Forex News

Nordea’s Kirsti Sunde Midttun notes that the Federal Reserve (Fed) kept its target range at 3.50–3.75%, but three hawkish dissents make the hold less comfortable than in June. With no new projections, the unchanged statement and a cautious press conference offered limited guidance. Market moves in United States (US) government bonds and a weaker US Dollar (USD) suggest some scepticism about inflation control, and Midttun still expects a September hike.

Hawkish dissents keep tightening risk alive

"Going into the meeting, markets put the odds of a hike at around one in three. In the event, the Fed held the target range at 3.50–3.75%. But the vote was 9–3, with Beth Hammack, Lorie Logan and Neel Kashkari all preferring a 25bp hike at this meeting."

"On inflation, the Committee repeats that price growth "remains elevated relative to the Committee's 2 percent goal," and closes again with "The Committee will deliver price stability.""

"Warsh was clear enough on the balance of the mandate — the Fed is doing well on employment, "but we're doing considerably less well on prices" — which sits comfortably with three dissents."

"But if the Fed is expected to do less now, and the long end is moving the other way, the implication is that investors are less confident inflation will be brought under control. It is too early to conclude that markets do not trust Fed to deliver."

"Three dissents, all in the same direction, tell us where this Committee is heading. We continue to look for a hike in September."

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

• The Indian Rupee corrects against the US Dollar as US bond yields surge.
• The Fed left interest rates steady and warned of upside inflation risks.
• Oil prices will likely remain higher amid escalating US-Iran war.

The Indian Rupee (INR) drops against the US Dollar (USD) on Thursday. The USD/INR pair edges down to near 95.60, with the Indian currency facing a tough fight against higher United States (US) Treasury Yields.

In the European session, 10-year US Treasury Yields are significantly higher, closer to its 18-month high at around 4.71%. Higher US bond yields diminish the appeal of risk-sensitive currencies.

The US Dollar has also attracted some bids in the early session on Thursday after a significant fall the previous day, following the Federal Reserve’s (Fed) monetary policy announcement. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.12% higher to near 100.93.

Upside US inflation risks boost Treasury Yields

In the monetary policy announcement on Wednesday, the Fed decided to leave interest rates unchanged in the range of 3.50%-3.75% for the fifth meeting in a row. The decision was expected to be a hold at a time when a resurgence in oil prices due to escalating Middle East conflicts has de-anchored inflation projections again.

The meeting was also under political pressure, as US President Donald Trump has criticized the Fed several times for not reducing interest rates. Before the meeting, Trump said Fed Chairman Kevin Warsh wanted to lower interest rates, adding that there was a good inflation report recently, costs were falling rapidly, and prices should drop significantly once the Gulf War ends.

In the monetary policy statement and the press conference, Fed Chair Warsh stressed several times bringing inflation down, and clarified that the central bank won’t hesitate to act if needed.

US bond yields are surging on expectations that the Fed needs to raise interest rates anytime this year to achieve price stability.

We think the ⁠market is ultimately telling us (and Warsh) that talk is cheap with the combination of these moves, and that it is not ​enough to just say and proclaim that price stability is ​paramount," MUFG ⁠Bank said in a note, Reuters reported. They added, "In other words, the Fed has to eventually walk the talk on inflation under this new regime."

Middle East tensions keep key oil shipping lanes constrained

Oil prices traded lower in the early trade on Thursday even as military aggression between the US and Iran continues. Earlier in the day, Iranian media said the US military hit the south-western Iranian city of Abadan as well as Qeshm Island.

At press time, the MCX Crude Oil contract expiring on August 19 trades 1.1% lower at around Rs. 8,030.

Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high oil price environment.

The odds of oil prices rising higher remain firm on the assumption of a squeezed global energy supply due to escalating Middle East conflicts.

According to TD Securities, the renewed flare-up in regional tensions is adding to supply-side concerns in energy markets. Strategists there highlight that “the return of Iranian-US strikes after a multi-day pause, along with continued Houthi risks for Saudi energy infrastructure, are keeping flows in both the Strait of Hormuz and Bab el-Mandeb heavily constrained,” underscoring the ongoing vulnerability of critical crude and product shipping routes.

Technical Analysis: USD/INR needs sustainable move above 20-day for confident recovery

USD/INR trades slightly higher at around 95.61 at press time, but is maintaining a mildly bearish near-term bias as it holds below the 20-day exponential moving average (EMA) at 95.86. The pair has retreated from recent highs, and the 20-day EMA now acts as immediate overhead supply, hinting at a market that is losing upside traction.

The Relative Strength Index (RSI) at 47.76 sits just below the neutral 50 line, suggesting a lack of strong directional momentum and reinforcing a consolidative-to-soft tone while price remains capped beneath the short-term EMA.

On the topside, initial resistance is located at the 20-day EMA at 95.86, and a sustained break above this level would be needed to ease the current bearish bias and reopen the path toward the recent high of 97.10. Looking down, the key support level for the pair is 95.00.

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

Societe Generale strategists analyzes- the Bank of England’s (BoE) upcoming meeting, expecting Bank Rate to remain at 3.75% with some hawkish dissent. They note easing inflation expectations and a loosening labour market, but also higher energy prices and government income support. Their base case is for policy to stay on hold through 2026, while GBP/USD seasonality looks bearish in August.

BoE stance and Pound seasonality

"The BoE is the penultimate G10 central bank to meet before the curtain falls on July – the BoJ meets tomorrow - and like the Fed yesterday, expectations are overwhelmingly for no change in bank rate at 3.75%. Hawkish dissent is likely by at least two members, Huw Pill and Megan Greene."

"Our base case remains for the policy to stay on hold through 2026 with a risk of higher rates not ruled out depending on how the conflict evolves in the Gulf."

"The OIS curve is pricing around 40bp by year-end which is aggressive considering that policy is mildly restrictive and the labour market is loosening."

"The easing in YouGov inflation expectations over the past month and glacial progress in headline CPI and private sector wages will be offset by the rebound in energy prices and first policy steps by the government to support household incomes."

"For cable [GBP/USD], the unwinding of the Burnham bounce could have further to go in August when seasonality turns bearish."

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