Forex News
Commerzbank’s Thu Lan Nguyen notes that stronger-than-expected core US inflation has pushed market pricing toward a near-certain Federal Reserve rate hike this week and higher odds of another move by year-end. However, EUR/USD quickly retraced its initial Dollar gains, as investors weigh doubts about the Fed’s tightening sufficiency and a rising USD risk premium linked to potential political confrontation with President Trump.
Fed hike odds and Dollar risk
"At first glance, the picture seemed straightforward: US consumer prices excluding volatile components rose more strongly than expected in August. At the same time, the Fed had recently made it clear that if inflation failed to show signs of moving back towards its target, it would feel compelled to tighten monetary policy. As a result, following the inflation release, markets now price in a nearly 90% probability of a rate hike at this Wednesday's meeting, while the likelihood of an additional increase before year-end has also risen."
"The picture in fx markets, however, was far less clear-cut. Immediately after the release, the US dollar appreciated as one would have expected. Yet the move quickly lost momentum. Before long, EUR/USD was at times trading above its pre-release level, and by the end of the day the pair had essentially returned to where it started."
"Indeed, we have long warned that the Fed's independence could come under threat from sustained political pressure emanating from the White House. The central bank's dilemma, however, would only become visible once its policy mandate clearly came into conflict with the preferences of the US administration, or more precisely, those of the US President."
"If this trend persists, the positive impact of higher US policy rates on the dollar could become increasingly diluted."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- GBP/JPY kicks off the new week on a positive note, though it remains confined in a familiar range.
- Traders seem hesitant to place fresh directional bets ahead of BoE and BoJ meetings this week.
- The bearish technical setup suggests that the path of least resistance remains to the downside.
The GBP/JPY cross attracts some buyers at the start of a new week and maintains its bid tone around the 208.25-208.30 region through the first half of the European session. Spot prices, however, remain within striking distance of the year-to-date low, touched last Tuesday, as traders await this week's key central bank events before placing fresh directional bets.
The Bank of England (BoE) is scheduled to announce its decision on Wednesday, followed by the outcome of a two-day Bank of Japan (BoJ) meeting on Friday. The UK central bank is expected to leave interest rates unchanged, while traders seem to have fully priced in a 25 basis points (bps) BoJ rate hike. Hence, the focus will be on the future policy path, which, in turn, will play a key role in providing some meaningful impetus to the GBP/JPY.
Spot prices maintain a negative tone below the 200-day Simple Moving Average (SMA) and the 23.6% Fibonacci retracement level of the April 2025-July 2026 rally. Moreover, the range-bound price action witnessed over the past week or so might still be categorized as a bearish consolidation phase against the backdrop of the recent decline. This backs the case for an extension of the well-established downfall witnessed since the beginning of this month.
Meanwhile, the Moving Average Convergence Divergence (MACD) stays negative, and the Relative Strength Index (RSI) holds near 30, hinting at persistent downside pressure despite an emerging oversold condition. Hence, any further recovery is more likely to confront resistance near the 23.6% retracement at 211.38, which, if cleared, would be the first sign of easing bearish pressure. However, only a sustained move through the 200-day SMA at 213.11 would start to undermine the current downbeat bias, with further resistance then seen toward the cycle high zone at 219.69.
On the downside, immediate support is aligned at the 38.2% Fibo. retracement near 206.24, ahead of the 50% retracement at 202.08, where sellers could pause. A deeper slide would expose the 61.8% retracement at 197.93 and the 78.6% level at 192.01, before the broader swing low anchor around 184.47.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
GBP/JPY daily chart
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
European Central Bank (ECB) Governing Council member and head of Lithuania's central bank, Gediminas Simkus, said during European trading hours on Monday that the possibility of monetary policy actions in every upcoming meeting cannot be excluded. Simkus stressed on considering energy prices before the October meeting.
Additional remarks
December is natural time to assess situation more.
ECB must also look at energy prices before October meeting.
Market reaction
No immediate reaction is seen in the Euro (EUR) following remarks from ECB's Simkus. However, the currency is down 0.55% against the US Dollar (USD) to near 1.1535, as the latter trades significantly higher.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger 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.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Societe Generale strategists note that India’s FX reserves surged by $44.9bn to a record $785.7bn in early September, largely due to Reserve Bank of India (RBI) mobilisation measures such as the FCNR(B) scheme. They expect the pace of reserve accumulation to slow, but highlight that the larger buffer enhances RBI’s ability to smooth volatility and support the Indian Rupee (INR), even as narrowing yield spreads and higher Oil prices weigh on carry appeal.
