Forex News

Commerzbank’s Tatha Ghose highlights a sharp Forint rally after a Bloomberg report suggested the National Bank of Hungary may pause rate cuts on 22 September and consider lowering its inflation target. While unconfirmed, this aligns with the bank’s less dovish August message. Ghose argues that a pause and lower target would support HUF by addressing inflation risks and easing concerns over continued easing.

Pause expectations bolster Forint

"The forint rallied sharply yes after a Bloomberg report cited unnamed National Bank (MNB) sources to suggest that the central bank is preparing to pause its rate-cutting cycle at the 22 September meeting, while also possibly lowering its inflation target from 3.0% to 2.5%."

"Still, the direction would be consistent with the less dovish message which MNB already sent at the August meeting: after cutting the base rate by 25bp to 5.50%, MNB did not pre-commit to further easing and instead said that the future rate path would be decided in September based on updated forecasts."

"July headline inflation was only 1.2%y/y, which gives policymakers a convenient window to lower the target without immediately having to tighten monetary policy. But the year-on-year number is not the whole story: on seasonally-adjusted month-on-month basis, inflation accelerated to faster than the 3.5% target – but this is something not every commentator may have observed."

"A pause would give MNB space to track all this, while also allowing investors to digest a lower inflation target and the government’s still-uncertain fiscal plans."

"The FX market clearly liked the news. The forint rallied sharply intraday after the report, gaining the most since the post-election move in April. This reaction is not surprising: MNB cutting rates during a period of external inflation risk had become the main source of vulnerability for HUF. An official confirmation that MNB will pause rate cuts in September and beyond will provide much needed boost to the currency."

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

• EUR/JPY rebound from 180.50 lows has stalled below 182.00 on Friday.
• Bright German Factory orders have failed to provide additional impulse to the Euro on Friday.
• Analysts point to BoJ's hawkishness as the most likely reason for the impressive Yen recovery seen earlier this week.

The Euro (EUR) posts moderate gains against the Japanese Yen (JPY) on Friday, with the EUR/JPY pair trimming some losses after a whopping 500-pip sell-off in the previous two days. Euro bulls, however, remain capped below 182.00, after bouncing up from one-month lows at 180.53 on Thursday.

Markets are still wondering about the reasons for such a sharp Yen rally, with currency analysts pointing to comments by Bank of Japan officials hinting at a steeper monetary tightening cycle over the coming months, rather than to another FX intervention by the Japanese authorities.

Strategists at OCBC caution against “extrapolating the latest pace of JPY gains.” However, they note that the “combination of firmer BoJ expectations, softer UST yields and potential shifts in domestic institutional flows has turned the near-term backdrop more supportive for JPY,” suggesting a more constructive bias even as they warn that the move could moderate from here.

German industrial data beats expectations

In Europe, data released by Destatis earlier on the day showed a 2.5% increase in July's Factory Orders, exceeding market expectations of a 0.3% rise, after the 3.7% gain posted in June.

The report shows that the main reason for the positive surprise was the higher orders for large transport equipment, such as ships, trains, and military vehicles, which rose 124.6% in July. These figures conceal a 12.5% decline in orders for the key automotive industry, which might have tempered investors' enthusiasm about the headline figure.

In a few minutes, Eurostat will release Eurozone's Retail Sales numbers for July, which are expected to show a 0.3% increase, reversing June’s 0.3% drop. At the same time, European Central Bank (ECB) member Philip Lane will meet the press and likely reiterate that the bank is ready to hike interest rates further.

• Gold bulls turn cautious as the USD recovers slightly ahead of the crucial US NFP report.
• Energy-driven inflation fears underpin Fed tightening prospects and further cap bullion.
• Receding Fed hike bets and soft US bond yields cap the USD, supporting the commodity.

Gold (XAU/USD) extends its sideways price moves and trades above the $4,450 level through the first half of the European session on Friday. The commodity, however, remains close to the weekly high it touched on Thursday, as traders await the release of the closely watched US monthly employment details. The popularly known US Nonfarm Payrolls (NFP) report will provide more cues about the Federal Reserve's (Fed) policy path amid receding bets of a September rate hike. The outlook, in turn, will play a key role in influencing USD price dynamics and provide some meaningful impetus to the non-yielding bullion.

Gold traders eye US jobs data as Fed tone turns more hawkish

According to TD Securities, "Non-farm payrolls this Friday will be the next piece of data with keen interest for precious metals" as markets grapple with "the renewed hawkish tone from the Fed and the latest escalation in the energy market." However, the bank strikes a more constructive note beyond the immediate data risk, adding that "looking forward, we do not anticipate material downside as the landscape for precious metals has improved amid a renewed dollar debasement theme, while Fed hikes remain far from certain."

