Forex News

Lee Hardman at MUFG reports that the US Dollar’s initial post-CPI weakness quickly reversed, with the dollar index returning to around 100.00 as markets trimmed but did not abandon expectations for a September Fed hike. July CPI matched consensus, with energy driving headline gains while core inflation remains contained. MUFG expects the Fed to leave rates on hold in September, with USD stability likely over summer.

Fed outlook after benign US CPI

"The main event yesterday was the release of the latest US CPI report for July. The US dollar weakened initially after the report was released resulting in the dollar index falling to a low of 99.613 but it has since fully reversed all of those losses and climbed back up to the 100.00-level. The US dollar has proven resilient even as market participants have moved to further scale back Fed rate hike expectations."

"The US rate market is currently pricing in around 9bps of Fed hikes by the September FOMC meeting compared to around 12bps prior to the release of the US CPI report. There was initial relief amongst market participants that the CPI report for July did not provide any major surprises that could alter the outlook for Fed policy."

"Overall, the report supports our view that Fed is likely to leave rates on hold in September. However, it is unlikely that the US rate market will scale back rate hike expectations much further in the near-term given a hike still can’t be ruled out."

"The lack of progress to reopen the Strait of Hormuz and elevated energy prices continues to pose upside inflation risks in the near-term. At the same time, the lack of clear forward guidance from Fed Chair Kevin Warsh makes it harder to assess how they are likely to set policy going forward."

"The lack of follow through US dollar weakness after yesterday’s initial sell-off suggests USD stability is more likely over the summer."

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

Societe Generale strategists note USD/BRL has formed a higher low and is testing its 200-day moving average near 5.22, with upside projections toward 5.34–5.38. They have downgraded Brazil to neutral, warning that underpriced election and fiscal risks could weaken the Brazilian Real (BRL), even as carry remains supportive.

Real vulnerable as politics heat up

"USD/BRL recently formed a higher low around 5.04 and has broken above the descending trend line drawn since December 2024. The pair is now challenging the 200-DMA. "

"The June peak at 5.22 is a potential resistance. If USD/BRL overcomes this hurdle, an extended rebound could take shape."

"The next objectives may be located at projections of 5.34/5.38 and 5.46. The low recorded earlier this week at 5.08 represents the first support."

"In LatAm, the weakening of the BRL towards the 200dma near 5.205 is not going unnoticed. Thin liquidity does not escape scrutiny but political tensions are brewing ahead of the election, causing notable underperformance and possible rotation into MXN as a more appealing option."

"DI rates are grinding upwards across the curve and the Bovespa plumbed 7-month low of 168k yesterday. Our strategy team downgraded Brazil to neutral from bullish several weeks ago, arguing that election and fiscal risks are underpriced notwithstanding the favourable carry backdrop."

"Our economist Dev Ashish argues in his election outlook that victory for President Lula is the case and carries a 65% probability, alongside a divided Congress. In this scenario, the BRL could weaken towards 5.25-5.35, forcing the BCB to proceed cautiously with easing. The Selic rate would then drop to 11.50% by end-2027."

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

Silver prices (XAG/USD) fell on Thursday, according to FXStreet data. Silver trades at $64.48 per troy ounce, down 1.30% from the $65.32 it cost on Wednesday.

Silver prices have decreased by 9.29% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 67.88 on Thursday, up from 67.49 on Wednesday.

(An automation tool was used in creating this post.)

ING’s Francesco Pesole keeps a constructive stance on EUR/USD after recent US data, based on a view that the Federal Reserve is unlikely to deliver further tightening. He targets 1.160 in coming weeks, 1.17 in autumn and 1.18 by year‑end, while warning that the lack of clear catalysts and Gulf risks could keep EUR/USD confined to tight ranges and low volatility.

Upside targets but tight trading ranges

"We retain a preference for EUR/USD upside following the latest US data. That view is rooted in our Fed assessment outlined above, though it must be balanced against the risk that renewed escalation in the Gulf could provide fresh support to the dollar."

"Our target for the coming weeks remains 1.1600, followed by 1.1700 in autumn and 1.1800 by year-end. The absence of a clear catalyst, however, may keep EUR/USD range-bound for longer, while vols test recent lows."

"We will be watching closely for another test of 1.1500. Our bias is that buyers would re-emerge there, potentially nudging the dominant trading range higher to 1.1500-1.1600."

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

UOB’s Alvin Liew assesses United States (US) inflation and Federal Reserve (Fed) policy after the July Consumer Price Index (CPI) report. Liew notes headline and core CPI remain above the Fed’s 2% target but sees inflation gradually easing, with headline CPI averaging 3.5% and core 2.8% in 2026. Liew expects the Fed to keep rates on hold through 2026 before starting gradual cuts in 2027.

Inflation risks and extended Fed pause

"The inflation outlook has improved but upside risks remain, largely linked to energy prices and geopolitical developments: While headline and core inflation continue to move lower and are consistent with softer domestic demand conditions, both remain above the Fed's 2% target."

"Overall, while the Jul CPI report reduced immediate concerns that US inflation is persistently high, it is also too early to declare victory over inflation, and the resumption of disinflationary trend is likely to be on an uneven path and susceptible to external shocks."

