Forex News
- EUR/USD declines to near 1.1380 in Monday’s early Asian session.
- Hawkish Fed remarks strengthened expectations for further tightening.
- Markets are currently pricing nearly a 45% odds of another ECB 25 bps rate hike in October.
The EUR/USD pair edges lower to around 1.1380 during the early Asian session on Monday, pressured by hawkish signals from the Federal Reserve (Fed) and escalating Middle East tensions. Traders brace for the Retail Sales and Consumer Price Index (CPI) inflation reports from Germany later on Wednesday for fresh impetus.
Many Fed officials delivered hawkish remarks last week, with Cleveland Fed President Beth Hammack saying on Friday that she is worried that persistently high inflation risks conditioning the American public to accept elevated prices as the norm, adding the central bank cannot let that happen. Philadelphia Fed President Anna Paulson said, "Some modest further tightening may be warranted.”
Markets are now pricing in nearly a 65.9% odds of the Fed October benchmark rate hike, up from 57.6% a week earlier and 9.4% a month earlier, according to the CME FedWatch tool.
Furthermore, rising tensions in the Middle East could boost safe-haven flows, supporting the Greenback. US President Donald Trump said on Sunday that he believes the war with Iran will be won “very soon,” adding that additional military strikes before the midterm elections are possible.
Meanwhile, Iran sticks to its position that it would only reopen the crucial waterway if its conditions are met, while a senior Iranian military leader stressed his country’s readiness to continue fighting.
The European Central Bank (ECB) raised its key deposit rate by 25 basis points (bps) to 2.50% at its September policy meeting. Markets are currently pricing roughly a 45% chance of another 25 bps rate hike in October, with a further rate hike fully priced only by December at the earliest, according to Reuters. That leaves plenty of room for incoming data to move expectations.
Euro slide seen as stretched with downside limited unless supports give way
Strategists at UOB Group note that the Euro’s latest leg lower has exceeded their earlier expectations. In their 1–3 weeks view, they recall that in their last update on Wednesday, 23 September, when EUR/USD was trading around 1.1450, they had highlighted that “there is a chance for EUR to test 1.1400, but the odds for a sustained decline below this level are not high.” However, they point out that the subsequent “breach of 1.1400 triggered a sharp decline that reached a low of 1.1358 yesterday.”
While acknowledging that “EUR could weaken further,” UOB argues that “the deeply oversold conditions suggest that the scope for additional downside may be relatively limited.” They emphasise that “the decline in EUR that started two weeks ago … has been substantial,” and draw attention to “two strong support levels, at 1.1355 and 1.1325.” On the topside, UOB flags that “a breach of 1.1430 (‘strong resistance’ level previously at 1.1490) would indicate that the weakness in EUR is stabilising,” marking that zone as a key threshold for any near-term recovery in the Euro.
Hammack flags inflation mindset risk as Fed keeps policy stance restrictive
Fed’s Hammack delivers a moderately hawkish message, with a FXS Speechtracker score of 7.2/10, slightly below the 7.5/10 historical average, as the focus shifts to the danger of an entrenched “inflationary mindset” after a prolonged period of above-target price pressures. The emphasis on solid growth, a stable job market, and demand- and capex-driven inflation risks, alongside the warning that expectations could shift if progress stalls, underscores a clear preference for maintaining a restrictive policy stance to re-anchor inflation expectations. Overall, the tone leans hawkish, but the slight dip versus the established baseline suggests marginally less urgency than in past communications.
The FXS Fed Sentiment Index slipped by 0.34 points to 147.72, indicating a modest pullback in perceived hawkishness following the speech. Despite this decline, the index remains firmly in hawkish territory well above the neutral 100 mark, signaling that, in aggregate, Fed communication still points to restrictive policy bias even as the latest Hammack remarks register a small sentiment moderation in the FXS Fed Sentiment Index and FXS Speechtracker.
Technical Analysis: EUR/USD retains a negative outlook below the 100-day SMA
In the daily chart, EUR/USD remains under clear bearish pressure, holding well below the 100-day simple moving average (SMA) and the Bollinger Bands’ middle line, which cap the topside and reinforce a negative near-term bias. The Relative Strength Index (14) sits in oversold territory near 27, hinting that while downside momentum is strong, the sell-off is becoming stretched.
