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BNY’s Geoff Yu reports that sovereign bonds from commodity-based EM economies have seen accelerated selling after the Fed decision, despite a weaker Dollar and lower U.S. real yields. South Africa failed to attract inflows even with higher Gold prices, as EM duration remains challenged by insufficient nominal yields, inflation risks and fiscal stress versus comfortable U.S. yield dynamics.

Commodity-linked bonds face duration headwinds

"Sovereign debt issued by commodity-based EM economies normally benefits from USD-funded trades in a dovish Fed environment, but selling accelerated after the Fed decision. There are some early signs of reversal, yet South Africa, which should be one of the clearest beneficiaries of higher gold prices, failed to register a single inflow session until a full week after the decision. This suggests the environment remains difficult for EM duration."

"Front- and back-end nominal yields are simply not high enough to compensate for inflation risk and fiscal stress. Given the current global growth outlook and the unexpected fiscal burden arising from the Iran conflict, we have some sympathy with this view. Central banks can’t impose fiscal discipline in the way bond markets can, and the required price adjustment hasn’t yet been reached for a sustained EM asset recovery."

"Despite high inflation, developed market sovereign bonds found strong domestic support throughout the Iran conflict. Local investors don’t face FX risk, while limited movement in breakevens keeps real yields attractive. This remains broadly true in Europe, but the Fed decision was a game-changer for U.S. breakevens: the 5y5y forward measure has risen 20bp over the past month and almost 30bp from its March lows."

"Even so, the decline in U.S. real yields has been insufficient to generate strong flows into commodity-linked bonds because Treasury curve steepening has offset much of the benefit. The weaker-dollar view is intact, but that doesn’t automatically translate into stronger commodity prices or stronger commodity-linked economies, particularly while U.S. investors remain comfortable with domestic nominal and real yields."

"Commodity economies therefore need to generate their own growth and total-return narrative before they can fully benefit from easier global financial conditions. The earlier combination of a wide yield advantage over the U.S. and strong Chinese demand boosting export revenues isn’t returning."

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

• Gold holds firm above $4,400 after US inflation data meets expectations.
• Elevated Oil prices amid uncertainty over the reopening of the Strait of Hormuz keep inflation risks in focus.
• The technical outlook stays bullish, although the RSI nears overbought territory.

Gold (XAU/USD) extends gains above $4,400 on Wednesday as traders digest US inflation data, which came broadly in line with expectations. At the time of writing, XAU/USD trades around $4,429, up 1.38% on the day.

Headline Consumer Price Index (CPI) rose 0.1% in July after falling 0.4% in June, while the annual rate eased to 3.4% from 3.5%. CPI increased 0.2% MoM after staying flat, with the yearly rate slowing to 2.5% from 2.6%.

Following the data, the US Dollar (USD) and US Treasury yields came under pressure, supporting the precious metal. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 99.70, down 0.10% on the day. Treasury yields fell across the curve, with the 2-year yield down four basis points from the daily open and currently trading around 4.180%.

With inflation still above the Federal Reserve’s (Fed) 2% target and higher Oil prices adding to upside risks, the CPI report did little to change expectations that the Fed will keep monetary policy restrictive. However, the probability of a September rate hike fell to around 38% from 44% before the release, according to the CME FedWatch Tool.

Gold upside builds as Fed hike expectations fade and stagflation theme gains traction

According to TD Securities, “precious metals maintain upside” as the latest US CPI release “did little to reignite the Fed hike pricing,” with recent price action underscoring that “the gold market is increasingly not expecting hikes.” The bank notes that “for now, macro discretionary funds, ETF flows, and central bank demand have all materially picked up in the aftermath of the FOMC and have been emboldened after recent weakness in economic data.” TD Securities adds that “with the yellow metal rallying alongside renewed upside in energy prices, and so long as Fed Chair Warsh is expected to look through higher energy prices, the stagflationary theme will continue to pick up steam.”

Technical analysis: XAU/USD approaches the 200-day SMA

XAU/USD extends its advance above the 50-day Simple Moving Average (SMA) and trades just above the 100-day SMA, keeping the near-term bias bullish.

The pair is now approaching the 200-day SMA at $4,500, which acts as the next significant overhead barrier, while the Relative Strength Index (RSI) at 68 flirts with overbought territory, hinting that the latest advance is strong but could be prone to consolidation.

