Forex News

ING’s Frantisek Taborsky notes that the National Bank of Poland maintained a dovish stance, signalling no need to adjust rates potentially until mid-next year despite rising inflation. This has allowed EUR/PLN to rebound and leaves scope for further upside, with delayed rate hikes and a dovish tone expected to keep Poland’s already steep yield curve under pressure.

NBP stance opens door to more weakness

"The National Bank of Poland delivered no surprises yesterday, while the governor remained dovish relative to peers, market pricing and the global backdrop."

"Although he acknowledged the recent rise in inflation, he sees no need to adjust rates, potentially until mid-next year, when weaker GDP growth should begin to ease price pressures."

"EUR/PLN rebounded to 4.320-4.330, in line with yesterday's range, as dovish repricing narrowed the rate differential."

"We see scope for a further move towards 4.330-4.340 today. Rates are edging only modestly, with energy prices still driving the market."

"Delayed rate hikes remain the baseline, and a dovish tone should steepen the curve further, even though Poland already has the steepest curve in emerging markets."

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

UOB economist Lee Sue Ann notes that the European Central Bank (ECB) delivered a widely expected 25 bps hike but signalled a more hawkish stance as inflation risks from the Middle East-driven energy shock remain elevated. UOB now expect another 25 bps hike, most likely in Dec, with Oct described as a live meeting.

ECB tightening bias under energy shock

"The European Central Bank (ECB) delivered a widely expected 25 bps hike, but the message was more hawkish than the move itself. Policymakers stressed that the Middle East-driven energy shock continues to generate inflation pressures, with risks tilted to the upside for inflation despite increased uncertainty around growth."

"We no longer see the ECB as firmly on hold after Sep. While Dec remains our base case for one final 25 bps hike, Oct has clearly become a live meeting given persistent energy-driven inflation risks and growing concerns over second-round effects through wages and underlying prices."

"The ECB raised its three key policy rates by a further 25 bps at its 10 Sep meeting. Accordingly, the interest rates on the deposit facility, main refinancing operations and marginal lending facility were increased to 2.50%, 2.65% and 2.90%, respectively. The decision was widely anticipated and reflected the Governing Council’s assessment that the Middle East conflict continues to generate inflationary pressures and that inflation is likely to remain above target for an extended period."

"As such, while Oct has become a live meeting, our base case is for the ECB to pause next month before delivering one final 25 bps hike in Dec, taking the deposit rate to 2.75%. The key risk to this view is a further escalation in energy prices or clearer signs that second-round effects are becoming entrenched, which could compel the ECB to move sooner."

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

DBS Group Research analysts Taimur Baig and Chang Wei Liang expect the Bank of Japan (BoJ) to hike rates by 25 bps at its September 17–18 meeting, citing solid Gross Domestic Product (GDP) growth, stronger wages and inflation near the 2% target. They see a hawkish tone but rules out a 50 bps move or back‑to‑back hikes as the base case.

BoJ seen delivering hawkish 25 bps hike

"It is almost a done deal that the Bank of Japan will hike rates at the upcoming meeting on Sep 17-18."

"The most likely outcome is for the BOJ to deliver a hawkish 25bps hike while signalling a flexible pace of rate hikes at future meetings."

"An outsized 50bps hike at this meeting or back-to-back rate hikes at every meeting is not our base case."

"More importantly, the BOJ should remain mindful of the market impact of large policy surprises, given that the unexpected rate hike in July 2024 triggered a massive JPY carry-trade unwinding and jitters across global financial markets."

"Final 2Q GDP confirmed that the economy continued to grow at an on-trend pace of 1.4% QoQ saar, or 0.9% YoY, in 2Q."

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

• USD/JPY falls by over 0.50% on Friday and trades around 153.60 after briefly jumping to 154.49.
• US inflation remains unchanged at 3.4% in August, in line with expectations, while monthly core inflation comes in above forecasts.
• The Japanese Yen benefits from expectations of further monetary tightening in Japan ahead of next week's Bank of Japan decision.

USD/JPY falls 0.54% on Friday and trades around 153.60 at the time of writing. The pair initially jumped to 154.49 following the release of United States (US) inflation data before quickly erasing the entire move as strength in the Japanese Yen (JPY) outweighed the initial rebound in the US Dollar (USD).

