Forex News

ING Commodities Strategist Ewa Manthey analyses US aluminium policy and market structure, highlighting that Washington’s amended Section 232 tariffs aim to incentivize domestic smelting but will not quickly resolve the supply shortfall. With US primary aluminium output in long‑term decline and new capacity years away, the US remains reliant on imports, keeping Midwest premiums well supported.

US tariffs and import reliance

"The Trump administration amended its Section 232 aluminium tariffs to encourage investment in domestic smelting. Companies that build, expand or refurbish US smelting capacity can apply to import qualifying volumes at a 25% tariff instead of the standard 50% rate, provided they meet approved investment milestones. The shift reflects the limited success of tariffs alone in reviving US primary aluminium production."

"US primary aluminium output has steadily eroded despite years of tariff protection. The country is down to just four operating smelters, compared with more than 20 at the start of the century, leaving the US overwhelmingly dependent on imported metal. Canada remains the dominant supplier, while producers in the Middle East have become increasingly important in meeting US demand."

"Rebuilding US smelting capacity won’t happen quickly. At its core, primary aluminium production hinges on abundant, competitively priced electricity, not tariff protection. Levies may help the math on paper, but new smelters still demand billions in capital, long‑term power contracts, environmental approvals and years of construction before any fresh metal hits the market."

"We expect the US Midwest premium to remain well-supported. While the new programme may improve the longer-term outlook for domestic production, it’s unlikely to materially reduce import dependence or procurement costs over the next several years."

"As a result, import dependence and elevated US delivery costs are likely to persist. Ultimately, the programme should be viewed as a long-term industrial policy rather than a near-term solution to the country’s supply shortfall. If successful, it could support a gradual revival of US primary aluminium production."

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

Kevin Warsh is preparing to deliver his first Jackson Hole speech as Federal Reserve (Fed) Chair on Friday, and expectations extend well beyond whether interest rates will be raised or left unchanged in September.

The Jackson Hole symposium, held from August 27 to 29, has the official theme “Financial Innovation: Implications for Payments and Policy.” However, investors are likely to pay much closer attention to what Warsh says, or does not say, about inflation, interest rates and the recent heightened volatility in the US bond market.

Since taking over at the Fed in May, Warsh has sought to reduce markets’ dependence on forward guidance. His objective is to allow economic data and markets to play a greater role in shaping interest-rate expectations rather than speeches from policymakers. This strategy, however, comes at a cost: Investors struggle to understand precisely how the new Fed’s reaction function works.

Jackson Hole could therefore become less about the next rate hike and more about Warsh’s credibility.

Why Warsh’s Jackson Hole speech matters so much

Jackson Hole does not always produce a change in monetary policy. However, several Fed chairs have used the symposium to deliver messages that profoundly influenced financial markets.

Ben Bernanke opened the door to further quantitative easing measures in 2010 and 2012. Jerome Powell used his 2022 speech to firmly reaffirm the priority of fighting inflation, before preparing markets for the beginning of the monetary easing cycle two years later.

Kevin Warsh arrives in Wyoming with a different philosophy. At his July press conference, he said he had not yet decided whether his speech would focus on broader structural questions or take a more traditional approach centered on monetary policy decisions expected between September and December.

Deutsche Bank believes the first option could see Warsh discuss the five task forces created by the Fed or the economic implications of Artificial Intelligence (AI). Under a more traditional format, he could instead revisit some of the ambiguities left by his July press conference and clarify his assessment of inflation and financial conditions.

The stakes are high as markets remain divided over the Fed’s next decision. Futures currently imply a chance of around 38% that the central bank will raise interest rates in September, according to the FedWatch tool.

Warsh’s communication strategy is becoming a market risk 

The paradox is that Warsh’s attempt to make markets less dependent on the Fed could, at least in the short term, make monetary policy more difficult to understand. Forward guidance traditionally allows investors to anticipate central-bank decisions, thereby reducing the risk of abrupt changes in expectations. Warsh instead believes that an overly communicative Fed can prevent markets from fully playing their role.

That break with the past is now at the heart of the debate. DBS Bank strategist Philip Wee sees Jackson Hole as an important test for the new chair: “The market needs a coherent policy framework.” He adds: “Without one, reduced forward guidance risks becoming less a return to market price discovery and more a source of uncertainty.”