On the downside, immediate support emerges at the lower Bollinger Band around 1.1340, where sellers may hesitate to push prices further without a corrective bounce. On the topside, initial resistance is clustered in the 1.1525–1.1530 area, defined by the Bollinger middle band and the 100-day SMA, with a subsequent barrier at the upper Bollinger Band near 1.1708; only a recovery above these levels would ease the current bearish tone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
US President Donald Trump said on Sunday that he believes the war with Iran will be won “very soon,” adding that additional military strikes before the midterm elections are possible, Fox News reported.
“I think what's going to happen is we're going to win this war very soon, and as soon as we win it, the oil will go down, way down to what it was before the war,” said Trump. “And the key is, Iran will not have a nuclear weapon,” he added, saying nuclear deterrence was “key to the whole thing.”
Meanwhile, Iran’s Persian Gulf Strait Authority (PGSA) warned shipowners Sunday against using “unauthorized” routes through the Persian Gulf and Strait of Hormuz, threatening consequences for noncompliant shipping companies.
Market reaction
At the time of writing, the West Texas Intermediate (WTI) is up 0.72% on the day at $92.00.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
The Bank of Japan (BoJ) board members shared their views on the monetary policy outlook on Monday, per the BoJ Minutes of the July meeting.
Key quotes
Members agreed financial conditions remain accommodative.
Some members note consumer prices rising, reflecting increased import costs.
Several members noted companies steadily pass rising raw material costs, sustaining high wholesale inflation.
Many members say medium-, long-term inflation expectations rising for households, companies.
Several members expect consumer goods price increases to expand from summer onward.
Many members noted underlying inflation nearing 2%, demanding focus on stability.
Many members said underlying inflation nearing 2%, requiring focus on stabilising price growth around that level.
Members concur fx volatility impacts economy, prices more than before as firms increase pass-through of rising import costs.
One member notes rising upside price risks as recent weak yen, Middle East events could boost inflation expectations.
One member noted it takes 1-1.5 years for rate hike effect to ease inflation, economy.
One member said Bank of Japan must taper monetary support gradually to prevent delay in interest-rate increases.
One member said central bank must ensure nimble policy decisions by raising policy rate, which stayed below estimated neutral rate range.
Many members said central bank gradually moving to phase focusing on stabilising underlying inflation around 2%, not pushing up inflation.
One member said markets appear to expect BOJ to raise rates about once every six months, but hikes could come more quickly.
One member said bank must adjust policy rate nimbly with focus on upside inflation risks.
One member says bank must speed up rate hikes as inflation risks could cause significant harm to economy.
Some members said central bank must signal focus on upside inflation risks more clearly.
Several members said it was difficult to anticipate pace and timing of future rate increases.
Board discussed long-term interest rate changes with some members saying term premia could increase if markets doubt BOJ will raise rates adequately.
Cabinet office official says suitable monetary policy crucial for stable inflation, hopes BOJ collaborates with government.
Market reaction to the BoJ Minutes
At the time of writing, USD/JPY is up 0.11% on the day at 157.48.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
- AUD/USD weakens to around 0.7010 in Monday’s early Asian session.
- Fed’s Hammack wanted restrictive monetary policy to bring inflation to target.
- The RBA is poised to resume raising interest rates at its September meeting on Tuesday.
The AUD/USD pair loses momentum to near 0.7010 during the early Asian session on Monday. The US Dollar (USD) strengthens against the Australian Dollar (AUD) on rising US Treasury yields and growing bets on further Federal Reserve (Fed) interest rate hikes. The Reserve Bank of Australia (RBA) will be in the spotlight later on Tuesday.
Hawkish remarks from Fed officials have fueled speculation about additional interest rate increases following a recent rate hike to the 3.75%-4.00% range. Cleveland Fed President Beth Hammack said on Friday that she is worried that persistently high inflation risks conditioning the American public to accept elevated prices as the norm, adding the central bank cannot let that happen.
Meanwhile, Philadelphia Fed President Anna Paulson said, "Some modest further tightening may be warranted.” Markets are now pricing in nearly a 65.9% chance of a Fed October benchmark rate hike, up from 57.6% a week earlier and 9.4% a month earlier, according to the CME FedWatch tool.
The RBA is likely to deliver a 25 basis points (bps) rate hike to combat sticky inflation. That would bring the Official Cash Rate (OCR) to 4.60%, the highest level since November 2011. Traders will take more cues from Governor Michele Bullock’s press conference after the rate decision whether the Australian central bank is prepared to deliver back-to-back hikes in November or prefers to watch and wait through the rest of the year.
