Forex News

The Japanese Yen (JPY) is surging across the board in the American session on Thursday, without a clear catalyst. This development hints that Japanese authorities may finally be intervening in foreign exchange markets following days of speculation.

At the time of press, the USD/JPY pair was down 2.4% on the day at 159.50, while EUR/JPY was losing 1.9% at 183.90, and GBP/JPY was falling 1.8% at 214.40.

USD/JPY managed to hold comfortably above 163.00 early Thursday even though the US Dollar (USD) was struggling to stay resilient against other major currencies. At the beginning of the American session, the disappointing second-quarter Gross Domestic Product (GDP) data from the US, which showed that the economy expanded at an annual rate of 1.5% to miss the market expectation of 2.1%, further weighed on the USD.

While there is no official confirmation, Japanese authorities might have taken action after seeing how USD/JPY's downside remained limited despite the USD selloff.

In the early Asian session on Friday, the Bank of Japan (BoJ) will announce its monetary policy decisions.

BoJ rate hold seen as done deal as focus shifts to timing of next hike

Analysts at Commerzbank expect the Bank of Japan to "leave its overnight call rate unchanged at its monetary policy meeting early Friday," noting that "the market is pricing this in at 99.3%, and all analysts surveyed by Bloomberg agree." As a result, they argue that "that won’t be the deciding factor" for markets, with "the outlook" for policy and guidance "much more important."

Commerzbank points out that "the market continues to expect that the Bank of Japan will raise interest rates only about every six months - and thus not again until December." However, in their view, "the economic situation could well allow for an earlier move," suggesting that communication around the timing of the next hike may prove more market-relevant than the widely anticipated hold itself.

RaboResearch economists Maartje Wijffelaars and Leander Kalff outline how the European Union is intensifying efforts to strengthen Eurozone industry and reduce external dependencies. The report details measures to stimulate strategic sectors, raise trade-defence barriers, and diversify supply chains, while highlighting risks from US and Chinese retaliation and internal EU divisions that could slow implementation and affect Eurozone growth.

EU industrial strategy and trade defence

"Strengthening and protecting Europe’s industry has been high on Brussels’ policy agenda for some time now. The sector is under pressure from growing competition from China, high energy prices, and the short-term costs of decarbonisation. This weighs on current and longer-term economic growth."

"On top of incentivising the domestic industry, the EU wants to better protect its industry against “harmful” imports that undermine domestic industry."

"The European Commission and many member states explicitly want to remain an open economy, and they prefer dialogue with trading partners over protectionism. For example, the EU is currently engaging with China. However, at the same time, they are also exploring possibilities to make greater use of trade-defence measures."

"The European Commission, Commissioner Séjourné and member states want more options to protect the domestic economy against foreign trade. This includes both broader use of existing instruments as well as an expansion of the toolbox."

"Proposals from the European Commission are expected this autumn. Reaching an agreement and implementation will then still take time."

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

• EUR/USD climbs to its highest level since June 17 as the US Dollar weakens.
• US inflation cools and second-quarter growth disappoints following the Fed's interest rate decision.
• Stronger Eurozone growth supports the Euro and strengthens the case for the ECB to raise rates in September.

EUR/USD extends its gains on Thursday as the Greenback remains under pressure as traders digest a busy batch of US economic data after the Federal Reserve (Fed) left interest rates unchanged at 3.50%-3.75% on Wednesday. Meanwhile, suspected intervention by Japanese authorities to stem the Yen’s weakness adds to the broader selling pressure on the US Dollar (USD).

At the time of writing, EUR/USD trades around 1.1534, its highest level since June 17. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades near 100, down 0.80% on the day.

The US economy grew at an annualized rate of 1.5% in the second quarter, below both the 2.1% market forecast and the 2.1% pace recorded in the first quarter, according to the advance estimate from the US Bureau of Economic Analysis (BEA).

Meanwhile, the Federal Reserve’s (Fed) preferred measure of underlying inflation cooled slightly in June. The Core PCE Price Index rose 0.1% MoM, below the 0.2% forecast and down from 0.3% in May. On an annual basis, core inflation eased to 3.3% from 3.4%, matching expectations.

Personal income increased 0.2% in June, slowing from 0.7% in May, while personal spending rose 0.3%, easing from the previous month's 0.9% gain.

Despite the moderation, inflation remains well above the Fed’s 2% target and could accelerate again as the war in the Middle East keeps Oil prices elevated.

Traders still expect the Fed to raise interest rates later this year, with the CME FedWatch Tool showing roughly a 55% probability of a 25-basis-point hike in September.

On the Euro side, the shared currency also draws support from stronger-than-expected Eurozone growth data. Preliminary Gross Domestic Product expanded 0.4% QoQ in the second quarter, beating the 0.2% forecast and reversing the 0.2% contraction recorded in the previous quarter.