The Average Directional Index (ADX) at 30 points to a moderately directional market, reinforcing the idea of a sustained bullish phase as long as price remains above the short- and medium-term averages.

On the downside, immediate support is seen at the 100-day SMA near $4,388, with a deeper cushion at the 50-day SMA around $4,148, where buyers would be expected to re-emerge on corrective pullbacks. Further below, a more structural floor is located at the horizontal support line at $4,000.

On the topside, the 200-day SMA at $4,500 is the key resistance level that bulls need to reclaim to extend the uptrend, and a failure to clear this barrier would likely keep price consolidating above the nearby moving-average support band.

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

Scotiabank strategists Shaun Osborne and Eric Theoret report the British Pound (GBP) is posting fractional gains versus the US Dollar (USD) and outperforming G10 peers as improving sentiment supports price action. They point to Thursday’s United Kingdom (UK) data, including Q2 Gross Domestic Product (GDP) and production figures, as key. Short-term technicals are bullish, with RSI at fresh highs, upside targets in the mid-1.35s to mid-1.36s, and support near 1.3400 and a near-term range of 1.3480–1.3580.

Pound leads G10 with bullish technicals

"The pound is showing fractional gains vs. the USD and outperforming all of the G10 currencies in mixed trade."

"Fundamental releases have been limited and we continue to highlight the importance of Thursday’s data that include the preliminary (2nd) Q2 GDP figures, and monthly trade and industrial production data."

"The next upside target is the mid-July high in the mid-1.35s and we also note the May 1 peak in the mid-1.36s."

"Support is expected at 1.3400. We look to a near-term range bound between 1.3480 and 1.3580."

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

• USD/CAD trades little changed around 1.3915 on Wednesday, down a modest 0.06% on the day.
• US inflation eases to 3.4% in July, in line with expectations, triggering a limited reaction in the US Dollar.
• Uncertainty surrounding the ceasefire between Washington and Tehran limits pressure on the Canadian Dollar.

USD/CAD trades around 1.3915 on Wednesday at the time of writing, virtually unchanged on the day with a modest decline of 0.06%. The pair lacks a clear direction following the release of US inflation data that matched expectations, while renewed tensions surrounding the peace process between the United States (US) and Iran maintain uncertainty in the Oil market.

In the United States, inflation, as measured by the Consumer Price Index (CPI), eased to 3.4% YoY in July from 3.5% in June, according to the Bureau of Labor Statistics (BLS). On a monthly basis, prices rose by 0.1%, following a 0.4% decline in June. The core CPI, which excludes volatile food and energy components, increased by 0.2% MoM and 2.5% YoY. All these figures match market expectations.

The reaction of the US Dollar (USD) remains limited, as the figures provide no surprise significant enough to materially alter expectations regarding the Federal Reserve’s (Fed) monetary policy outlook. The US Dollar Index (DXY), which measures the value of the Greenback against a basket of six major currencies, edges slightly lower following the release.

On the Canadian side, Oil remains a key driver for the Canadian Dollar (CAD), as Canada is a major crude exporter. West Texas Intermediate (WTI) Oil declines on Wednesday after two consecutive days of gains, although geopolitical uncertainty in the Middle East could limit the downside in energy prices.

Concerns increase after Reuters reported, citing a senior Iranian source, that no discussions are currently underway regarding an extension of the ceasefire between Washington and Tehran. According to the source, Tehran considers that there is no official start date for the ceasefire and therefore nothing to extend.

The report dampens hopes for a swift de-escalation, while attacks on vessels attempting to cross the Straits of Hormuz and Bab el-Mandeb also fuel concerns. US President Donald Trump adds to the pressure by calling on Tehran to pay reparations to victims of attacks linked to the Islamic Republic.

These developments reduce hopes for a swift reopening of the Strait of Hormuz and maintain a risk premium in the Oil market. This backdrop could provide some support to the Canadian Dollar and help contain USD/CAD, while US inflation data matching expectations offer little fresh catalyst for the US Dollar.

USD/CAD technical analysis

In the four-hour chart, USD/CAD trades at 1.3915, keeping a bearish near-term bias as it holds below the 100-period simple moving average (SMA) at 1.4039 and the 200-period SMA at 1.4093. The pair also trades under the horizontal barrier at 1.4000 and the descending trend-line resistance coming in around 1.4042, suggesting rallies remain capped for now. The Relative Strength Index (RSI) hovers near 34, hinting at lingering downside pressure while stopping short of outright oversold conditions.