Warsh does not need to tell markets what the Fed will do in September. But he may need to explain more clearly what would cause the central bank to act.

Can Warsh reassure markets without promising a rate hike?

The main test will probably concern inflation. The Fed maintains a 2% inflation target, but price pressures remain elevated enough to sustain the debate over another rate hike. Several policymakers are also concerned that inflation remaining above target for too long could eventually undermine inflation expectations among households and businesses.

The problem for Warsh is that simply reaffirming the 2% target may no longer be enough. Standard Chartered believes the Fed Chair needs, among other things, to restore confidence in the central bank’s determination to lower inflation and convince investors that a less interventionist Fed does not threaten macroeconomic stability.

An explicit message about the possibility of raising rates could help restore credibility. Warsh will probably need to make clear that the Federal Open Market Committee (FOMC) is prepared to raise interest rates if inflation fails to slow sufficiently.

However, MUFG argues that the inflation outlook does not justify the increasingly hawkish rhetoric coming from some FOMC members. While core Personal Consumption Expenditures (PCE) inflation accelerated during the first half of the year, price pressures are expected to ease over the coming quarters as supply shocks fade. MUFG notes that inflation forecasts in the Philadelphia Fed’s Survey of Professional Forecasters have changed very little in recent months. The bank also highlights that alternative inflation measures favored by Warsh, including Trimmed-Mean and Median PCE, show inflation running much closer to the Fed’s 2% target, suggesting that the current Federal Funds Rate (FFR) remains restrictive.

The US bond market makes Warsh’s task more complicated

Warsh’s challenge is no longer limited to policy rates. Heightened volatility in US Treasury bonds, particularly at the long end of the curve, has created a new source of tension. The 30-year Treasury yield recently reached its highest level since 2007 amid concerns about inflation, the trajectory of public debt and the scale of US government financing needs.

The Fed directly controls very short-term interest rates. It does not, however, control the additional premium investors demand to lend to the US government for ten, twenty or thirty years.

This is precisely where the problem becomes as much political as monetary. US Treasury Secretary Scott Bessent recently announced an increase in buybacks of longer-dated securities to improve market liquidity. This intervention contrasts with Warsh’s desire to let markets play a greater role in determining yields themselves.

The Fed’s response to the Treasury’s actions is one of the key issues to watch on Friday. BNY strategist Geoff Yu writes: “For rates, the key question is simple: Does Warsh support, challenge, or avoid the Treasury’s recent buyback push and its impact on the curve?”

The question goes beyond the buybacks themselves. If investors begin to believe the Fed is adjusting monetary policy to limit the government’s borrowing costs, its inflation-fighting credibility could be undermined. Conversely, ignoring tensions in long-term yields could increase volatility and tighten financial conditions independently of decisions taken by the FOMC.

Warsh could ultimately say a lot without giving a September signal

Despite the considerable attention surrounding Jackson Hole, several banks warn that investors could be disappointed if they expect a clear signal about the September meeting.

“Warsh has refrained from laying out his near-term reaction function, a tactic we do not think he'll abandon only a few months into his tenure,” Wells Fargo says. Société Générale also expects the Fed Chair to prioritize his reform agenda and the work of the five task forces rather than provide an explicit indication of the interest-rate path.

MUFG, meanwhile, sees three broad possibilities: A speech focused primarily on digital finance, a balanced message combining structural themes with macroeconomic comments, or a much more ambitious presentation of Warsh’s new monetary policy framework.

The middle scenario seems most particularly consistent with his strategy so far, sharing enough information to avoid another surge in volatility, but not enough to turn Jackson Hole into a pre-announcement of the September decision.

What markets really need to listen for on Friday

The central question will probably not be whether Warsh is simply hawkish or dovish. Investors will instead need to determine whether the Fed Chair can replace forward guidance with something clear enough to keep expectations anchored.

Three elements could be particularly important. First, Warsh could clarify the conditions that would justify another rate hike without committing to a specific date. A clear statement that the FOMC remains prepared to tighten policy if inflation fails to converge toward 2% could reassure markets about the Fed’s credibility.

Second, investors will monitor his assessment of the rise in long-term yields. Presenting the move as a normal example of market price discovery would be consistent with his philosophy, but could disappoint investors looking for a response to recent tensions.