Strategists at Brown Brothers Harriman note that the ECB “projects real GDP growth to average 0.8% in 2026 with risk skewed to the downside as renewed disruption of energy supplies would weigh on real incomes, spending, and investment.” Against this backdrop, BBH argues that the “recovery in Eurozone economic activity and above target inflation reinforces the case for the ECB to resume raising rates in September.”

Commerzbank’s Dr. Ralph Solveen analyzes German inflation after the July national Consumer Price Index (CPI) rose from 2.3% to 2.8%, driven mainly by higher energy prices linked to conflict in the Persian Gulf and the end of fuel tax rebates. Core inflation excluding energy and food eased slightly, and the short-term path of German prices is seen as heavily dependent on Middle East developments.

Energy shock lifts German CPI again

"As was to be expected given the sharp rise in energy prices, inflation in Germany picked up noticeably again in July. Consumer prices (national definition) were 2.8% higher than a year earlier. In June, the inflation rate had fallen sharply to 2.3%."

"For other goods and services, inflation actually eased slightly. The core inflation rate, excluding energy and food prices, fell slightly from 2.5% to 2.4%."

"Among the subcategories of the core inflation rate, the rise in prices for services slowed slightly once again, falling back to just under 3% in July. The inflation rate for goods (excluding energy and food) was unchanged at 1.6%."

"The short-term trend in the inflation rate clearly depends heavily on further developments in the Middle East. As long as the current pattern of alternating good and bad news persists, oil prices – and thus energy prices for households – are likely to experience significant fluctuations. Once hostilities come to an end, the inflation rate is expected to fall back toward 2% as energy prices drop again."

"At the same time, the core inflation rate is likely to decline only slowly. While labor costs have been rising more slowly for some time now, which is putting a brake on service prices, companies are likely to increasingly pass on their higher energy costs to their customers."

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

TD Securities strategists note the Bank of Canada’s (BoC) July Summary of Deliberations was balanced, with the Bank seeing the economy adjusting to recent shocks and expecting growth to strengthen, while worrying about medium-term inflation expectations drifting higher. The minutes emphasize upside inflation risks, downside growth risks, and discuss Oil and US tariffs, but offer no parallel guidance on rate cuts for trade tensions.

Balanced BoC but inflation concerns

"The Bank of Canada's Summary of Deliberations from July were relatively balanced as the Bank noted the economy is adjusting to recent shocks, which added to its confidence that growth would strengthen going forward."

"The minutes also cite concern over medium-term inflation expectations drifting higher, even as longer-term measures remain well anchored. The Bank was able to balance its message by expressing concern that stronger GDP growth might not be sustained, while the possibility of US tariffs was discussed as an "ever-present downside risk to growth"."

"While the minutes also discussed a potential policy response should oil prices "increase and stay higher", there was no similar language around potential rate cuts on an escalation in trade tensions."

"Overall, the July BoC minutes keep the focus on upside risks to inflation and downside risks to growth, with the caveat that its outlook is subject to a high degree of uncertainty."

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

• USD/JPY declines as a sharper-than-expected slowdown in US economic growth weighs on the US Dollar.
• US PCE inflation data confirm the ongoing disinflation trend, leaving monetary policy expectations largely unchanged.
• Investors are now turning their attention to the Bank of Japan's monetary policy decision on Friday.

USD/JPY trades around 162.90 at the time of writing on Thursday, down 0.31% on the day, as the US Dollar (USD) comes under pressure following the Federal Reserve (Fed) meeting on Wednesday and a series of weaker-than-expected United States (US) economic data released earlier in the day, ahead of the Bank of Japan's (BoJ) monetary policy decision.

The US Gross Domestic Product (US) expanded at an annualized rate of 1.5% in the second quarter, below the market expectation of 2.1% and following 2.1% growth in the first quarter. According to the Bureau of Economic Analysis (BEA), the slowdown mainly reflects a decline in government spending and slower investment and export growth, partly offset by stronger consumer spending.

At the same time, inflation data reinforced the narrative of a gradual disinflation process. The Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation gauge, fell by 0.1% MoM in June, while the annual rate slowed to 3.7% from 4.1%. The Core PCE Price Index slowed to 3.3% YoY from 3.4% in the previous month, in line with market expectations.

On Wednesday, the Fed left its benchmark interest rate unchanged at 3.5%-3.75%, as widely expected, while maintaining a hawkish tone. The decision saw three dissenting votes in favor of an immediate rate hike, reinforcing expectations that policymakers remain concerned about persistent inflation. However, the US Dollar failed to benefit from the decision and has since turned lower, as investors questioned whether the central bank would be willing to deliver additional rate hikes amid growing political pressure. Fed Chair Kevin Warsh avoided providing forward guidance during his press conference, contributing to the Greenback's decline following the meeting.

