting oil prices to a three-week high on Thursday. This, to a large extent, overshadows the US Treasury Department's plan to double the size of some long-dated debt buyback operations and remains supportive of elevated US bond yields.

Meanwhile, Minutes from the July 28-29 FOMC meeting, released on Wednesday, revealed that Fed officials indicated the need to raise interest rates soon unless there was more progress on bringing down inflation. Moreover, CME Group's FedWatch Tool indicates that investors are still pricing in around a 68% chance that the US central bank will raise borrowing costs at least once by the year-end. This, along with persistent geopolitical uncertainties, could help limit deeper losses for the safe-haven buck and hold back bullish traders from positioning for any further appreciating move for gold.

In the latest developments surrounding the Middle East crisis, President Donald Trump said on Wednesday that the US will launch the "most crushing economic operation" against Iran. Furthermore, Trump threatened to impose severe penalties on any nation that helps Tehran evade sanctions or does business with Iran. Adding to this, Vice President JD Vance said that economic pressure is the most effective tool against Iran. This keeps the geopolitical risk premium in play, backing the case for the emergence of some USD buying at lower levels, which, in turn, might keep a lid on the Gold price.

XAU/USD daily chart

Technical Analysis

The XAU/USD pair seems to have found acceptance above the 200-day SMA, with bulls now awaiting a move beyond the 61.8% Fibonacci retracement level of the April-June decline before placing fresh bets. Moreover, the Moving Average Convergence Divergence (MACD) indicator remains positive, reinforcing the upward bias. Meanwhile, the Relative Strength Index (14) at 67.70 flirts with overbought territory, hinting at strong but potentially stretched bullish momentum.

Nevertheless, the broader technical setup suggests a constructive near-term tone. Hence, sustained strength above the 61.8% Fibo. at $4,529 should pave the way for additional gains to the 78.6% retracement at $4,687, ahead of the cycle high at $4,889. On the downside, immediate support is seen at the 61.8% retracement at $4,529.03, followed by the 200-day SMA at $4,514.16 and then the 50% retracement near $4,417. Deeper floors emerge at the 38.2% level at $4,306.50, the 23.6% retracement around $4,168, and the structural low anchored near $3,946.

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

• EUR/GBP trades around 0.8570 on Friday, virtually unchanged on the day.
• Eurozone manufacturing activity surprises to the upside in August, notably driven by a strong acceleration in Germany.
• In the United Kingdom, robust services activity offsets a slowdown in manufacturing, while Retail Sales decline in July.

EUR/GBP trades around 0.8570 on Friday at the time of writing, virtually unchanged on the day. The pair lacks a clear direction following the release of broadly solid activity indicators in both the Eurozone and the United Kingdom (UK), simultaneously providing support to the Euro (EUR) and the British Pound (GBP).

In the Eurozone, the preliminary HCOB Manufacturing Purchasing Managers Index (PMI) rose to 52.8 in August from 51.9 previously, while market expectations pointed to a slight slowdown to 51.8. Services activity remained unchanged at 51.7, slightly above expectations of 51.5. The Composite PMI improved to 52.1, exceeding the 51.7 forecast and the previous reading of 52.

German data, however, painted a more mixed picture. Germany’s Manufacturing PMI jumped to 54.1 in August, its highest level in 51 months, from 52.2 previously and well above the 52 expected. In contrast, the Services PMI fell to 48.5 from 49.8, while economists had expected a return to expansion territory at 50.1. Germany’s Composite PMI consequently eased to 51 from 51.3, missing expectations of 51.3.

On the UK side, preliminary S&P Global surveys also show stronger-than-expected business activity. The UK Composite PMI rose to 52.5 in August from 52.2 previously, beating expectations of 51.6. The improvement is mainly driven by the services sector, with the Services PMI accelerating to 52.8 from 52.1 and comfortably exceeding the 51.8 consensus. The Manufacturing PMI, however, slowed to 51.5 from 51.9, in line with expectations.