Heading into the key data release, Governor Christopher Waller stated on Thursday that he is leaning toward keeping interest rates steady at the September FOMC meeting, provided there are no surprises from upcoming inflation data. Investors responded by pushing US bond yields and the USD sharply lower, which, in turn, assisted the Gold price to build on its recovery from a four-week low touched on Wednesday. However, inflation risks stemming from higher energy prices leave the door open for a rate hike later this month. This helps the USD Index (DXY), which tracks the Greenback against a basket of currencies, bounce off a one-and-a-half-week low and cap the upside for the commodity.

In fact, crude oil prices sit near their highest levels since July 24 amid renewed US-Iran hostilities and clashes over the Strait of Hormuz. In further developments surrounding the Middle East crisis, Iran targeted US military bases in Kuwait and the United Arab Emirates (UAE) on Thursday. Meanwhile, US Vice President JD Vance said that US President Donald Trump has a series of options available at his disposal to deal with Tehran, including economic, military, diplomatic, and covert measures. Adding to this, South Korea is reportedly preparing to deploy military assets to support freedom of navigation in the strategic Strait of Hormuz and aims to dispatch them before the end of the year.

This keeps geopolitical risk premium in play, which supports crude oil prices and might continue to underpin the safe-haven USD. However, the near-term direction hinges on the highly anticipated US jobs report. Nevertheless, the XAU/USD pair, for now, seems to have stalled its recent corrective decline from the vicinity of the $4,700 mark, or the highest level since May 14, and remains on track to register modest weekly gains. That said, sustained strength and acceptance above the $4,500 round figure is needed to back the case for any meaningful appreciating move.

XAU/USD 4-hour chart

Technical Analysis

The precious metal maintains a constructive near-term tone above the 200-day Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibonacci retracement level of the recent leg down. The Relative Strength Index (RSI) near 56 and the Moving Average Convergence Divergence (MACD) line lodged above zero with a positive histogram suggest firm but not overextended bullish momentum while the Gold presses into the nearby 50% retracement barrier ahead of $4,500.

Further up, the 61.8% level near $4,540, followed by the 78.6% retracement at $4,609 and the swing high cluster around $4,698 could be key hurdles. On the downside, initial support is seen at the 38.2% retracement at $4,442, ahead of the 23.6% level near $4,381, with the 200-period SMA at $4,322 and the structural floor around $4,283.63 reinforcing a broader bullish bias.

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

Geoff Yu at BNY highlights that USD/JPY around 160 has become a credible deterrent level for FX participants, even without clear evidence of official intervention. He notes that recent Yen weakness and Bank of Japan (BoJ) communication about a possible rate hike have not revived foreign demand for Japanese assets, and advises against chasing USD/JPY above 160 given limited FX-specific risk impact.

FX moves seen as secondary risk

"We have highlighted in recent weeks that fixed income volatility is the most important driver in cross-asset volatility, including FX. Questions over fiscal dominance – of which Japan is one of the most exposed names – are directly driving JPY weakness and shaping central bank and finance ministries’ reaction functions."

"FX markets are no different, especially as JPY weakness is seen as a lack of credibility in both monetary and fiscal policy. Lower Nikkei levels and the drop in foreign portfolio flows suggest these factors are already in place."

"In contrast, USD/JPY went on a near-unbroken run from 155 to 164 between May and July but generated very little impact on cross-border asset interest."

"Based on official Bank of Japan (BOJ) data, JPY’s sharp moves from mid-week onward aren’t based on official intervention. If so, this is the first sign that the 160 level in USD/JPY has been established as a credible deterrence level for FX market participants."

"FX-specific risk, such as the moves this week, don’t add to risks on the margins. U.S. Treasury Secretary Scott Bessent stated after the July round of intervention that any activity wouldn’t be to the detriment of the U.S. Treasury market."

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

Deutsche Bank reports that US equities, led by the S&P 500, rallied as dovish remarks from Fed Governor Waller offset stronger US data. The S&P 500 logged its best day in nearly a month and moved close to record highs, supported by gains in the Magnificent 7 and easing energy prices. Futures suggest cautious continuation.

US stocks near record highs

"For US equities, the combination of strong data and dovish commentary offered more decisive support. So the S&P 500 (+1.06%) posted back-to-back gains for the first time in 3 weeks, with the index also back within 1% of its record high from last month."

