Forex News

ING’s Chris Turner flags that EUR/USD has been driven to yearly lows mainly by a hawkish reassessment of Federal Reserve policy, but warns French OAT‑Bund spread widening is an emerging concern.

French debt risk weighs on Euro

"It is hard to identify that the sell-off in French debt is being priced into the euro. EUR/USD has been driven to the lows of the year by the hawkish reassessment of Fed policy rather than any independent euro weakness. But the French OAT-German Bund spread widening so quickly to +127bp is quite an alarming move – potentially adding some risk premium into the euro as well as constraining the European Central Bank's (ECB) tightening cycle."

"On the subject of the ECB, we hear from Joachim Nagel, Christine Lagarde and Isabel Schnabel among others today. Expect them to hold the hawkish line for the time being, but the chances of the ECB 'out-hawking' the Fed seem slim at this stage."

"If the OAT-Bund spread widens much further and US data stays strong, we will have to prepare for a drop into the 1.11-12 area."

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

MUFG’s Lee Hardman notes the US Dollar has extended gains, with the Dollar Index reaching the June year-to-date high around 101.80, even as US inflation data softened. Revised core PCE figures show slower underlying price pressures, reducing the likelihood of aggressive Federal Reserve rate hikes. Nonetheless, short-term US yields and the Dollar quickly recovered after the data.

Dollar strengthens despite softer inflation

"The US dollar’s upward momentum has continued even after recent Fed rhetoric and softer US inflation data should help to dampen expectations for more aggressive Fed hikes. New York Fed President Williams message that “there is no need for urgency” following this month’s rate hike, and they can take their time to review additional data before tightening policy further” was quickly backed up by the release of the softer than US PCE deflator report for August."

"After the downward revisions, there is clearer evidence of a slowdown in the Fed’s preferred measure of underlying inflation pressures. The three-month annualized rate of growth has fallen to just 2.1%. Looking back at the period since the US-Iran conflict began, the six-month annualized rate of growth has slowed to 2.7% in August down from 3.3% in February."

"The report should provide some reassurance that there has been some progress towards meeting their inflation goal, although perhaps not as quickly as they would like. It makes it less likely that the Fed will hikes rates as aggressively as currently priced into the US market which is expecting three to four hikes in the year ahead. The probability of back-to-back hike as soon next month ahead of the US mid-term elections has continued to fall."

"The Fed will now wait to see the upcoming NFP report on Friday and US CPI report for September on 14th October as they continue to assess when to hike rates further."

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

• Silver price trades cautiously at around $60 as US Treasury Yields continue to rally.
• 10-year US Treasury Yields post a fresh two-decade high near 5.3%.
• Traders have trimmed hawkish Fed bets for the October meeting.

Silver price (XAG/USD) trades with caution near its four-week low at around $60.00 during the European trading session on Thursday. The white metal is broadly under pressure as United States (US) Treasury Yields continue to extend the rally even as traders have trimmed hawkish Federal Reserve (Fed) expectations for the October meeting and Personal Consumption Expenditure (PCE) Price Index data for August arrived lower-than-projected.

10-year US Treasury Yields have hit a fresh two-decade high near 5.3%. Higher yields on interest-bearing assets, diminish the appeal of non-yielding assets, such as Silver.

The CME FedWatch tool shows that the odds of the Fed leaving interest rates unchanged at the policy meeting this month have increased to 62.4% from 29% seen a week ago. Traders dialled bacl hawkish Fed bets after New York Fed Bank President John Williams said that there is no urgency for interest rate cuts.

Contrary to market expectations, analysts at TD Securities said, “We still expect the Fed to lift rates in October, but can't discard a more gradual approach”, arguing that “the underlying trend is the key story,” with “robust growth with rising inflation risks” expected to “continue to dominate the Fed's outlook.” TD Securities added that the latest US PCE and GDP revisions were “a mixed bag,” combining “hawkish backward adjustments to growth and dovish adjustments to inflation.”

Going forward, the next major movement in the Silver price is expected to come from the US Nonfarm Payrolls (NFP) data for September, which will be published on Friday.

Silver Technical Analysis

In the daily chart, XAG/USD trades at $60.38, maintaining a bearish near-term tone as price holds well below the 20-period Exponential Moving Average (EMA) at $63.66. The downside break away from this key dynamic barrier suggests sellers remain in control, while the Relative Strength Index (14) at 38.50 hovers just above oversold territory, hinting at persistent but not yet exhausted bearish momentum.

On the topside, initial resistance is the August 19 low at $62.19 before the 20-period EMA at $63.66 coming into picture as a dynamic barrier. On the downside, the Silver price could slide towards the August 4 low at $58 if it fails to hold $60.00.

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

• 10-year and 30-year yields reached 5.33% and 5.67%, respectively, while two-year yields rose to 4.92%.
• Elevated oil prices fueled inflation fears, but cooler PCE data lowered October Fed rate hike expectations to 39%.
• Investor focus shifts to Friday's Nonfarm Payrolls report, with consensus forecasting 90,000 September jobs added.

US Treasury yields climbed to 24-year highs amid growing concerns over persistent, energy-driven inflation that could prompt tighter monetary policy. At the time of writing, the 10-year Treasury yield rose to 5.33%, while the 30-year yield reached 5.67%. Meanwhile, the two-year US yield advanced for the second consecutive session, touching 4.92%. Adding to these inflationary risks, oil prices remained elevated as the United States (US) and Iran made little progress in negotiations, despite emerging signs of recovering Middle East supply flows.