“The risk sits with the need to tighten monetary policy further beyond September given the inflation backdrop,” said Belinda Allen, head of Australia Economics at Commonwealth Bank of Australia. “But it is not an easy decision to push monetary policy further into restrictive territory,” Allen added.
AUD resilience underpinned as RBA tightening odds rise despite softer jobs headline
Brown Brothers Harriman’s Elias Haddad notes that Australia’s latest labour force data delivered a mixed signal, with the “unemployment rate unexpectedly rose 0.1ppt to 4.6%, which was above consensus and RBA year-end projection of 4.5%.” However, BBH stresses that “the increase in the jobless rate largely reflects a higher participation rate suggesting some tightness in the labor market persists,” reinforcing the view that underlying conditions remain firm.
Against this backdrop, Haddad argues that the “bottom line: rising odds of additional RBA hikes limits policy divergence with the Fed and supports AUD/USD.” He also highlights that “Australia’s strategic exposure to commodities linked to energy, AI, and defense remains an important long-term tailwind for AUD,” providing an additional structural underpinning for the currency beyond the near-term policy outlook.
Hammack flags inflation mindset risk, keeps Fed tone firmly hawkish
Fed’s Hammack delivered a moderately hawkish message, with a 7.2/10 FXS Speechtracker score that is slightly softer relative to the historical average of 7.5/10 but still clearly above neutral. The emphasis on the “biggest risk” being the formation of an inflationary mindset, alongside comments that growth is holding up and the job market is stable, underscores concern that persistent above-target inflation and ongoing capital expenditure could entrench price pressures. The warning that policy must remain at a restrictive stance if progress on inflation stalls reinforces a bias toward keeping rates elevated for longer, supporting the Dollar on balance.
The FXS Fed Sentiment Index slipped by 0.34 points to 147.72, indicating a modest pullback in perceived hawkishness even as the index remains deep in hawkish territory above the 100 neutral line. This configuration—high level but negative change—suggests the Fed is still firmly skewed toward restrictive policy, yet markets may interpret Hammack’s tone as marginally less aggressive compared to the established baseline.
Technical Analysis: AUD/USD keeps a bearish vibe in the near term
In the daily chart, AUD/USD holds below the 100-day simple moving average (SMA) and the Bollinger middle band, keeping the near-term bias bearish despite a modest intraday bounce off recent lows. Price is only marginally above the Bollinger lower band support, while the Relative Strength Index (RSI) at 33 is hovering near oversold territory, suggesting selling pressure is stretched but not yet reversed.
On the topside, initial resistance is seen at the 100-day SMA around 0.7070, with the next cap at the Bollinger middle band close to 0.7130, ahead of the upper band near 0.7265. On the downside, a clear break below the Bollinger lower band at 0.7000 would open the door to further downside extension, while recovery attempts are likely to remain fragile as long as price trades under the 100-day SMA.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Here’s a brief recap of the key developments in the Middle East war that occurred over the weekend, which are expected to have a significant impact on markets in the upcoming week.
- Earlier Sunday, Iran stated that it’s awaiting a definitive US response to a seven-day proposal for reopening the strait and other demands it has put on the table, and won’t soften its conditions, CNBC reported.
- Tehran is sticking to its position that it would only reopen the crucial waterway if its conditions are met, while a senior Iranian military leader stressed his country’s readiness to continue fighting.
- “Our conditions are clear; any progress toward the opening of the Strait of Hormuz is contingent upon the fulfillment of these conditions, and we will not back down from them,” said Iranian Foreign Minister Abbas Araghchi.
- US President Donald Trump said on Sunday that he expects talks with Iran to resume this week, even after rejecting the latest Iranian proposal to reopen the Strait of Hormuz, Axios reported.
- US Ambassador to the UN Mike Waltz stated that Trump rejected Iran's latest proposal because the Islamic Republic wanted sanctions relief and access to billions in frozen assets before negotiating an end to its nuclear programme.
- Saudi Arabia’s capital came under attack from Houthi militants in Yemen on Saturday. Saudi-backed coalition forces in Yemen said air defenses intercepted two drones launched by the Houthis toward Riyadh, as well as a ballistic missile targeting the southern border area of Khamis Mushait.
- Yemen said on Sunday that its armed forces had carried out hundreds of targeting operations against the Houthis across the region.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Societe Generale notes the Korean Won has been one of Asia’s standout performers, with USD/KRW slipping from around 1,390 to 1,360 as local exporters sold Dollars ahead of the Chuseok holiday. The bank highlights a supportive backdrop, citing South Korea’s strong export engine and a sharp early-September surge in exports, driven by AI-related shipments alongside faster import growth.