On the downside, immediate support is seen at the horizontal level around 1.3900, ahead of a lower floor near 1.3870, where sellers could hesitate to extend the decline. On the topside, initial resistance is located at 1.4000, followed by the 100-period SMA at 1.4039 and the broken trend-line area near 1.4042, with the 200-period SMA at 1.4093 acting as a more distant cap that would need to be reclaimed to ease the current bearish tone.

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

• GBP/USD holds near its highest level since July 16 after the US CPI report.
• Traders scale back expectations for a September Fed rate hike after the inflation data.
• Attention shifts to UK GDP and US PPI data on Thursday.

GBP/USD trades modestly higher on Wednesday as the US Dollar (USD) comes under mild pressure following the release of the latest US inflation figures. However, the market reaction remains limited as the data broadly matched expectations. At the time of writing, GBP/USD trades around 1.3523, near its highest level since July 16.

The headline Consumer Price Index (CPI) rose 0.1% in July after falling 0.4% in June, with the annual rate easing to 3.4% from 3.5%. Core CPI increased 0.2% MoM following a flat reading in June, while the yearly rate slowed to 2.5% from 2.6%.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 99.67, down 0.15% on the day. US Treasury yields also edge lower across the curve, with the two-year yield down 4.6 basis points from the daily open of 4.220%

The in-line data offered traders little relief as inflation risks remain tilted to the upside due to elevated energy prices. Hopes for an immediate reopening of the Strait of Hormuz remain low, keeping a geopolitical risk premium embedded in Oil prices. West Texas Intermediate (WTI) trades around $81.60 per barrel, up more than 6% so far this week.

Against this backdrop, traders expect the Federal Reserve (Fed) to maintain a restrictive policy stance until inflation shows clearer signs of moving toward its 2% target. However, the probability of a rate hike at the September meeting has fallen to 38% from 44% before the data, according to the CME FedWatch Tool.

Attention now turns to preliminary UK second-quarter Gross Domestic Product (GDP) data and the US Producer Price Index (PPI), due on Thursday. The releases could provide fresh direction for the pair.

Societe Generale analysts Brendan McKenna and Dev Ashish outline scenarios for Brazil’s 2026 election, assigning a 65% probability to President Lula winning a fourth term and 30% to Flavio. They argue another Lula administration would feature loose fiscal policy, rising debt and continued state intervention, with congress composition crucial for Brazil’s debt trajectory and broader macro stability.

Election scenarios and fiscal trajectory

"We believe Brazil will push back on Latin America’s broad shift to the political right and President Lula will secure a 4th term in office."

"Base Case (65%): Lula capitalizes on resilient local economic and markets trends as well as slowing opposition momentum."

"Flavio Wins (30%): Would need to be cleared of alleged connections to local scandals and/or for Lula to make a policy mistake."

"Lula 1st round win (5%): Allegations surrounding Flavio intensify and a replacement candidate is chosen too late in the electoral cycle."

"Another Lula administration is likely to resemble prior terms: loose fiscal, rising debt and state intervention across the economy."

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

Rabobank's Senior FX Strategist Jane Foley reviews recent United Kingdom (UK) data against Eurozone performance. Foley notes Eurozone Q2 Gross Domestic Product (GDP) at 0.4% q/q and a 0.7% UK upturn in the three months to May. However, UK monthly data show sectoral contractions and composite PMIs in May and June indicating weakness, leaving a confusing backdrop and wide GDP forecast dispersion ahead of the release.

Mixed growth signals and confidence concerns

"Despite the headwinds stemming from the (near) closure of the Strait of Hormuz, the first estimate of Eurozone Q2 GDP registered a better than expected 0.4% q/q."

"In the three months to May, the UK economy managed a 0.7% upturn, compared with the three months to February."

"However, while the monthly May data brought a better-than-expected growth rate of 0.1% m/m, they demonstrate that despite a 0.3% m/m rise in the services sector, both production and construction contracted."

"Moreover, UK composite PMI data for both May and June indicate contraction, perhaps highlighting the dent to confidence stemming from the Iran war."

"This confusing backdrop may explain the wide spread in economists’ forecasts ahead of tomorrow’s release."