Oil shock drives bond rout as US-Iran tensions flare

Deutsche Bank’s Jim Reid characterises the period as “a tricky quarter,” noting that the re-escalation in the US-Iran conflict has been a key driver of market stress. He points out that Brent crude oil was “up +42.0% from its lows at the end of June,” a move that “led to a major global bond selloff,” with “10yr Treasury yields up for a 7th consecutive month for the first time since 2011.”

However, expectations for near-term Federal Reserve (Fed) rate hikes eased following softer-than-expected inflation metrics. The CME FedWatch Tool indicated that markets now price in approximately a 39% chance of an October rate hike, down from nearly 51% prior to the latest release.

Analysts at MUFG/BTMU note that “short-term US yields and the US Dollar initially fell after the report, but the moves proved to be short-lived,” as markets quickly looked through the surprise in the inflation data. They explain that “the main reason for the softer PCE deflator report was bigger than expected revisions from the Bureau of Economic Analysis after they updated their methodology for three components: portfolio management and advice, software and accessories, and legal services.” While it had been “broadly expected that the revisions would lower the annual rate of change for the core PCE deflator by roughly 10-20bps,” MUFG/BTMU highlight that “the actual revisions lowered it by 36bps,” underscoring a more pronounced moderation in underlying price pressures than consensus had anticipated.

August US Personal Consumption Expenditures (PCE) price index rose 0.3% month-over-month against a 0.4% forecast, while core PCE grew 0.2%, below the 0.3% consensus. On an annual basis, headline PCE inflation decelerated to 3.4%, coming in significantly under the projected 3.7%. Market attention now shifts to Friday’s US Nonfarm Payrolls report, with consensus estimates anticipating 90,000 jobs added in September and the unemployment rate holding steady at 4.1%.

Chris Turner at ING discusses the British Pound as EUR/GBP moves noticeably lower, suggesting emerging Euro weakness and a changing UK narrative. He highlights UK Prime Minister Andy Burnham’s speech on moving closer to Europe, including a possible push to rejoin the EU after the next election. Turner notes markets would likely view EU re-entry positively and watches for Sterling support into a planned UK‑EU summit.

Sterling reacts to EU rejoin debate

"EUR/GBP has come noticeably lower this week. One could argue that independent euro weakness is starting to emerge here given that the usual hedge for eurozone political/budgetary risk, EUR/CHF, is being heavily driven by the rate spread story."

"Any move by the UK to rejoin the EU would likely be seen as a positive by the foreign exchange market, having witnessed sterling's crash following the Brexit vote in 2016. Obviously, we are years away from any clarity here, but let's see whether sterling catches a bid into a supposed UK-EU summit due around 20 November."

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

Rabobank Research Global Economics & Markets reports that the Bank of Japan (BOJ) is reluctant to continue rapid rate hikes, with September meeting notes revealing internal divisions and concerns over weak private consumption.

BOJ balances growth and tightening risks

"The BOJ doesn’t want to keep raising rates rapidly, the September meeting notes showing some hawks but others pointing to weak private consumption and warning against hasty action, as government representatives urged weighing the cumulative impact of past rate increases."

"However, with the latest Tankan survey the most upbeat for large manufacturers since 2018 the Bank may not have a choice – assuming it is the one choosing, not Bessent."

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

Deutsche Bank’s Jim Reid highlights that Brent Oil has surged sharply in Q3 as the US–Iran conflict re-escalated, driving a major global bond selloff and higher long-end yields. The report notes fresh gains in Brent and WTI, warns about benchmark roll effects on front contracts, and flags strength further out the futures curve, reinforcing inflation concerns and hawkish central bank risks.

Oil rally reinforces inflation pressures

"Overall, it was a tricky quarter, as the re-escalation in the US-Iran conflict pushed Brent crude oil up +42.0% from its lows at the end of June. So that led to a major global bond selloff, with 10yr Treasury yields up for a 7th consecutive month for the first time since 2011."

"Even as the PCE data surprised on the downside, there were still other inflationary pressures in the mix yesterday. The main one was higher oil prices once again, with Brent crude (+0.92%) up to $103.53/bbl, though due to the month-end change in the benchmark this will now fall towards $98/bbl so be careful when you now look at the front contracts."

"WTI (+1.16%) was up to $90.42/bbl. There wasn’t a single catalyst for that, but the moves came amidst growing scepticism that the US and Iran would reach a deal anytime soon."

"Indeed, that concern was clear further out the oil futures curve, with the Brent future for December 2027 up +0.54% to a new high of $81.25/bbl yesterday."

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

Commerzbank’s research notes that the Mexican Peso (MXN) had a disappointing September, losing over 4% against the Dollar since late month. Standard macro drivers and Banxico policy guidance explain only part of the move, with positioning and renewed USMCA-related concerns likely contributing to a Mexico-specific risk premium, even as analysts expect sentiment and the US Dollar to eventually turn supportive.

Mexico-specific risks behind MXN slide

"Although yesterday brought some stabilisation, September was a disappointing month overall for the Mexican peso. Since 22 September, it has depreciated by more than 4% against the US dollar."

"The combination of a strong US dollar and heightened risk aversion likely accounts for much of the weakness seen in many emerging market currencies. When movements in oil prices and US yields are also factored in, only a relatively small residual effect remains for most currencies."

"In the case of the peso, however, this seems insufficient as an explanation; around a third of its weakness since last week is accounted for by the obvious influencing factors.2"

"It is also possible that the MXN’s weakness was due to resurgent risks relating to the USMCA negotiations. Last week, the new round of negotiations was postponed."

"While we expect current market sentiment towards emerging markets to improve again, which should support the peso, we also anticipate renewed weakness in the US dollar. Nevertheless, our long-held view that the market should not ignore the risks associated with the MXN has been vindicated."

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