Reserves rise as carry appeal fades
"In Asia, India FX reserves surged by $44.9bn to a record $785.7bn in the week ended 4 September, reflecting the impact of the RBI mobilisation measures, including the FCNR(B) scheme that was closed a month ahead of schedule at end-August."
"The pace of reserve accumulation may now slow but the larger reserve buffer gives the RBI considerably more firepower to smooth volatility and support the INR when required."
"Even so, the narrowing of the 10y IGB-UST yield spread to around 200bp is diminishing the rupee's carry appeal, particularly as higher oil prices deteriorate India's external balance."
"In that regard, the pressure is increasingly on the RBI to keep pace with the global tightening cycle."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- EUR/USD drops nearly 0.5% so far on Monday, hitting monthly lows below 1.1550.
- High Oil prices and risk-off markets are crushing speculative demand for the Euro on Monday.
- The US Dollar appreciated against most peers amid hopes of a Fed rate hike on Wednesday.
The Euro (EUR) accelerates its downtrend against the US Dollar (USD) on Monday, weighed by risk-averse markets, with Oil prices above the $100 level and a stronger US Dollar, amid rising hopes of a Federal Reserve (Fed) rate hike on Wednesday. The EUR/USD pair is trading at fresh monthly lows below 1.1550 at the time of writing, after extending the reversal from 1.1650 highs last week.
The common currency struggles as Brent Oil trades near $104.00, following a more than 20% appreciation over the last two weeks. These prices pose a serious challenge to the Eurozone's economic growth and add pressure on the European Central Bank (ECB) to tighten its monetary policy further.
Fed hiking bets surged following August's CPI data
The US Dollar, on the other hand, is drawing some support from risk-aversion and higher hopes that the Fed will finally hike the Federal Funds Rate by 25 basis points to the 3.75%-4.00% range next Wednesday. US Consumer Price Index (CPI) figures released on Friday showed that core inflation rose in August at its fastest pace in the last four months, forcing the central bank to tighten its monetary policy or risk a credibility crisis.
Analysts at MUFG/BTMU warn that if the Fed "does not take action this week to address upside inflation risks, it could trigger a sharp sell-off for the US Dollar and long-term US Treasuries by undermining confidence in their willingness to get on top of inflation." They argue that this uncertainty "could be one reason why US Dollar gains have only been limited so far on the back of the hawkish repricing of Fed rate hike expectations.
Looking ahead, the MUFG/BTMU experts observe that "US Dollar strength in the near-term could also be curtailed by the close proximity of the US mid-term elections." Even if the Fed begins to hike rates at the upcoming meeting, they suggest policymakers "may be reluctant to deliver a back-to-back hike at the next meeting on 28th October, which comes just before the mid-term elections on 3rd November," implying that "the next hike may then not be delivered until 9th December."
In the Eurozone, the European Central Bank (ECB) hiked rates last week and hinted at further tightening over the coming months, a hawkish stance that was further endorsed by President Christine Lagarde over the weekend. Lagarde said that the Energy shock will be long-lasting and reaffirmed the bank's commitment to maintaining price stability.
(This story was corrected on September 14 at 11:50 GMT to say US inflation rose in August at its fastest pace in the last four months, and not in the last two months, as previously stated.)
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.
- The Australian Dollar comes under pressure due to risk-off market mood.
- A significant increase in hawkish Fed bets has dampened the appeal of riskier assets.
- Sticky US CPI report for August boosts hawkish Fed expectations.
The Australian Dollar (AUD) is down against its major currency peers, trading 0.45% lower at around 0.7135 against the US Dollar (USD) during the European trading session on Monday. The Australian currency tumbles as market sentiment turns risk-averse due to a further escalation in Federal Reserve (Fed) interest rate hike expectations.
Australian Dollar Price Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.53% | 0.31% | 0.63% | 0.10% | 0.55% | 0.78% | 0.41% | |
| EUR | -0.53% | -0.20% | 0.07% | -0.45% | 0.00% | 0.25% | -0.13% | |
| GBP | -0.31% | 0.20% | 0.27% | -0.22% | 0.22% | 0.45% | 0.00% | |
| JPY | -0.63% | -0.07% | -0.27% | -0.52% | -0.06% | 0.15% | -0.26% | |
| CAD | -0.10% | 0.45% | 0.22% | 0.52% | 0.43% | 0.66% | 0.24% | |
| AUD | -0.55% | -0.00% | -0.22% | 0.06% | -0.43% | 0.24% | -0.23% | |
| NZD | -0.78% | -0.25% | -0.45% | -0.15% | -0.66% | -0.24% | -0.45% | |
| CHF | -0.41% | 0.13% | -0.01% | 0.26% | -0.24% | 0.23% | 0.45% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
At press time, S&P 500 futures are down 0.66% to near 7,600, reflecting a weak risk-appetite of investors.
