Forex News

• EUR/JPY reversal from five-week highs at 186-19 has been contained above 185.80.
• Reports that the BoJ might ramp up its tightening pace have had a moderate impact on Yen crosses.
• MUFG analysts suggest that the yen remains vulnerable amid concerns that the efforts to tackle inflation are poor.

The Euro (EUR) reversed earlier gains against the Japanese Yen (JPY) on Wednesday, following hawkish comments by Bank of Japan’s (BoJ) policymakers. The pair, however, remains a few pips below 186.00 at the time of writing, with the five-week high of 186.19 at a short distance.

The Japanese Yen bounced up across the board during Wednesday’s early European session, after a report by Bloomberg affirmed that BoJ officials are open to raising interest rates at a faster rate than the market consensus anticipates, as JPY’s weakness adds to inflation risks. The impact of these comments, however, has been limited so far, as markets remain sceptical that the central bank might ramp up its monetary tightening path, as it would clash with the Japanese government’s efforts to boost economic growth.

Yen and JGBs seen vulnerable as BoJ faces renewed inflation pressures

Analysts at MUFG warn that “inflation remains a key risk,” with services input prices pointing to upside risks in the coming months, leaving both “JGBs and the Yen vulnerable to further selling on concerns enough is not being done to reduce inflation risks.”

They also observe that the recent market moves could prompt a policy rethink in Tokyo: “the government could see this decline as a signal that they need to do more, which might lead to further BoJ independence.” In their view, “a hike is needed with inflation pressures building again.” Considering that “there is only 6bps priced for September, MUFG analysts add that “a more hawkish July communication would likely prompt a shift in expectations,” potentially setting the stage for a repricing of Japan rate risk.

In Europe, the focus is on the European Central Bank (ECB) monetary policy meeting, due on Thursday. The bank is widely expected to leave its benchmark interest rate unchanged, but markets are betting on further rate hikes in the coming months, as the recent uptrend in energy prices fuels inflationary pressures. Traders will be looking for signals to confirm those hopes, which might provide additional support to the Euro.

• The World Bank says the global economy is only months away from a severe slowdown scenario.
• An escalation of the Middle East conflict could reignite inflation and keep interest rates higher for longer.
• Heavily indebted developing countries are seen as the most vulnerable.

The World Bank warned that the global economy is only "a few months" away from a worst-case scenario in which global growth slows to 1.3% while inflation rises to 4.5%, according to comments by Chief Economist Indermit Gill reported by Reuters. The institution stated that a further escalation of the Middle East conflict and additional supply disruptions could intensify inflationary pressures, forcing interest rates to remain higher for longer.

Gill also said that debt vulnerabilities have built up over the years, leaving developing economies increasingly exposed, with some countries potentially requiring debt relief. At the same time, the World Bank believes these economies could benefit from productivity gains driven by artificial intelligence, which will be the focus of its upcoming Development Report.

Key takeaways

World is 'few months' away from worst-case scenario that sees global growth slowing to 1.3%, inflation rising to 4.5%.

Debt vulnerabilities have built up over years; some countries may need debt forgiveness.

US, China, India are largely shielded from impact of iran war, but developing countries with high debt levels face bigger risks.

Escalating Middle East war, supply disruptions could boost inflation, drive up interest rates.

Forthcoming development report offers first complete analysis of developing countries' readiness for AI.

Developing countries stand to benefit from AI and associated productivity gains.

Market reaction

Financial markets showed a muted reaction to the comments, with the US Dollar Index (DXY) hovering around 101.15 on Wednesday at the time of writing, little changed on the day.

• The Indian Rupee falls back against the US Dollar on Wednesday after a slight recovery move the previous day.
• Fears of global energy supply disruption intensify on Bab el-Mandeb Strait closure.
• FIIs turned out to be net buyers on Tuesday.

The Indian Rupee (INR) opens lower against the US Dollar (USD) on Wednesday after a slight relief the previous day. The USD/INR pair rises to near 96.53 as a fresh surge in oil prices due to intensifying fears of further global energy supply disruptions has weakened the Indian currency.

In the opening trade, the MCX Crude Oil contract expiring on August 19 posts a fresh over five-week high at Rs. 8,253.

Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high oil price environment.

Yemen Houthis close Bab el-Mandeb Strait

The closure of the Bab el-Mandeb Strait, the southern gateway of the Red Sea, by Yemen's Iran-aligned Houthis that halts oil exports from Saudi Arabia to Asian economies in retaliation for a Saudi blockade of ports and airports in Houthi-controlled north-western Yemen, has escalated fears of further energy supply disruption.

According to a Reuters report, the Bab el-Mandeb Strait closure could reduce global oil supply by 7%. This comes at a time when overall energy supply is already squeezed due to the closure of the Strait of Hormuz, a critical chokepoint to almost 20% of global energy supply.