"We maintain a balanced near-term inflation outlook, expecting headline CPI to average around 3.5% and core CPI around 2.8% in 2026, while also retaining our base case that the Fed will remain on hold through 2026 before resuming gradual rate cuts in 2027."

"Unsurprisingly, the risk to the CPI outlook remains highly dependent on geopolitical developments in the Middle East. If regional tensions continue to ease and energy prices remain stable or move lower, headline inflation could moderate further through the remainder of 2026."

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

• Producer and import prices fell 2.1% year-on-year in July, extending a three-year deflationary streak.
• Softer US CPI metrics boosted expectations for a more accommodative Federal Reserve stance, weighing on USD.
• Escalating US-Iran tensions and potential oil export blockades could offer safe-haven support to the US Dollar.

USD/CHF depreciates after three days of gains, trading around 0.8130 during the European hours on Thursday. The pair holds losses as the Swiss Franc (CHF) remains stronger following Swiss Producer and Import Prices data for July.

Swiss Producer and Import Prices fell by 2.1% year-on-year in July, matching the previous month's pace and extending a deflationary trend that has spanned over three years. On a monthly basis, prices slipped by 0.1% following a 0.3% decline in June, marking a third consecutive monthly drop primarily driven by lower petroleum-related costs.

Analysts at OCBC underline that the inflation backdrop remains supportive of a soft Swiss Franc, noting that "near-term inflation risks remain limited." They acknowledge that "the recent depreciation of the CHF may eventually lift imported inflation," but stress that "the impact is unlikely to be felt for at least another two quarters." At the same time, they point out that "domestic inflation remains subdued and below the midpoint of the SNB's 0-2% price stability range," reinforcing the case for a patient policy stance and continued CHF weakness in the near term.

Meanwhile, the US Dollar (USD) struggles amid shifting Federal Reserve (Fed) rate expectations following softer inflation reports. July’s headline CPI edged down to 3.4% year-over-year, while core CPI cooled to 2.5%, matching market forecasts. This cooling inflation has reinforced market expectations for a more accommodative stance from the Fed, with the CME FedWatch tool showing the probability of a September rate hike dropping to roughly 36%, down from 48% a day earlier.

However, the Greenback could regain ground due to escalating US-Iran geopolitical risks. Stalled diplomatic progress and aggressive US moves—such as threats of broader sanctions and a potential naval blockade on Iranian oil exports—have heightened market uncertainty, further fueled by President Donald Trump's claim of "total control" over the strategic waterway.

MUFG’s Lee Hardman notes the Japanese Yen has strengthened modestly as markets anticipate a faster pace of Bank of Japan policy tightening. A Bloomberg report suggests Prime Minister Takaichi’s government supports a near-term BoJ hike, likely in September or October, while Kyodo highlights that joint FX intervention was enabled by Governor Ueda’s hawkish stance. Rising USD/JPY towards 160.00 keeps intervention risks in focus.

BoJ hike expectations and FX intervention

"The yen has strengthened modestly overnight supported by building expectations for a faster pace of BoJ policy tightening. The main trigger has been a Bloomberg report stating that Prime Minister Takaichi’s government is supportive of a near-term BoJ hike, with the next move likely in either September or October, according to people familiar with the matter. The report goes on to add that the BoJ’s fears over yen weakness driving up prices and the government’s desire to strengthen the impact of the recent US-Japan currency intervention are aligning them on the need for a near-term hike."

"The impact on Japanese rate market pricing has been relatively limited given that market participants had already moved in recent weeks to fully price in a hike by October and there are currently around 19bps of hikes priced in by September. The Bloomberg report fits with our own initial view that there was likely an agreement to allow the BoJ to continue to normalize policy in exchange for the US providing support for the yen through joint intervention at the end of July."

"Kyodo news had also reported earlier this week that joint intervention was reportedly made possible by BoJ Governor Ueda’s hawkish comments at the 31st July policy meeting. Governor Ueda had stated explicitly that, if necessary, the BoJ would “accelerate the pace of rate hikes”. The US was reportedly concerned that delays in raising rates would lead to excessive yen weakness, which in turn could fuel further inflation and higher long-term interest rates, with repercussions across financial markets."

"The report went on to conclude that the BoJ has “effectively left itself with no option other than a rate hike at its next Monetary Policy Meeting on 17th-18th September”."

"With USD/JPY rising back towards the 160.00-level, market participants will be watching closely to see if Japan is willing to step back into the FX market to support the yen. At the very least Japanese policymakers will be hoping the heightened threat of intervention helps to slow the pace of yen weakness. Recent price action highlights that it will be difficult for the BoJ to avoid hiking rates in September and disappointing market expectations which would encourage further yen selling."

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

The Eurozone industrial sector activity remained flat in June, while it was expected to decline 0.1%, according to data published by Eurostat. In May, Industrial production contracted by 0.3%, revised lower from -0.2%.

On an annualized basis, industrial output contracted at a faster-than-expected pace of 1.2%. The data was expected to decline by 0.8. In May, Industrial Production contracted by 1%.

Market reaction

The Euro (USD) has not shown a significant reaction to the mixed Eurozone Industrial Production data. At press time, EUR/USD trades subduedly at around 1.1525.