FOMC set for first hike since 2023 as market eyes Warsh’s guidance
Strategists at Brown Brothers Harriman (BBH) expect the FOMC to break its streak of five consecutive holds, noting that “the FOMC is poised to deliver a 25bps hike to a target range of 3.75%-4.00% on Wednesday after five straight holds, marking its first hike since July 2023.” BBH argues that “persistently above target US inflation and a stable labor market justify a rate increase,” and points out that positioning is already heavily skewed toward such an outcome, with “Fed funds futures price in roughly 90% odds of a hike this week.” Against that backdrop, BBH stresses that “the vote split, updated Summary of Economic Projections, and Fed Chair Kevin Warsh’s press conference will guide the market reaction,” as investors parse the decision for signals on the policy path ahead.
A sharp repricing of Fed’s interest rate expectations has also resulted in a significant jump in the US Dollar. As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.4% higher to near 99.50.
On the domestic front, investors await Reserve Bank of Australia (RBA) Governor Michele Bullock’s speech before the House of Representatives Standing Committee on Economics in Canberra on Friday.
The comments from RBA’s Bullock are expected to have a significant impact on expectations for Australia’s interest rate outlook.
AUD/USD Technical Analysis
In the daily chart, AUD/USD trades at 0.7134, holding a modest bearish near-term bias as spot remains under the 20-period exponential moving average (EMA) at 0.7156. The pair has slipped back below this short-term trend gauge, suggesting a loss of upside traction, while the Relative Strength Index (RSI) at 48.8 has retreated toward neutral territory, hinting at fading bullish momentum rather than outright oversold conditions.
On the topside, initial resistance is aligned with the 20-day EMA at 0.7156, which caps recovery attempts and would need to be reclaimed to reopen a more constructive tone toward recent highs. On the downside, the absence of nearby moving average or Fibonacci supports leaves price action exposed to further slippage, with traders likely to look to prior swing lows as the next structural floors if the pair continues to retreat beneath the current level.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
RBA Interest Rate Decision
The Reserve Bank of Australia (RBA) announces its interest rate decision at the end of its eight scheduled meetings per year. If the RBA is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Australian Dollar (AUD). Likewise, if the RBA has a dovish view on the Australian economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for AUD.
Read more.Next release: Tue Sep 29, 2026 04:30
Frequency: Irregular
Consensus: -
Previous: 4.35%
Source: Reserve Bank of Australia
- US index futures decline amid mounting anxieties surrounding the safety and rapid development trajectory of artificial intelligence.
- Anthropic CEO Dario Amodei urged tech companies to slow advanced AI model development to address critical safety risks.
- Hotter August US inflation data drove market expectations for a September Fed rate hike up to 87%.
Dow Jones futures decline by 0.17% to trade near 52,500 during European hours on Monday. Meanwhile, S&P 500 futures fall by 0.64% to trade around 7,610, while Nasdaq 100 futures experienced a sharper drop of 1.46% to trade near 28,960. This downward movement across major US index futures could be attributed to rising concerns over the safety of artificial intelligence development.
Weighing on sentiment, Anthropic CEO Dario Amodei said on Saturday that AI companies should slow the pace of development for their most advanced models because of potential safety risks, while also pledging to implement additional safeguards at his own company. Meanwhile, OpenAI CEO Sam Altman announced that the ChatGPT developer does not have plans to go public this year.
US stock futures fall amid rising Federal Reserve (Fed) rate-hike expectations for the upcoming September decision. This shift follows hotter US inflation reports that have intensified pressure on the Federal Reserve (Fed) to tighten monetary policy further. The CME FedWatch tool indicates that financial markets have priced in an 87% probability of a quarter-point rate hike at the next meeting, up sharply from 59% the previous week.
US Bureau of Labor Statistics reported that the US Consumer Price Index (CPI) rose 0.4% month-on-month in August, pushing the 12-month increase to 3.4%. Meanwhile, core CPI increased by 0.3% month-on-month, outpacing the prior and forecasted 0.2% gains.
Meanwhile, market sentiment remains cautious amid a protracted Middle East crisis that has kept oil prices elevated and delivered an inflationary shock to the global economy. Crude oil prices have surged toward four-month highs following a drone attack that forced Saudi Arabia to shut down a major crude pipeline.