Won benefits from robust exports
"The KRW remained one of the region’s standout performers, although the week was far from smooth."
"USD/KRW started the week around 1,390 and retreat to 1,360 this morning as local exporters sold dollars ahead of Chuseok holiday."
"The broader backdrop remains supportive, with South Korea’s export engine continuing to fire on all cylinders."
"Early-September exports surged 78.3% yoy, led by AI-related shipments, while imports accelerated 26.7%."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
UOB’s Quek Ser Leang and Lee Sue Ann describe USD/CNH as consolidating after a move to 6.7200, with momentum slowing in the very near term. For the coming days and weeks, they see the pair likely trading between 6.7120 and 6.7220, while a rapid build-up in momentum suggests potential gains toward 6.7250 and major resistance at 6.7330. Longer term, they expect gradual downside while below 6.7815.
Range trade with upside potential
"24-HOUR VIEW: USD rose to 6.7200 yesterday before closing little changed at 6.7168 (+0.08%). Upward momentum appears to be slowing, but it is too early to expect a sustained pullback. Today, USD is more likely to consolidate at these higher levels, probably between 6.7120 and 6.7220."
"1-3 WEEKS VIEW: We turned neutral on USD two days ago (23 Sep, spot at 6.6965), and we expected it “to consolidate between 6.6900 and 6.7080.” We did not expect USD to break above 6.7080 as it rose to a high of 6.7200 yesterday. The rapid build-up in momentum suggests USD could rise to 6.7250, potentially reaching the major resistance at 6.7330."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Thirty-year yield touches 22-year high as long-end pressure builds.
- Fed hawks lift year-end tightening odds after September rate increase.
- Rising inflation expectations keep 10-year yield anchored near 5.20%.
US Treasury yields turned mixed on Friday as the long-end of the curve, the 20s and 30s, posted gains while the short-end and the belly of the yield curve retreated from multi-year high levels. The US 10-year Treasury yield holds firm at 5.20% after peaking at a 19-year high of 5.228%.
Long-end yields climb while Fed tightening bets keep 10-year near 5.20%
During the session, the 30-year bond yield rose to its highest level in 22 years. Hawkish commentary from Federal Reserve (Fed) officials and last week's 25-basis-point rate hike were the two main catalysts that pushed US Treasury yields higher during the week.
The sudden shift from known doves, New York Fed John Williams (voter) and Philadelphia Fed Anna Paulson (voter in 2026), has increased the hawkish tilt on the FOMC board. Also, Fed Governor Michael Barr, acknowledging the need for further rate hikes on Wednesday, has almost cemented the case for a 25-basis-point rate hike towards the end of the year.
Money markets see a 64% chance of a Fed rate hike at the October 28 meeting, according to Prime Terminal. For the December meeting, the chances are higher at 92%.
Worldwide yields remain underpinned by high Oil prices as the US-Iran war continues, keeping inflationary pressures elevated.
Data-wise, US Consumer Sentiment deteriorated, with households seeing a leg up in inflation for one year from 4% to 4.6% and for a five-year period from 3.3% to 3.4%. Earlier, core capital goods increased 1.6% in August, boosted by the investment boom in AI.
The yield on the 30-year bond was last unchanged at 5.488%, after peaking at 5.5016%, the highest level since June 2004.
US 10-year Treasury yield chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
ING’s Asia-Pacific research notes that South Korea’s upcoming data should show stronger industrial production and a widening trade surplus, even as export and import growth moderates. Technology and semiconductor exports are expected to underpin the surplus. At the same time, headline CPI is forecast to ease slightly, with core inflation decelerating more sharply, pointing to reduced underlying price pressures.
Stronger output with softer inflation
"South Korea releases August industrial production data on Wednesday. Market consensus expects industrial production growth to accelerate to 4.5% YoY, from 3.6% in July. Monthly output is forecast to rise 0.5%."
"September trade data, out Thursday, is expected to show a moderation in both export and import growth to 61.2% YoY and 20.7% YoY, respectively."
"Despite slower growth, the trade surplus is forecast to widen to $38.4bn, supported by continued strength in technology and semiconductor exports."
"Headline CPI inflation is expected to ease to 3.0% YoY in September, from 3.1% in August. Core inflation is forecast to slow more sharply to 2.8% YoY, from 3.4%."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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