Finally, any reference to relations between the Fed and the Treasury will be closely scrutinized to determine whether the two institutions are pursuing complementary objectives or whether a divergence is emerging over how financial conditions should be managed.

TD Securities believes the consequences could be asymmetric for the US Dollar. “USD risks are skewed modestly to the downside. Any hawkish clarification on inflation credibility may provide only limited USD support. Alternatively, failure to address inflation credibility could weigh more materially on the dollar.”

That may be where the real stakes of Jackson Hole lie. A strongly hawkish speech could push yields and expectations of further rate hikes higher. A more dovish message could weigh on the US Dollar and support rate-sensitive assets. But an overly vague speech could increase uncertainty over monetary policy and a persistently higher risk premium on US government bonds.

Warsh wants a less predictable Fed. On Friday, markets will mainly be looking to see whether he can make it less predictable without making it less credible.

TD Securities’ commodity strategists Ryan McKay and Bart Melek note that heavy deal-related headlines around Iran and Oman are influencing energy markets, but they argue Crude Oil fundamentals remain tight. They highlight growing ship-to-ship transfers via the Omani route, still-subdued regional flows versus pre-war levels, and the risk that increased leakage could both ease prices and provoke Iranian aggression.

Iran-Oman route and tight balances

"Crude can withstand this latest news barrage. Talks between Iran-Oman on a Hormuz route suggest Iranian control and a move away from the US backed Southern corridor, while the increased chatter of a return to the MoU also suggests Iranian control and a want for US concessions upfront, such as unfreezing funds, after failing to follow through last time."

"All of this is not fundamentally bearish for crude oil markets, particularly as it is unlikely a deal would increase flows compared to what is already leaking out."

"In this sense, the large number of ongoing ship-to-ship transfers in the Gulf of Oman is the first real sign suggesting flows via the Omani route could be growing closer to 7-8m b/d compared to the previous 5-6m b/ d range."

"However, when taken together with Fujairah flows and the declining Yanbu flows, the total regional flow is still only at 50% of pre-war volumes, which has been the post-MoU norm."

"The fundamental balance remains extremely tight at these current levels, and any increased flow met with China demand results in little change to the supply-demand balance."

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

• Gold extends its decline modestly after US headline PCE inflation comes in slightly above expectations.
• Headline inflation holds at 3.7% in July, above the 3.6% expected, while core inflation remains steady at 3.3%.
• The data have little impact on Fed expectations, with markets still pricing in around a 36% chance of a September rate hike.

Gold (XAU/USD) trades around $4,620 on Wednesday at the time of writing, down 0.83% on the day. Bearish pressure on the precious metal strengthens modestly following the release of the Federal Reserve’s (Fed) preferred inflation gauge, although the data do little to alter market expectations for the central bank’s September meeting.

The Bureau of Economic Analysis (BEA) reported that the Personal Consumption Expenditures (PCE) Price Index rose 3.7% YoY in July, unchanged from June but slightly above the 3.6% expected by markets. The core PCE Price Index, which excludes volatile food and energy prices, remained steady at 3.3% YoY in July, matching market expectations. On a monthly basis, the PCE Price Index and the core PCE Price Index both rose by 0.2%. 

The slightly stronger-than-expected headline reading initially added some downward pressure on Gold, as persistent inflation could support the case for keeping US interest rates elevated. However, the report does not appear strong enough to significantly reshape expectations for Federal Reserve monetary policy.

According to the CME FedWatch Tool, markets continue to price in around a 36% chance of an interest-rate hike at the Fed’s September meeting, leaving roughly a 64% chance that borrowing costs will remain unchanged. These probabilities are broadly similar to those seen before the PCE release.

The limited reaction in rate expectations suggests that investors view the report as broadly consistent with the existing monetary policy outlook. While headline PCE inflation proves slightly more persistent than anticipated, the core measure, which is closely monitored for underlying inflation trends, comes exactly in line with expectations.

Geopolitical developments also remain in focus. Iranian Deputy Foreign Minister Kazem Gharibabadi said that the temporary transit agreement with Oman does not mean that the Strait of Hormuz has reopened, adding that the waterway will remain closed until the United States (US) fulfills its commitments under the Memorandum of Understanding (MoU).

