Forex News

Nordea analysts Jan von Gerich and Tuuli Koivu note that the European Central Bank (ECB) delivered a 25bp rate hike and signalled a bias toward further tightening as its projections show Eurozone inflation above target through 2028. They expect additional 25bp hikes in December and March 2027, while acknowledging upside risks from Middle East tensions and energy prices and downside risks to growth.

Nordea sees more ECB tightening ahead

"The ECB raised rates by 25bp, in line with expectations. While the policy-related paragraph in the press release was left unchanged, emphasizing the ECB’s data-dependent, meeting-by-meeting approach and no pre-commitments to a particular rate path, baseline forecasts showing inflation above target throughout 2026, 2027 and 2028 clearly signal a bias towards further rate hikes."

"We expect to see 25bp rate increases at the December meeting and in March 2027, but there are risks in both directions to this view, given the uncertainty created in particular by elevated geopolitical risks."

"We maintain our baseline of two further 25bp rate hikes at quarterly intervals, with the next one in December and the second in March 2027."

"However, given the limited signs of broader inflationary pressures so far and a weakening in inflation momentum, we still think the ECB has time to monitor how the situation evolves before raising rates again."

"Financial market pricing has recently shifted towards faster and more numerous rate hikes, and those moves continued today."

"As we still think the December meeting is the more likely timing for the next hike, we see some room for these expectations to correct lower, though a lot naturally hinges on the development in energy prices."

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

• The Euro edges higher against the British Pound after the ECB monetary policy announcement.
• The ECB lifts its deposit rate to 2.50% as Middle East tensions keep inflation elevated.
• The BoE is expected to hold next week, although markets see scope for tightening later this year.

EUR/GBP trades with a modest positive bias on Thursday but stays within the narrow range that has been in place for more than a week. The European Central Bank’s (ECB) widely expected interest-rate increase offers only limited support to the Euro (EUR), as the move was already priced in and fails to trigger a breakout. At the time of writing, the cross trades around 0.8595.

The ECB raised its three key interest rates by 25 basis points, marking its second increase this year and lifting the deposit facility rate to 2.50%. The central bank said the war in the Middle East continues to generate inflation pressures and that inflation is likely to stay well above its 2% target for an extended period. Updated projections show headline inflation averaging 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028.

Speaking after the decision, ECB President Christine Lagarde said the Eurozone economy is proving resilient and most measures of underlying inflation are broadly stable. However, she noted that shorter-term inflation expectations are still elevated and that higher energy costs will gradually feed into core and food prices.

Lagarde expects headline inflation to return to the ECB’s target toward the end of 2027. She added that most longer-term inflation expectations remain close to 2%. On the future policy path, Lagarde said the ECB “did not debate the future rate path” and is “not taking a view on which direction to go at the next meeting.”

On the UK side, the Bank of England (BoE) is widely expected to keep its policy rate unchanged at 3.75% on September 17. All 65 economists surveyed by Reuters between September 4 and 8 expect the Monetary Policy Committee to keep rates on hold next week, while 57 expect no change through the end of the year. However, rising Oil prices keep inflation risks tilted to the upside, with traders pricing a possible hike in November.

Strategists at Scotiabank highlight that “the short-term rates market is still pricing very little chance of a policy adjustment at next Thursday’s meeting, but pricing about 17bpts of tightening for November 5th and a cumulative 32bpts by December 17th,” underscoring expectations for a gradual BoE tightening path into year-end. Scotiabank also cautions that “fiscal risk remains elevated as market participants look to the release of the UK budget in late October,” while, on the data side, they “continue to note the absence of any material releases ahead of Friday’s trade and industrial production figures.”

Scotiabank strategists Shaun Osborne and Eric Theoret note USD/CAD is holding a tight sideways range near 1.38 with no domestic data, leaving the Canadian Dollar (CAD) driven by external factors and technicals. Their fair value model points to a stronger CAD around 1.3700, with spot showing its largest valuation gap in a month. They see limited scope for further CAD drift without new catalysts.

Fair value signals stronger Canadian Dollar

"The CAD has drifted in a tight, sideways range overnight, sticking to yesterday’s close. With no domestic data to focus on this week, the CAD has effectively reverted to being a slave to external developments and technicals."

"Spreads have held relatively steady but could turn a little more volatile in the next few days are markets react to US inflation data. Strengthening crude (and firmer commodities in general) do provide some additional lift to Canadian terms of trade which are not perhaps fully reflected in the CAD currently."

"While spot has drifted sideways, our fair value model has continued to indicate a stronger CAD, settling at 1.3700 today. Spot has been sticking close to the modeled equilibrium but is showing a more significant deviation this morning—reflecting the largest valuation gap in close to a month. That should mean limited potential for the CAD drift to extend, absent new drivers."