Market attention now shifts to the Bank of Japan (BoJ), which is widely expected to leave its policy rate unchanged at 1% on Friday. Investors will focus primarily on the updated economic projections and Governor Kazuo Ueda's remarks for clues on whether another rate hike could come as early as October or be delayed until December. A more hawkish message from the BoJ could provide additional support for the Japanese Yen (JPY) and keep downward pressure on USD/JPY.

Brown Brothers Harriman’s (BBH) Elias Haddad notes the US Dollar (USD) is struggling to recover after the Federal Reserve’s (Fed) hawkish hold, as Chair Kevin Warsh’s tough inflation rhetoric failed to convince markets. The United States (US) yield curve steepened, with lower front-end rate expectations and higher long-end inflation expectations, while Brent Oil is seen staying broadly in a $70–$100 range.

Fed hawkish hold hits Dollar

"USD is struggling to retrace yesterday’s slump. Bond yields are higher across the board underpinned by higher crude oil prices. US equity futures are up slightly supported by Microsoft’s solid earnings."

"We continue to see this as another round of managed escalation keeping Brent crude oil prices within a broad $70 to $100 range."

"USD dropped sharply for two reasons. First, markets unwounded the residual 30% odds of a July hike. Second, Fed Chair Kevin Warsh failed to turn tough inflation rhetoric into a credible policy."

"The US yield curve steepened sharply after Warsh’s remarks. Lower near-term rate expectations pulled down the front end, while higher inflation expectations lifted the long end of the curve."

"He may now find himself in a more consequential battle with markets that can further raise long-term yields, weaken the dollar, and force the Fed into a more painful response."

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

HSBC’s Jose Rasco and Michael Zervos note that the US Federal Reserve (Fed) kept rates unchanged for a fifth straight meeting, with a 9-3 split highlighting internal debate. Their base case is for the federal funds rate to stay at 3.50%-3.75% through 2026 and 2027, as core Personal Consumption Expenditures (PCE) Price Index inflation is seen stable, supporting a positive stance on the US Dollar (USD).

Resilient outlook

"The US Fed Reserve left interest rates unchanged for a fifth consecutive meeting, in line with expectations, but the 9-3 vote revealed a lively debate within the FOMC."

"Despite the dissents, our base case remains for the FOMC to maintain the federal funds target range at 3.50%-3.75% through both 2026 and 2027 as we believe core PCE inflation will remain stable."

"Fed Chair Kevin Warsh delivered a constructive assessment of the US economy, highlighting resilient growth, a balanced labour market and accelerating AI-driven investment, while reiterating the Fed’s unwavering commitment to returning inflation to its 2% target."

"We remain overweight on US equities, supported by resilient economic growth, broadening earnings and continued AI leadership, and continue to emphasise diversification across the AI ecosystem. We also expect policy uncertainty and evolving trade developments to create opportunities for active portfolio positioning."

"In fixed income, we maintain a neutral duration stance and favour high-quality investment grade credit to capture attractive yields and coupon income. We remain positive on the US dollar, supported by resilient US economic fundamentals and relatively attractive interest rate differentials."

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

Tatha Ghose at Commerzbank flags Fitch’s latest review of Turkish banks as another negative signal for the Lira. Profitability has weakened after regulatory changes on FX risk-weighted assets, with capital ratios lower and margins squeezed by prior rate cuts and high costs. Rising NPLs, renewed growth in FX deposits and conflict-driven inflation pressures are seen increasing exchange-rate risk.

Fitch warnings weigh on Turkish Lira

"Fitch’s latest assessment of Turkish banks adds another warning signal to the lira backdrop. The agency noted that profitability weakened in Q1, partly because of removal of regulatory waivers on FX risk-weighted assets."

"Once this was withdrawn, it weighed down on earnings and capital ratios (equity Tier 1 ratio fell to 11.5% from 14.1%)."

"Lower securities yields, squeeze in lending margins after the Q4 2025 rate cuts, and still-elevated trading losses and operating costs also kept pressure on operating profit. "

"NPL ratio rose to 3.3% at end-Q1 from 3.1% at end-Q4 2025. Fitch expects conditions to remain difficult, with higher lira interest rates and inflationary pressure from the Iran conflict likely squeezing net interest margins further in Q2 via higher funding cost."

"Another uncomfortable detail was the renewed rise in FX deposits, to 38.1% of total deposits from 35.2%, which indicates how quickly confidence can shift when external conditions deteriorate. Signs of financial stress further increase risk for the exchange rate."

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