The Saudi-led coalition has strongly criticized Iran’s action, saying, “Such ​threats are a blatant violation of international law and fall under acts of maritime piracy,” Reuters reports.

Earlier in the day, US Secretary of State Marco Rubio told Southeast Asian foreign ministers that Iranian control of the Hormuz would set a “dangerous precedent with repercussions beyond the Middle East”.

FIIs selling streak halts on Tuesday

Foreign Institutional Investors (FIIs) turned out to be net buyers on Tuesday after remaining net sellers for six straight trading days. On Tuesday, overseas investors pumped an investment worth Rs. 1,650.16 crore. In the July 13-20 period, FIIs offloaded their stake worth Rs. 10,240.80 crore.

However, the sentiment of foreign investors toward the Indian equity market is expected to remain depressed as surging oil prices will increase the import bill of the Indian government, a scenario that diminishes the center’s ability to invest in infrastructure and development.

Technical Analysis: USD/INR reflects strength as 20-day EMA advances

USD/INR trades higher at around 96.53, maintaining a bullish near-term bias as it holds above the 20-period exponential moving average (EMA) at 95.7889.

The pair is extending its recent advance, and the Relative Strength Index (14) at 62.38 stays in positive territory, hinting that buyers still retain control.

On the downside, immediate support is located at the 20-period EMA at 95.79, where a pullback could attract fresh buying interest as long as this floor holds. Looking up, the pair aims to revisit the all-time high at around 97.10.

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

Following his meeting with Chinese Foreign Minister Wang Yi in Manila on Wednesday, United States (US) Secretary of State Marco Rubio said that “Iran is in a lot of trouble.”

Additional quotes

Nothing China has done has changed the trajectory of the conflict with Iran.

In fact, in some cases China has been cooperative on the Iran situation.

Would love to reach a diplomatic settlement with Iran.

China and the US have differences but the job is to manage that.

There are areas of potential cooperation.

Disagree with China's activities on Taiwan.

Discussed trade among other things.

Middle East risks keep Brent elevated as Saudi flows face fresh disruption

Analysts at Rabobank warn that Middle East supply routes remain highly fragile, with “Hormuz remains on a knife-edge, with most flows halted save those taking the Iranian route.” They highlight that the situation has deteriorated further after “two tankers carrying Saudi crude made U-turns in the Red Sea after a Houthi warning,” describing this as “the first sign of the threatened blockade of Saudi ports.” Against this backdrop, Rabobank argues that the latest escalation will “not allow energy markets to ‘take the summer off’ rather than taking off,” noting that “we are at $91.5 on Brent at time of writing with crack spreads still round $70.”

Derek Halpenny at MUFG explains that US trade tariff uncertainty is set to re-emerge as Section 122 measures expire and are replaced by more targeted Section 301 actions. He expects widespread investigations and tariffs that broadly replicate current measures, with USD/Asia seen most vulnerable to upside. G10 FX should be less affected, though prolonged uncertainty could eventually trigger US Dollar selling.

Section 301 actions and Dollar impact

"The US will use Section 301 and investigations have already been announced against most of the key trading partners of the US although when implemented and against what products remains unclear."

"The fact that these tariffs should broadly replicate the Section 122 tariffs, means the FX implications should be limited."

"However, the path to implementation is less predictable with greater potential differentiations that could see increased FX volatility."

"The fact this latest bout of trade policy uncertainty comes at a time when the rates curve in the US is priced for hikes and Middle East risks are higher could mean the FX reaction function is different and is more US dollar supportive."

"USD/Asia would perhaps be where you could see most upside where yield would be less of a counter to say the impact on USD/LatAm."

"G10 FX should be less impacted and if the uncertainty becomes more prolonged and pronounced, we could see US dollar selling re-emerge as investors grow more concerned over unpredictable policies from Washington and the damage to the US economy."

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

• Gold hits resistance at the $4.140 area but remains steady above $4,100.
• Geopolitical tensions and higher oil prices have failed to dent Gold's recovery.
• XAU/USD bulls are likely to be challenged in the area between $4,140 and $4,200.

Gold (XAU/USD) extends gains for the fourth consecutive day on Wednesday, standing comfortably above $4,100, unfazed by the risk-off market amid rising tensions in Iran and higher Oil prices. The pair has rallied nearly 2.5% so far this week and is on track for its best weekly performance in more than three months.

The precious metal has shown some hesitation on Wednesday's European session, amid concerns that the US-Iran war might escalate out of control as US President Donald Trump threatened to strike nuclear facilities, which, according to Tehran, will extend the conflict throughout the region. 

