Forex News

DBS Group Research expects the European Central Bank (ECB) to raise the deposit facility rate to 2.50%, citing a resilient inflation-growth mix in the Eurozone. The report notes headline inflation has moved further above target, while core pressures remain contained for now. Analysts highlight risks of broader wage and services inflation and point to higher European bond yields reflecting investor concerns.

ECB seen tightening as inflation rises

"Inflation jumped to 3.3% yoy in August from 2.9% month before, moving further from the 2% target, primarily driven by 14.3% increase in the energy component."

"Eurozone’s inflation-growth mix is likely to convince policymakers that the economy can withstand further monetary tightening."

"However, from the ECB's perspective, the risk is that sustained increase in inflation eventually broadens into wages, services and inflation expectations, preferring to act pre-emptively."

"Meanwhile, sell off in the global bonds has also swept European rates higher, suggesting investors are growing wary of wide deficits in light of geopolitical tensions, higher defence expenditure and other prevailing uncertainties."

"The ECB Governing Council is expected to raise the benchmark deposit facility rate by 25bp to 2.5%."

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

• WTI Oil loses more than 1% on Friday, although geopolitical risks continue to sustain a significant risk premium.
• US military escorts of commercial vessels through the Strait of Hormuz ease immediate concerns over supply disruptions.
• Renewed hostilities between the US and Iran keep the risk of disrupted Oil flows through the strategic route elevated.

West Texas Intermediate (WTI) US Oil declines 1.21% on Friday and trades around $88.55 per barrel at the time of writing. The Crude Oil remains close to its recent highs and is still heading for a strong weekly gain as tensions between the United States (US) and Iran maintain a significant geopolitical risk premium in the Oil market.

WTI comes under some selling pressure after US military forces escorted 40 commercial vessels carrying around 18 million barrels of Oil through the Strait of Hormuz on Tuesday. The operation helps reassure investors about the ability of tankers to navigate the strategic route and temporarily eases concerns over a major disruption to supplies.

Risks nevertheless remain elevated. Iran targeted US military bases in Kuwait and the United Arab Emirates (UAE) on Thursday, while clashes around the Strait of Hormuz continue to fuel concerns about maritime security. US forces also reportedly intercepted a cruise missile and repelled several drone attacks during Tuesday's escort operation.

South Korea is also reportedly preparing to deploy military assets to help ensure freedom of navigation through the Strait of Hormuz. These developments show that, despite vessels continuing to transit under military protection, tensions remain high enough to sustain a risk premium in Oil prices.

The Strait of Hormuz remains at the center of market attention because of its importance for global energy exports. The possibility of further escalation between Washington and Tehran could therefore quickly revive concerns over Oil flows and limit the extent of WTI's correction.

Meanwhile, disruptions affecting refined products add to tensions across energy markets. Average US Diesel prices reached a record $5.82 per gallon on Thursday, according to GasBuddy data cited by Reuters in the provided source. Hostilities between the United States and Iran, combined with disruptions caused by Ukrainian strikes on Russian Diesel-exporting refineries, are contributing to tighter global supplies.

Conversely, comments from Russian President Vladimir Putin expressing openness to potential peace negotiations provide a modest counterweight to geopolitical risks. For WTI, however, developments around the Strait of Hormuz and the ability of US forces to ensure the safe passage of Oil tankers remain the main short-term drivers.

Commerzbank’s Dr. Christoph Balz expects the Federal Reserve to keep rates unchanged, but highlights a significant risk of another 25 bps hike. He notes gasoline-driven headline Consumer Price Index (CPI) strength versus moderate core inflation, and stresses that upcoming jobs and Consumer Price Index (CPI) data could tip the decision. Political pressure and concerns about entrenched inflation expectations complicate the Fed’s policy path.

Gasoline lifts CPI, core stays moderate

"Will the Federal Reserve raise interest rates or not? A clear decision is not yet in sight, even though the risk of a rate hike has increased. Today, Friday, the August jobs report will be released, and consumer price data will be released at the end of next week."

"As for consumer prices, we expect a significant increase of 0.4% from July. This would be noticeably higher than last month’s 0.1%. The main reason is the gasoline price, which has risen another 4% following the renewed escalation in the Persian Gulf."

"Fed officials could therefore argue that the inflation trend continues to slow and refrain from raising interest rates. In principle, a single monthly figure should not play a decisive role anyway. However, several Fed officials have made it clear that they fear the inflation rate—which has been too high for too long—could increasingly influence wage and price negotiations."

"Ultimately, we still expect the Federal Reserve to hold interest rates steady. However, there is a significant risk that things could turn out differently. If the figures—particularly the core inflation rate—surprise on the upside, a 25-basis-point hike would likely be in order."

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

MUFG’s Michael Wan highlights a sharp strengthening in the Japanese Yen, with USD/JPY dropping from 160 to around 155.30 as the Dollar broadly weakened and Asian FX gained. The report notes uncertainty over any Bank of Japan (BoJ) intervention, discusses hawkish BoJ rhetoric, and argues that excessive Fed rate expectations should unwind, leading to a weaker Dollar over time.

Yen surge and Dollar repricing

"There were significant moves in the FX market, with the Japanese yen in particular strengthening sharply from the 160 level on 2 Sep all the way down to as low as 155.30 overnight, a 5 big figure move."

"It is not entirely clear whether the moves in USD/JPY were driven by FX intervention, but from what we do know Bank of Japan current account data for Wednesday do not suggest the moves were driven by intervention."