"That was led by a very strong performance for the Magnificent 7 (+2.38%), which hit a 3-month high as it posted its best day in the last month. But it was still a broad-based rally, with the S&P 500 seeing the most daily advancers since early August, as more than two-thirds of the index moved higher."

"Then for equities we also saw a recovery, with the STOXX 600 (+0.49%) stabilising after 3 consecutive declines, including gains for the DAX (+0.63%), the CAC 40 (+0.07%) and the FTSE 100 (+0.70%). "

"Asian equity markets are generally riding the tech train this morning with the Hang Seng (+2.12%), KOSPI (+1.88%) and the Nikkei (+1.30%) all strong. Elsewhere, mainland Chinese markets are posting more modest gains, with the CSI 300 up +0.43% and the Shanghai Composite advancing +0.35%. In contrast, Australia's S&P/ASX 200 (-0.21%) is bucking the regional trend. "

"US and European equity futures are all up less than a tenth of a percent."

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

• US stock futures trade mixed ahead of August Nonfarm Payrolls, expected to show 56,000 jobs added and 4.1% unemployment.
• Thursday's regular session closed higher, with the Dow Jones jumping 1.18% for a second straight day of gains.
• Rally driven by falling Treasury yields following dovish rate comments from Fed Governor Christopher Waller.

Dow Jones futures inch lower by 0.06% to trade near 53,710 during European hours on Friday. Meanwhile, S&P 500 futures advance by 0.06% to trade near 7,760, while Nasdaq 100 futures rise by 0.38% to trade around 29,640.

US stock futures are trading mixed as investors await the upcoming August Nonfarm Payrolls (NFP) report for clues on the Federal Reserve's (Fed) monetary policy path. Markets broadly expect the economy to add 56,000 jobs, with the unemployment rate holding steady at 4.1%.

This cautious pre-market tone follows a strong regular session on Thursday, where the Dow Jones rose 1.18%, the S&P 500 gained 1.06%, and the Nasdaq Composite surged 1.4%, marking a second straight day of gains for all three major indices.

Broad market sentiment was boosted by a pullback in Treasury yields after Fed Governor Christopher Waller signaled a preference to keep interest rates unchanged at the September meeting, noting that additional rate hikes would not be necessary if underlying inflation continues to cool without major surprises.

US stocks gain as dovish Fed tone outweighs muted bond move

Analysts at Deutsche Bank highlight that the latest Fed commentary had a far more pronounced impact on equities than on rates, noting that “the benefits were much more visible for equities, with the S&P 500 (+1.06%) having its best day in almost a month, than for US long-end bonds, with 10yr Treasury yields a modest -1.1bps lower on the day.” According to the bank, “for US equities, the combination of strong data and dovish commentary offered more decisive support,” helping to underpin the latest leg higher in the S&P 500 even as the move in Treasuries remained comparatively restrained.

• GBP/JPY attracts some buyers on Friday, snapping a two-day losing streak to a one-month trough.
• Japan’s fiscal woes counter more hawkish BoJ bets, undermining the JPY and supporting the cross.
• A modest GBP strength also contributes to the intraday recovery, though the upside seems limited.

The GBP/JPY cross stages a goodish intraday recovery from the vicinity of the 210.00 psychological mark, though it remains on track to register heavy weekly losses. Spot prices climb to the 211.80 area during the early European session on Friday and, for now, seem to have snapped a two-day losing streak to a one-month low, touched the previous day.

As investors price in a more hawkish Bank of Japan (BoJ), persistent worries about Japan's worsening fiscal conditions prompt some selling around the Japanese Yen (JPY). In fact, Japan's initial general-account budget requests are estimated to total around ¥143 trillion (about $894 billion), marking a record high for the fourth consecutive year. This comes amid doubts over Prime Minister Sanae Takaichi's ability to balance fiscal responsibility amid her ambitious investment strategy, which keeps a lid on the JPY and triggers an intraday short-covering move around the GBP/JPY cross.

Furthermore, borrowing costs in Japan will remain significantly lower than in other major economies despite expectations for a faster BoJ policy tightening, which, in turn, keeps the so-called JPY carry trade active. The British Pound (GBP), on the other hand, attracts some follow-through buying and is seen as another factor supporting the GBP/JPY cross. That said, reduced bets for an interest rate hike at the Bank of England's (BoE) September meeting might cap the GBP, making it prudent to wait for strong follow-through buying before confirming that the cross has bottomed out.