The US Consumer Price Index (CPI) rose 3.4% YoY in August, unchanged from the previous month and in line with market expectations, according to data released by the Bureau of Labor Statistics (BLS) on Friday. On a monthly basis, prices increased 0.4%, following a rise of just 0.1% previously.

The underlying figures also provided a slightly firmer signal. Core CPI, which excludes volatile food and energy prices, rose 0.3% on a monthly basis, exceeding the 0.2% forecast. On an annual basis, however, core inflation eased to 2.4% from 2.5% in July.

The US Dollar initially strengthened following the release, supported by the stronger-than-expected monthly increase in core inflation. However, this reaction quickly lost momentum against the Japanese Yen, which ranks among the strongest currencies this week.

The Japanese currency remains supported by expectations surrounding the Bank of Japan's (BoJ) upcoming monetary policy decision. Markets expect the central bank to remain on its monetary normalization path, with a potential 25-basis-point rate hike to 1.25% at next week's meeting, which would bring borrowing costs to their highest level in 31 years.

The combination of potentially tighter monetary policy in Japan and the US Dollar's fading momentum following the initial CPI reaction therefore supports the Japanese Yen and keeps USD/JPY under pressure around 153.60.

• The Euro recovers against the US Dollar following a brief decline after the US CPI release.
• Headline inflation meets expectations, but the monthly core reading comes in hotter than forecast.
• Gasoline prices account for more than one-third of the monthly increase in headline CPI.

EUR/USD reverses earlier losses on Friday after the latest United States (US) Consumer Price Index (CPI) report came broadly in line with expectations and failed to trigger a strong market reaction. Still, the data showed that inflation remains sticky, reinforcing expectations that the Federal Reserve (Fed) could raise interest rates next week. At the time of writing, EUR/USD trades around 1.1600 after touching an intraday low of 1.1569.

The headline CPI rose 0.4% MoM in August, matching market expectations but accelerating from the 0.1% increase recorded in July. Annual inflation held steady at 3.4%, also in line with forecasts.

Core CPI, which excludes volatile food and energy prices, increased 0.3% MoM, above the 0.2% forecast and the previous reading of 0.2%. Annual core inflation eased to 2.4% from 2.5%, matching market expectations. The report also showed that gasoline prices rose 3.9% in August and accounted for more than one-third of the monthly increase in headline inflation.

The US Dollar attracts limited buying interest following the release. The US Dollar Index (DXY), which tracks the Greenback limited buying interest following the release. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99 after briefly climbing to 99.36 in the immediate reaction to the data. A pullback in US Treasury yields from multi-year highs also limits the Greenback’s advance.

The CPI figures follow Thursday’s Producer Price Index (PPI) report, which showed that annual producer inflation accelerated to 5.4% in August from 4.8% in July. The latest data strengthened expectations of a rate hike at the Fed’s September 15-16 meeting. According to the CME FedWatch Tool, markets now price in an 88% probability of a 25-basis-point increase, up from 67% earlier in the day.

Commerzbank strategists argue that Brent crude should gradually retreat toward pre-war levels as covert tanker “dark transits” and diversions restore Gulf supply. They see transit volumes recovering to around 8 million barrels per day by year-end and potentially 12 million next year, while Oil products and natural gas remain tighter for longer.

Covert flows support Brent normalization

"We therefore expect shipping traffic through the Strait of Hormuz to gradually return to normal in the coming quarters."

"Our assumption is that transit volumes, including “dark transits,” will recover to around 8 million barrels per day by the end of the year and will even rise above that level next year. After six months, this gradual de-escalation would effectively have a similar impact on transport volumes as reaching an agreement."

"Taken together, this could mean that 13 million barrels per day of oil – out of the original 20 million barrels per day from the Gulf region – could reach the global market. In addition, oil production outside the Gulf region has risen by an average of 1.2 million barrels per day since the outbreak of the war. Taken together, this would reduce the remaining shortfall to approximately 5.8 million barrels per day."

"Should oil transits continue to rise in the coming year – for example, to 12 million barrels per day – the supply gap would narrow to less than 2 million barrels per day. For the global oil market, this would be of little significance overall. We therefore expect the oil price to ease in the coming quarters and return to near its pre-war levels by the middle of next year."

"Prices for petroleum products and natural gas are therefore likely to remain above their pre-war levels in the coming quarters as well."

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