Market attention will now turn to Fed Chair Kevin Warsh’s speech at the Jackson Hole Economic Policy Symposium on Friday. The event could prove particularly significant for financial markets, as investors will closely scrutinize Warsh’s comments for fresh signals on the Fed’s policy outlook ahead of the September meeting. Any indication that the central bank is leaning toward keeping rates unchanged or considering another hike could trigger volatility in the US Dollar, US Treasury yields and, consequently, Gold.

XAU/USD technical analysis

In the one-hour chart, XAU/USD trades at $4,620.38, holding a constructive short-term bias as it remains above both the 100-period simple moving average (SMA) at $4,606.20 and the 200-period SMA at $4,502.80. This positioning suggests that dips are still being supported by the broader uptrend, even as prices recently broke its ascending trendline. The Relative Strength Index (RSI) near 41.00 hints at waning upside momentum, indicating that bulls may need fresh impetus to challenge overhead barriers decisively.

On the downside, initial support is seen at the horizontal level of $4,607.18, closely backed by the 100-period SMA at $4,606.20, while deeper demand is expected near the 200-period SMA at $4,502.80. On the topside, immediate resistance is located around the horizontal resistance of $4,697.00; a sustained break above these levels would open the way for a stronger bullish continuation in the near term.

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

• EUR/USD edges lower as hotter-than-expected headline PCE inflation offers modest support to the US Dollar.
• Core PCE meets expectations, leaving the outlook for the Fed’s September meeting largely unchanged.
• US GDP holds at 1.5% in Q2, while Personal Income beats forecasts and Personal Spending slows.

EUR/USD trades under modest pressure on Wednesday after the US Personal Consumption Expenditures (PCE) Price Index report delivered a mixed inflation picture. Headline inflation came in above expectations, supporting the US Dollar (USD), although an in-line core reading limited the market reaction. At the time of writing, the pair trades around 1.1660, down 0.12% on the day.

The headline PCE Price Index rose 0.2% MoM in July, above the 0.1% forecast and reversing the 0.1% decline recorded in June. On an annual basis, headline inflation held steady at 3.7%, above the 3.6% forecast.

Meanwhile, the core PCE Price Index, the Federal Reserve’s (Fed) preferred measure of underlying inflation, increased 0.2% MoM, matching market expectations but accelerating from June’s 0.1% rise. Annual core inflation held steady at 3.3%, also in line with forecasts.

The report also follows relatively moderate July Consumer Price Index (CPI) and Producer Price Index (PPI) figures. Taken together, the data did little to alter expectations for the Fed’s upcoming meeting, with the CME FedWatch Tool showing a roughly 65% chance that the central bank will leave interest rates unchanged in September.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 99.07 at the time of writing. The index gains ground after the release but stays close to its recent lows following last week’s sell-off, triggered by the US Treasury’s surprise announcement that it would increase buybacks of longer-dated government securities. The move revived concerns about rising US debt and currency debasement.

Other US data released at the same time showed that the second estimate of Gross Domestic Product (GDP) confirmed annualised growth of 1.5% in the second quarter, matching both the forecast and the initial estimate. Personal Income rose 0.4% in July, above the 0.3% forecast and up from 0.2% in June, while Personal Spending increased 0.2%, matching expectations but slowing from 0.3%.

BNY’s Geoff Yu reports that Washington is considering further trade penalties against Canada after Ottawa’s dollar-for-dollar retaliation to new U.S. tariffs. Canada plans to double counter-tariffs on U.S. steel and aluminum and add new duties on a range of goods. The dispute marks a sharp deterioration in bilateral relations and could increase political pressure in U.S. manufacturing states exposed to Canadian retaliation.

Escalating tariffs pressure Canadian Dollar

"The U.S. is considering further trade penalties against Canada after Ottawa announced dollar-for-dollar retaliation to new American tariffs, raising the risk of a broader bilateral trade conflict."

"Canada will double counter-tariffs on U.S. steel and aluminum to 50% and impose new 50% duties on products including dairy, furniture, clothing and electronics, affecting around USD 20bn of annual U.S. exports."

"The dispute follows the collapse of recent trade talks and marks a sharp deterioration in relations. The escalation could also create domestic political pressure in U.S. manufacturing states that are heavily exposed to Canadian retaliation."

"Washington is weighing higher tariffs and other measures in response, having already threatened 50% auto tariffs on Canada from January."

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