"Trend momentum remains USD-bearish across short-, medium-, and long-term studies, meaning that moderate USD gains are likely to draw selling interest. USD support is 1.3715/35 ahead of the decline back to the 1.3500/50 region."

"Neutral/bearish—A firmer USD and a somewhat constructive close yesterday tilts short-term risks a little higher for funds perhaps but broader technical dynamics remain USD-bearish. We spot moderate resistance in the mid/upper 1.38s and firmer resistance in the low/mid 1.39 zone."

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

Brown Brothers Harriman's (BBH) Elias Haddad reports that the recent USD/JPY decline has stalled despite hawkish comments from Bank of Japan (BoJ) member Kazuyuki Masu, with markets already pricing a 25 bps hike to 1.25% on September 18. He sees a 50 bps move as possible given inflation near target and an economy above capacity, and outlines scenarios where risks are tilted toward a stronger Japanese Yen.

Fed and BoJ decisions drive Yen path

"USD/JPY decline has stalled. Hawkish remarks from BoJ member Kazuyuki Masu barely moved Japan rate expectations or JPY."

"Masu said “to complete the normalization of monetary policy in Japan, I am convinced that the Bank needs to raise the policy interest rate (currently 1.00%) further, so that it falls solidly within the estimated range of the neutral interest rate (1.10% and 2.50%)”"

"Markets have virtually fully priced in a 25bps BoJ rate hike to 1.25% on September 18 for several days now. In our view, a 50bps move cannot be ruled out given underlying inflation is very close to the 2% target and Japan’s economy is running slightly above capacity."

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

• USD/JPY gains 0.40% on Thursday, supported by renewed US Dollar strength following US economic data.
• US producer prices accelerate in August, while Initial Jobless Claims decline to 206K.
• Markets now turn their attention to US inflation data due on Friday.

USD/JPY advances to around 154.15 on Thursday at the time of writing, up 0.40% on the day. The pair benefits from a rebound in the US Dollar (USD), supported by US data showing accelerating producer price pressures and a still-resilient labor market.

The United States (US) Producer Price Index (PPI) rose 5.4% YoY in August, above the 5.3% expected and accelerating from the previous 4.8% increase after revision. The core PPI, which excludes volatile food and energy components, increased 4.6% YoY, matching expectations and up from a revised 4.3% rise in July. On a monthly basis, headline PPI increased 0.4%, while the core index rose 0.2%.

Meanwhile, Initial Jobless Claims declined to 206K in the week ending September 5, compared with 207K in the previous week and slightly above expectations of 205K. Continuing Jobless Claims also edged lower to 1.774M, reinforcing the view that the US labor market remains relatively resilient.

The PPI data further strengthen expectations of a Federal Reserve (Fed) interest-rate hike in September. According to the CME FedWatch tool, markets now price in nearly a 70% chance of a rate increase, up from around 61% before the data were released.

On the Japanese side, the Japanese Yen (JPY) pauses after its recent rebound fueled by more hawkish expectations surrounding the Bank of Japan (BoJ). Markets fully price in a 25-basis-point rate hike at the September meeting, while recent comments from several central bank officials have reinforced expectations of further monetary policy normalization. This dynamic could, however, limit the extent of the USD/JPY advance.

Market attention now turns to the US Consumer Price Index (CPI) data due on Friday. The inflation report is likely to play an important role in shaping expectations for the Fed's interest-rate path. A stronger-than-expected inflation reading could support the US Dollar, while a sharper slowdown in price pressures could weigh on the Greenback, and in turn on USD/JPY.

National Bank of Canada's (NBC) Kyle Dahms highlights that Copper has reached a fresh nominal record, driven by AI-related data-centre demand, electricity grid expansion, tariff-driven stockpiling and supply disruptions. He notes that in constant Dollar terms Copper is at a 15‑year high and nearing its 2011 peak, raising costs for power grids, AI infrastructure and broader electrification projects.

Copper nears nominal and real highs

"The longer-term demand backdrop remains supported by AI-related data-centre construction and the associated expansion of electricity generation and grids, while the latest gains have been amplified by tariff-driven stockpiling and supply disruptions."

“One less obvious link to Hormuz is sulphur. Shipments through the Strait have been severely curtailed, helping push sulphur prices to more than twice their level at the start of the year. This matters for copper because sulphur is a key feedstock for sulphuric acid, which is used in certain processing methods.”

"On this basis, copper is trading at a 15-year high and will soon surpass its 2011 peak, a move that would lift the real price to its highest level since the mid-1970s."

"In our view, this increasingly represents a tax on the very investment intended to support future growth, raising the cost of power grids, AI data centres and other electrification projects just as geopolitical fragmentation is making supply less reliable."

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