These encouraging activity figures help the British Pound remain resilient despite weaker consumption data. The Office for National Statistics (ONS) reported earlier that Retail Sales declined by 0.5% MoM in July, in line with expectations, following a downwardly revised 0.7% increase in June. On an annual basis, sales rose by 1.6%, below the 2.2% expected and down from a revised 3.8% previously.

The limited reaction in EUR/GBP therefore reflects supportive macroeconomic signals for both currencies. The unexpected acceleration in Eurozone manufacturing activity supports the Euro, while robust UK services activity offsets weaker consumption data and helps keep the British Pound relatively stable.

EUR/GBP technical analysis

In the one-hour chart, EUR/GBP trades at 0.8569, holding a mildly bullish near-term bias as it remains above the key underlying supports. The pair is trading over the 100-period simple moving average (SMA) at 0.8562 and the 200-period SMA at 0.8553, while an upward-sloping trend-line coming in around 0.8554 reinforces the constructive structure. The Relative Strength Index (RSI) at 48 points to neutral momentum, suggesting the cross is consolidating gains rather than extending a directional move for now.

On the topside, initial resistance emerges at the horizontal barrier near 0.8575, followed by a more important cap around 0.8585, where recent advances have stalled. On the downside, immediate support is seen near the 100-period SMA at 0.8562, just above the horizontal floor at 0.8560, while the rising trend-line around 0.8554 and the 200-period SMA at 0.8553 form a deeper support zone that would need to give way to undermine the current positive tone.

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

• USD/JPY comes under some selling pressure and is weighed down by a combination of factors.
• Japan’s National CPI report reaffirms BoJ rate hike bets and provides a modest lift to the JPY.
• Receding Fed hike bets undermine the USD, though geopolitical risks could limit deeper losses.

The USD/JPY pair struggles to capitalize on the previous day's recovery from the 158.00 mark, or a one-and-a-half-week low, and meets with fresh supply on Friday. Spot prices stick to modest intraday losses around the 158.60 area through the first half of the European session and remain on track to end in the red for the first time in three weeks.

The Japanese Yen (JPY) gets a minor lift after domestic data showed that core consumer inflation accelerated during July, bolstering the case for an interest rate hike by the Bank of Japan (BoJ). In fact, the core Consumer Price Index (CPI), excluding fresh food items, rose 1.8% YoY in July, up from a 1.6% advance in the previous month and marking the fastest pace since January. Adding to this, an index that strips out both volatile fresh food and fuel prices, which is closely watched by the BoJ as a clearer ‌gauge of underlying inflation, rose 1.9% from a year earlier after a 1.7% gain in June. This, along with the prevailing US Dollar (USD) selling bias, exerts some downward pressure on the USD/JPY pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near its lowest level since May 14 as traders have been trimming their bets for an immediate interest rate hike by the US Federal Reserve (Fed). However, markets are still assigning around a 68% chance that the US central bank will raise borrowing costs by the end of this year amid inflation risks stemming from higher oil prices. Moreover, minutes from the July 28-29 FOMC meeting revealed on Wednesday that officials indicated the need to raise interest rates soon unless there was more progress on bringing down inflation. This, along with geopolitical uncertainties, supports the USD and the USD/JPY pair.

Furthermore, the wide US-Japan interest rate gap and growing concerns about Japan's worsening fiscal condition might hold back JPY bulls from placing aggressive bets. Hence, it will be prudent to wait for strong follow-through selling before confirming that the recent goodish recovery from the 155.25-155.20 area, or the lowest since May, touched earlier this month, has run out of steam and positioning for further losses. Traders now look forward to the release of flash US PMIs for some impetus, while further developments surrounding the Middle East crisis might also contribute to producing short-term trading opportunities around the USD/JPY pair.

BNY’s David Tam stresses that while the Federal Reserve retains legal capacity to support corporate credit, the current Warsh Fed is unlikely to repeat Covid‑era interventions. He sees no immediate alarm, with tight spreads and solid demand, but warns that in a future selloff investors cannot rely on dealers or the Fed to quickly contain a sharp widening in credit spreads.

