Forex News

• Thomas Barkin says it remains uncertain whether interest rates need to rise further to bring inflation back to 2%.
• The resilience of consumers and business investment continues to surprise despite elevated borrowing costs and economic uncertainty.
• Barkin sees arguments for inflation to ease but warns that price pressures may also prove more persistent.

Richmond Federal Reserve (Fed) President Thomas Barkin highlighted on Thursday the persistent uncertainty surrounding the US inflation outlook and monetary policy. According to Reuters, Barkin said it remains an open question whether the current level of interest rates is sufficiently restrictive to bring inflation back toward the Fed’s 2% target, or whether further tightening could be necessary.

Barkin also highlighted the resilience of the United States (US) economy, supported by solid employment, household spending and business investment, which continues to withstand high interest rates and uncertainty. On inflation, he acknowledged that several factors could help ease price pressures, while warning that inflation could also prove more persistent.

Key takeaways

Still an open question whether the Fed needs to raise rates to restore 2% inflation, or whether it is already on a path down.

There are also reasons to think price pressures are embedded, with either weakening demand or a rate increase needed to meet the Fed's target.

There are strong arguments that inflation will ease, given modest compensation pressure and tariff, oil and other shocks likely to subside.

Employment continues to keep households spending, while those who own homes or equities have enjoyed "Remarkable" growth in wealth.

Aspects of US economy remain a mystery as consumers, overall activity, defy shocks.

Barkin does not say if he thinks rates will need to rise, but notes "Many" at Fed feel current level is restrictive enough to bring inflation down.

AI is allowing firms to experiment with reducing headcount, but with strong earnings there's little pressure to lay off workers.

Business investment seems "Impervious" to interest rates, costs or uncertainty.

Businesses have concluded they can't afford to wait on investments anymore despite uncertainty.

Market reaction

The US Dollar Index (DXY), which tracks the value of the US Dollar (USD) against a basket of six major currencies, remains under pressure, losing 0.13% on Thursday and trading around 99.85 at the time of writing.

Rabobank's Senior FX Strategist Jane Foley discusses EUR/USD dynamics in light of shifting Fed rate hike expectations and Oil-related safe haven flows into the Dollar. Foley expects choppy range trading in EUR/USD with a modest medium-term upward bias, highlighting Eurozone vulnerability as an energy importer. Rabobank's updated forecasts see EUR/USD around 1.15 in one month and 1.15–1.16 over 3–6 months.

Range-bound pair with mild upside bias

"While oil and the DXY dollar index largely moved in the same direction from late January and into the spring, this appeared to break down in June. In our view, this was likely linked to a run up in market speculation regarding the prospects of Fed rate hikes in late spring, which appeared to take over from safe haven demand as the primary source of USD support in this period. Fed rate hike speculation has recently suffered a setback on the back of recent US data releases."

"Even though the July US CPI inflation data was in line with expectations, the market slightly pared back its expectations for a Fed rate hike. In line with this the DXY dollar index weakened a little on the news, although it subsequently shifted back towards the top end of its dull August range. The release of softer than expected US payrolls data last week likely provided a filter through which many investors judged yesterday’s US CPI inflation release, since a softer labour market will reduce the risk of second round price effects."

"If Fed rate hike speculation continues to be pared back, in line with RaboResearch’s view, the USD will be exposed to potential downside pressures. That said, the uncertainties regarding the re-opening of the Strait of Hormuz remain a USD supportive factor. At the start of the Iran war, the market was positioned short of USDs."

"By contrast, in these circumstances we would expect the market to remain wary of rebuilding long EUR positions. This view stems from the expectation that the Eurozone is more vulnerable to growth and inflation headwinds derived from its stance as an energy importer. Thus, while we see scope for some downside potential for the USD coming from a reduction in Fed rate hike expectations, we expect these to be contained by safe haven demand, until further clarity regarding the Strait of Hormuz emerges. Consequently, we expect choppy range trading to dominate EUR/USD through the rest of the year."

"We continue to favour choppy range trading in EUR/USD in the months ahead with a modest medium term upward bias. We have pushed up our 1-month forecast to EUR/USD1.15 from 1.14 and expect the 1.15-1.16 range to dominate on a 3-to-6-month view."