Risk-off mood deepens as bond yields surge and geopolitical tensions escalate
Analysts at Rabobank highlight a clear risk-off tone, noting that "bond yields surged late last week on rising oil and inflation (and debt) concerns, while Asian equity indices and US equity futures are broadly in the red today." They stress that "geopolitical friction remains at the forefront of investor concerns" as the Middle East and Eastern Europe "simmer away," while political strains intensify closer to home. Rabobank points to mounting constitutional tensions as "leaders of Scotland, Wales and Northern Ireland plot the dissolution of the United Kingdom," and to shifting strategic alignments in North America, where "Canada hatches a cunning plan to avoid becoming the 51st US state by (in effect) becoming the 28th EU member state." Together, these developments underscore a fragile backdrop in which higher yields, elevated oil prices and complex political risks are weighing on market sentiment.
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
OCBC strategist Christopher Wong notes that firmer United States (US) Consumer Price Index (CPI) and a near-90% chance of a September Fed hike have not translated into lasting Dollar strength, with US Dollar Index (DXY) stuck around 99.1. He highlights stretched long-Dollar positioning, fading yield moves and improving risk sentiment. The focus now shifts to Fed communication on further tightening beyond September and key DXY support/resistance levels.
Dollar upside capped despite CPI
"Firmer core CPI and a near-90% probability of a September Fed hike failed to generate sustained USD upside. The hurdle for further gains looks higher; focus shifts to whether the Fed can steer expectations towards additional tightening beyond September."
"Recent price action reinforces an increasingly important theme that positive US macro surprises are still lifting yields and Fed expectations, but USD is getting less mileage from the same impulse. This leaves the Fed as the key test this week."
"DXY last at 99.1 levels. Daily momentum is not showing a clear bias while RSI rose slightly. 2-way risks likely to persist."
"Resistance at 99.30/40 levels (21DMA, 38.2% fibo), 99.77 (100 DMA). Support at 98.60/70 levels (50% fibo retracement of 2026 low to high), 98 (61.8% fibo)."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Iran's Foreign Ministry Spokesperson said during the European trading session on Monday that reports about nuclear activity in Iran's Pickaxe mountain (Kolang Kouh) are baseless. The spokesperson added, “Saudi Arabia insisted for meeting between Tehran and Gulf powers in Oman not to take place.”
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.
- Silver struggles as hotter August US inflation data drove market expectations for a September Fed rate hike up to 87%.
- US CPI rose 0.4% month-on-month in August, with annual inflation hitting 3.4% and core figures beating forecasts.
- Escalating Middle East tensions and a Saudi pipeline shutdown drove crude oil prices toward four-month highs.
Silver price (XAG/USD) loses its gains from the previous day, trading around $63.50 per troy ounce during Asian hours on Monday. Non-yielding Silver is currently facing significant headwinds driven by rising Federal Reserve (Fed) rate-hike expectations for the upcoming September decision. This shift follows hotter US inflation reports that have intensified pressure on the central bank to tighten monetary policy further.
According to data released by the Bureau of Labor Statistics, the US Consumer Price Index (CPI) rose 0.4% month-on-month in August, pushing the 12-month increase to 3.4%. Meanwhile, core CPI increased by 0.3% monthly, outpacing the prior and forecasted 0.2% gains. These figures have reinforced market expectations of a near-term rate increase, with the CME FedWatch tool indicating that financial markets have priced in an 87% probability of a quarter-point rate hike at the next meeting, up sharply from 59% the previous week.
In addition to monetary policy pressures, the white metal is struggling amid a protracted Middle East crisis that has kept oil prices elevated and delivered an inflationary shock to the global economy. Crude oil prices have surged toward four-month highs following a drone attack that forced Saudi Arabia to shut down a major crude pipeline.
The oil supply disruption has heavily impacted a critical transport route traditionally used to bypass the Strait of Hormuz. As a precautionary measure, operations on Saudi Arabia's East-West pipeline were suspended immediately following the attacks, and officials have not yet indicated when normal operations will resume.
Analysts at Rabobank highlight that “oil prices are rising again on news of the shutdown of Saudi Arabia’s East-West pipeline following drone strikes, and the Houthis’ seizure of strategic locations on the Red Sea coast.” They note that this renewed energy shock has already rippled through rates markets, with “bond yields surged late last week on rising oil and inflation (and debt) concerns,” and is now feeding into broader risk sentiment, as “Asian equity indices and US equity futures are broadly in the red today.”
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
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