Warsh Fed seen reluctant to intervene

"The Fed has the legal authority and institutional capacity to intervene in the event of a truly disorderly widening of credit spreads. During the early days of Covid, the Fed set up the Primary Market Corporate Credit Facility (PMCCF) and Secondary Market Corporate Credit Facility (SMCCF). The PMCCF ultimately saw no take-up while the SMCCF only saw $14bn, well below the headline capacity, but the programs are often credited with narrowing spreads through an announcement effect."

"Critics of the Covid interventions respond, however, that the PMCCF, SMCCF and other Fed programs increased moral hazard. Our view is that the bar is extremely high for the Warsh Fed to intervene in private markets to address a widening of credit spreads in the way that the Fed has in the past. The Warsh Fed is more likely to view such an event as a localized crisis or an opportunity to impose discipline in a market that has enjoyed almost 20 years of a more interventionist Fed."

"To be clear, we see no immediate cause for alarm. At least at the moment, Bid-Ask spreads remain narrow, dealers are structurally short IG credit, end investor demand appears to be holding up, and spreads remain near their tightest levels. But investors should be aware that in the event of a selloff, some of the typical circuit breakers, a marginal end investor ready to step in, the dealer community, or the Fed might not be as willing or able to contain a gap wider in spreads."

"As dealers are the first line of defense in a selloff, keep an eye on dealer net positioning and total fails. Dealer positioning moving more toward neutral or even net long might suggest greater balance sheet constraints and a continued rise in fails could suggest intermediation frictions."

"Keep an eye both on spreads and on long-end yields. A widening in credit spreads might suggest that investor sentiment is cooling, while a decline in long-end yields might make the value proposition less compelling."

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

Commerzbank’s Tatha Ghose highlights growing challenges for Polish policymakers, citing stretched fiscal plans and accelerating underlying inflation. PPI and wage growth have picked up sharply since the Iran war, leading him to argue that further National Bank of Poland rate cuts should be ruled out. With NBP likely to stay non-committal, this backdrop is seen as negative for the Zloty.

Fiscal strain and inflation curb rate-cut hopes

"Developments in the Polish economy are turning less comfortable for monetary policymakers. We can cite two areas: 1) the fiscal situation and 2) underlying inflation dynamics."

"Moving on to inflation news: PPI inflation accelerated to 2.8%y/y in July from 1.9%y/y in June, faster than the 2.5% consensus. This is consistent with the broader energy and commodity shock story: renewed US-Iran hostilities pushed oil and natural gas prices higher, and the outlook for August is poor because oil prices have continued to rise."

"As usual, the year-on-year picture is not reliable: on our preferred seasonally-adjusted month-on-month basis, inflation drivers such as PPI and wages are notably accelerating; PPI has reversed from being deflationary to sharply inflationary since the start of the Iran war."

"This should rule out further rate cuts by Poland’s National Bank (NBP) for the foreseeable future – NBP governor Adam Glapinski’s earlier indication that rate cuts may soon follow should now be treated as obsolete information."

"Assuming that NBP will at best stay non-committal about future rate moves, the development is negative for the zloty because inflation data are accelerating faster than NBP is likely to turn hawkish."

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

The United Kingdom (UK) S&P Global Composite Purchasing Managers' Index (PMI) expanded surprisingly at a faster pace to 52.5 in August due to robust service sector activity. The Composite PMI was expected to arrive lower at 51.6 from 52.2 in July.

The Service PMI also expanded unexpectedly at a faster pace to 52.8 from the previous reading of 52.1. The data was expected to come in lower at 51.8. Meanwhile, the Manufacturing PMI dropped to 51.5, as expected, from 51.9 in July.

Market reaction

A slight upside move is seen in the British Pound (GBP) against the US Dollar (USD) after the data release. However, this appears to be the outcome of a downside move in the US Dollar. As of writing, GBP/USD trades 0.15% higher to near 1.3650.