"More generally on the Bank of Japan front, BOJ Board Member Takata – one of BOJ’s most hawkish members - gave a speech earlier this week leaving the door open for an outsized interest rate increase as well as back-to-back hikes."

"This led the JPY OIS market to start to price in some chance albeit small right now of more than 25bps hike in BOJ’s September meeting."

"Overall, these views and developments fit in with our global teams’ views that pricing for Fed hike rate expectations are too excessive especially post the Jackson hole meeting, and the Dollar should weaken over time."

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

• The US Dollar Index ticks up to near 99.00 in the countdown to the US NFP data for August.
• Fed officials deliver encouraging remarks on inflation.
• Traders have trimmed hawkish Fed bets as officials seem confident in progress in inflation cooling down.

The US Dollar (USD) is marginally up on Friday ahead of the United States (US) Nonfarm Payrolls (NFP) data for August, which will be published at 12:30 GMT.

At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades slightly higher at around 99.07.

Investors will pay close attention to the US NFP data to get fresh cues regarding the Federal Reserve’s (Fed) monetary policy outlook.

The US NFP report is expected to show that employers hired 56K fresh workers after firing 23K employees in July. The Unemployment Rate is seen as steady at 4.1%. Average Hourly Earnings, a key measure of wage growth, is seen arriving lower at 3% Year-on-Year (YoY) from 3.2% in July.

According to TD Securities, the upcoming US payrolls release could trigger an uneven response in rates markets. Strategists warn that a "firm NFP may increase hike fears, but inflation keeps markets nervous and the reaction asymmetric," with investors reluctant to fully price in a more aggressive Fed path until they see the next CPI print. At the same time, TD Securities argues that "a modestly softer payroll print would allow the market to lower the pricing for a September rate hike," underscoring their view that downside surprises in employment data are more likely to be reflected in near-term policy expectations than upside ones.

Meanwhile, financial markets have trimmed hawkish Fed interest rate expectations after encouraging comments from Federal Open Market Committee (FOMC) board members on inflation.

Analysts at Commerzbank said that lingering uncertainty over the US rate outlook was “underscored Thursday by comments from Fed Governor Christopher Waller,” who, in their words, signalled that “a rate hike is by no means necessary.” They add that Waller “also confirmed what we have been arguing: next week’s inflation data are likely to be the key input for the Fed’s upcoming policy decision,” a shift in emphasis that, in their view, “further [reduces] the significance of today’s employment report.”

On Wednesday, New York Fed Bank President John Williams also said, "Recent data have been encouraging on inflation." Williams added, "Inflation expectations are contained," and I am “not seeing second-round inflation impact from tariffs".

US Dollar Index Technical Analysis

In the daily chart, the Dollar Index Spot trades at 99.07, keeping a bearish near-term tone as it holds below the 20-day exponential moving average (EMA) at 99.45 and the 61.8% Fibonacci retracement at 99.23.

The Relative Strength Index (RSI) at 41.30 hovers below the midline, hinting at lingering downside pressure but without oversold conditions, suggesting scope for further downside or a shallow consolidation under these caps.

On the topside, initial resistance aligns at the 61.8% retracement near 99.23, followed by the 20-day EMA at 99.45 and the 50% retracement around 99.72, while higher barriers emerge at the 38.2% level near 100.22 and the 23.6% retracement at 100.83. On the downside, immediate support is seen at the 78.6% Fibonacci level around 98.53, with a firmer floor at the 100% retracement near 97.63, where buyers may attempt to stabilize the index if the current decline extends.

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

• Silver consolidates below the 100-day SMA near $67 following two straight days of gains.
• Momentum indicators suggest limited bullish strength, with the RSI near 55 and the ADX around 17.
• Fading MACD red histogram bars point to easing bearish momentum, but a clear breakout is still lacking.

Silver (XAG/USD) consolidates with marginal losses on Friday following back-to-back daily gains, as traders avoid taking large positions ahead of the US Nonfarm Payrolls (NFP) report. The 100-day Simple Moving Average (SMA) near $67 caps the immediate upside, while momentum indicators point to limited bullish strength. At the time of writing, XAG/USD trades around $66.80.

The US economy is expected to add 56K jobs in August after shedding 23K in July, while the Unemployment Rate is forecast to hold at 4.1%. The US economy is expected to add 56K jobs in August after shedding 23K in July, while the Unemployment Rate is forecast to hold at 4.1%.

The figures are likely to play a key role in shaping the Federal Reserve’s (Fed) decision at its September 15-16 monetary policy meeting, with the CME FedWatch Tool currently showing around a 50% chance of a 25-basis-point rate hike.

A stronger-than-expected NFP could keep XAG/USD below the 100-day SMA, while a disappointing result may clear the way for a bullish breakout.

Technical analysis

XAG/USD holds above the 50-day Simple Moving Average (SMA) at $62, but remains below the 100-day SMA and the 200-day SMA, leaving the near-term bias broadly neutral with a slight topside cap.

The Relative Strength Index (RSI) on the daily chart around 55 hints at modest bullish momentum, yet the Average Directional Index (ADX) near 17 suggests a weak underlying trend.

Meanwhile, the Moving Average Convergence Divergence (MACD) remains marginally negative, although the fading red histogram bars indicate that bearish momentum is easing, reinforcing the idea of a consolidation phase rather than a clear directional move.

On the downside, the 50-day SMA near $62 and the psychological $60 mark form a strong support zone, followed by a more robust horizontal floor around $55.

On the topside, immediate resistance emerges at the 100-day SMA near $67, followed by the 200-day SMA around $72. A break above these levels could open the door towards the $80 mark.

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