Apart from that, news reports that three Saudi Arabian Oil tankers have turned around in the Red Sea following the Houthis’ announcement of a blockade boosted Oil prices higher, providing additional support to the US Dollar, which has been closely correlated to Crude prices since Iran’s war started.

Technical Analysis: Resistances at $4.140 and $4,200 are likely to challenge bulls

XAU/USD trades at $4,120, holding a bullish immediate bias after breaching the downward trendline resistance from late May highs. The bullish momentum is supported by the 4-hour Relative Strength Index (14), which hovers in the mid-60s, and the positive Moving Average Convergence Divergence (MACD), which together suggest buyers retain control.

Upside attempts, however, remain capped below the July 9 high, near $4,140, which, together with the July 3 high, at the $4,200 area, are likely to test bulls' confidence. Further up, the next target is the mid-June highs, at the $4,360 area.

On the downside, immediate support is seen at the broken trendline break zone around $4,020 ahead of the year-to-date lows around $3,950. Further down, the late October 2025 low just below $3,900 emerges as the next target.

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

Societe Generale analysts highlight USD/JPY trading in breakout territory above 163 for the first time in nearly four decades, with support around 162.20 and resistance near 164.40. Technical commentary points to an extended uptrend after clearing a consolidation range, while Japanese officials’ warnings of appropriate action have yet to deter Yen bears despite a wider June trade deficit.

Breakout holds above 163

"USD/JPY climbs up to 163.24, FinMin Katayama and Cabinet Secretary Kihara repeat warning of appropriate action as needed."

"Spot in breakout territory above 163 for first time in nearly four decades. Katayama/Kihara jawboning not compelling to repel yen bears."

"USD/JPY recently evolved within a narrowing range but successfully held above the 50-DMA. It has now broken above the upper boundary of this consolidation, indicating the potential for a further extension of the uptrend. "

"The next objectives are located at projections of 163.70/164.40 and 165.40. Signals of an extended pullback are not yet visible. The low established earlier this week around 162.20 could be the first support."

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

• USD/CHF trades around 0.8120, declining by a modest 0.09% on Wednesday.
• Escalating tensions between the United States and Iran are keeping the US Dollar supported despite a modest intraday decline.
• Higher Swiss bond yields reflect concerns over geopolitical risks and rising energy prices.

USD/CHF trades around 0.8120 at the time of writing on Wednesday, down a modest 0.09% on the day, but remains supported by a strong risk-off environment that favors the US Dollar (USD). Investors continue to seek the Greenback as tensions in the Middle East escalate, reducing hopes for a diplomatic de-escalation.

Hostilities between the United States (US) and Iran have now entered their eleventh consecutive day. US President Donald Trump dismissed the prospect of immediate negotiations with Tehran following the exchange of military strikes and threatened to target Picaxe Mountain, a site believed to house nuclear facilities. In response, Tehran warned that any attack on these facilities would expand the conflict across the region.

Tensions have also spread to global shipping routes. Houthi rebels announced a blockade of the Bab el-Mandeb Strait, prompting three Saudi Oil tankers to turn back in the Red Sea. The situation has renewed concerns about disruptions to global energy supplies and continues to underpin demand for safe-haven assets.

In Switzerland, the 10-year government bond yield is hovering around 0.45%, close to its highest level in two months. Rising energy costs driven by geopolitical tensions are prompting markets to reassess the outlook for inflation and monetary policy. Despite these developments, the Swiss National Bank (SNB) kept its policy rate unchanged at 0% at its latest meeting, maintaining that inflation is expected to remain broadly stable over the medium term.

USD/CHF support builds as SNB tolerates weaker Swiss Franc and safe-haven bid fades

Analysts at ING argue that “USD/CHF rather than USD/JPY could become an increasingly popular vehicle for these summer months,” noting that the SNB “is not going to surprise with $70bn of FX intervention (as the BoJ did in April/May).” In their view, “the SNB probably welcomes this weaker Swiss Franc,” with the central bank “look[ing] to be one of the last central banks to hike” at a time when “higher energy prices and higher rates in general deliver wider interest rate differentials against Swiss rates.” ING says it has “been discussing a higher USD/CHF over recent weeks,” adding that “if energy prices have another leg higher, USD/CHF could deliver some powerful follow-through on a break of 0.8150/70 resistance,” and that “high oil and high equity prices look set to keep USD/JPY and USD/CHF supported.”

Strategists at Rabobank observe that “CHF net shorts have fallen for a third week,” as “CHF’s Iran war-driven safe-haven rally has faded, while SNB intervention warnings have helped limit speculative demand.” Against this backdrop, Rabobank expects “EUR/CHF consolidating around 0.92 over three months and USD/CHF near 0.81 in H2,” suggesting a period of range trading rather than renewed aggressive safe-haven inflows into the Franc.