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

National Bank of Canada's (NBC) Jocelyn Paquet analyzes how China’s sharp reduction in petroleum imports helped offset the Middle East supply shock and limit Oil price gains. The July rebound in Chinese imports is highlighted as historically large in percentage terms. Paquet stresses that future trends in Chinese demand will be as important as Middle East developments for determining global energy prices.

China’s imports and global oil pricing

"For there is no doubt that the reduction of no less than 5 million barrels per day (or 41.4%) in China’s petroleum oil imports between March and June is one of the main reasons that has helped keep prices under control."

"Combined with the release of strategic reserves, this reduction has made up for the global shortfall and kept shortages in other countries to a minimum."

"But just as the decline in Chinese demand has helped cap prices, a potential recovery could have the opposite effect in the future if the Strait were to remain closed for an extended period."

"Imports of petroleum products indeed rose by 1.2 million barrels per day during the month (or 22.1%)."

"Granted, it is difficult to know whether this rebound will continue in the coming months—China could theoretically continue to draw on its reserves and keep its import levels low for several more months—the fact remains that trends in Chinese demand will play a role just as important as developments in the Middle East in determining future energy prices."

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

• EUR/USD trades little changed around 1.1550 after a brief spike in volatility triggered by the US inflation data.
• US inflation eases to 3.4% in July, while core inflation comes in at 2.5%, in line with expectations.
• Tensions surrounding the Strait of Hormuz limit risk appetite, while accelerating German inflation provides only limited support to the Euro.

EUR/USD trades around 1.1550 on Wednesday at the time of writing, up a modest 0.08% on the day. The pair experienced a brief spike in volatility following the release of United States (US) inflation data but quickly returned to levels seen before the publication, as the figures broadly match market expectations.

Inflation in the US, as measured by the Consumer Price Index (CPI), slowed to 3.4% YoY in July from 3.5% in June, according to the Bureau of Labor Statistics (BLS). On a monthly basis, prices rose by 0.1%, following a 0.4% decline in June. The core CPI, which excludes volatile food and energy components, increased by 0.2% MoM and 2.5% YoY. All the figures align with market forecasts.

The reaction of the US Dollar (USD) remains subdued, as the data provide no significant surprise likely to materially alter expectations regarding the Federal Reserve's (Fed) monetary policy outlook. The US Dollar Index (DXY), which measures the value of the Greenback against a basket of six major currencies, edges slightly lower following the release.

On the European side, the Euro (EUR) receives little support from accelerating German inflation. Germany's Harmonized Index of Consumer Prices (HICP) confirmed a 2.8% YoY increase in July, up from 2.4% in June. The acceleration is mainly driven by energy prices, which rose 7.3% from a year earlier, compared with 2.7% in the previous month. Excluding food and energy, inflation also accelerated to 2.6% from 2.5% in the previous month.

These figures reinforce expectations of a potential monetary policy tightening by the European Central Bank (ECB) in September. However, their positive impact on the Euro remains limited as investors also focus on the deteriorating geopolitical backdrop in the Middle East.

Concerns surrounding the peace process between the US and Iran return to the forefront following reports of attacks on vessels attempting to cross the Straits of Hormuz and Bab el-Mandeb. According to Reuters, a senior Iranian source says that no discussions are currently underway regarding an extension of the ceasefire between Washington and Tehran.

Caution also intensifies after US President Donald Trump called on Tehran to pay reparations to victims of attacks linked to the Islamic Republic. These developments reduce hopes for a swift reopening of the Strait of Hormuz and maintain a risk-averse environment that, for now, prevents EUR/USD from benefiting more significantly from the modest weakness of the US Dollar.

EUR/USD technical analysis

In the one-hour chart, EUR/USD trades at 1.1546, holding a mildly bullish intraday bias as it remains above both the 100-period simple moving average (SMA) at 1.1541 and the 200-period SMA at 1.1533. The pair is grinding higher from the day’s open at 1.1541, while the Relative Strength Index (RSI) around 60.75 suggests firm but not extreme upside momentum, hinting that buyers retain near-term control as long as price stays over these moving averages.

On the topside, initial resistance appears at the horizontal barrier near 1.1560, ahead of a higher cap at 1.1581, where fresh selling interest could emerge. On the downside, immediate support is provided by the clustered 100- and 200-period SMAs at 1.1541 and 1.1533, followed by the intraday floor at 1.1515 and deeper structural supports at 1.1500 and 1.1480, levels that would need to give way to undermine the current constructive tone.

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