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

Brown Brothers Harriman’s (BBH) Elias Haddad highlights USD/JPY trading just below 160.00 as Japan’s government signals support for faster Bank of Japan (BoJ) rate hikes, reinforcing narrowing US–Japan differentials and a lower USD/JPY case. Haddad argues the narrative that BoJ must tighten aggressively to strengthen Japanese Yen (JPY) is misleading, with fiscal risk and intervention risks key to future alignment.

Government backs quicker BoJ tightening

"USD/JPY is holding just under psychological resistance at 160.00. News that Japan’s government supports faster BoJ rate hikes reinforces the narrowing in US-Japan rate differentials and the case for a lower USD/JPY."

"Regardless, the narrative the BoJ needs to tighten more aggressively to strengthen JPY is misleading. US-Japan 2-year rate differentials narrowed sharply in 2025 as the BoJ raised rates, yet USD/JPY moved higher."

"That divergence is largely explained by a material rise in Japan’s fiscal risk premium."

"Market concerns over Japan fiscal profligacy have since stabilized, reflected by the consolidation in the 10-year JGB term premium. Together with the threat of further joint US-Japan FX intervention, and a less troubling energy outlook, should help realign USD/JPY with rate differentials."

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

Commerzbank FX analyst Tatha Ghose highlights persistent inflation pressures and renewed current account deterioration as key drivers for continued weakness in the Turkish Lira against the Dollar. The bank’s forecasts show USD/TRY rising from 48.00 in September 2026 to 57.00 by December 2027, reflecting expectations of ongoing depreciation despite tight monetary policy and heavy FX intervention.

Lira on clear weakening trajectory

"Turkey’s reliance on energy imports and its deep trade and financial linkages to the Middle East create a problematic situation and exacerbating pre-existing balance of payments vulnerabilities. The central bank’s tight monetary policy has not solved the inflation problem yet. We see USD/TRY rising significantly further by the end of the year."

"In other words, the latest seasonally-adjusted month-on-month CPI increase is not encouraging at all. While officials maintain an optimistic inflation target of 24% for end-2026, the actual year-end forecast had to be expectedly revised up in the Q3 Inflation Report to 28%. While at the same time, the 2027 forecast is maintained at 15% – a familiar pattern of beginning the year with a forecast which claims to move towards target, then revising it progressively away as the timeframe gets closer and the outcome becomes unbelievable."

"This puts CBT in a bind. The policy rate is still 37.0%, but since the Iran shock CBT has kept the weekly repo window largely closed, pushing funding towards the 40.0% overnight lending facility. If CBT were to restart one-week repo funding, as CBT governor Fatih Karahan hinted at during his Q3 Inflation Report presentation, this would mechanically lower the effective funding cost – in practice, tantamount to a rate cut."

"The lira’s managed decline consistently required heavy intervention from the central bank, and the cost of this defence was rapidly becoming unsustainable. Most of the international reserve gain which policymakers highlighted in the media earlier this year was on account of the rising gold price. FX reserves were not increasing at all. Net FX reserves excluding swaps are still modest but the central bank and state banks bear a heavy burden of using FX interventions to smooth currency depreciation."

"Turkey’s current account, after improving during 2024-25, had begun to re-widen since a few quarters ago even before the war started: in our view, this was driven by the real interest rate dropping too soon (via rate cuts) even before the high interest rates had time to dampen demand and rebalance the economy. The latest trade and survey evidence do not ease these concerns: the trade deficit widened both in June and July; preliminary data showed that the deficit worsened by 14%y/y in July because of faster import growth than export growth; the deficit is running at 6% of GDP in recent months."

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

• US producer prices cool more than expected in July.
• Annual producer inflation slows sharply to 4.7% from 5.5% in June, also undershooting forecasts.
• The data reinforce signs of easing US inflation pressure after Wednesday’s softer consumer inflation figures.

Producer inflation in the United States (US) cooled more than expected in July, adding to evidence that inflationary pressure is gradually easing after Wednesday's Consumer Price Index (CPI) data.

The US Producer Price Index (PPI) came in unchanged on a monthly basis in July, following a revised 0.1% decline in June. Markets had expected producer prices to increase by 0.2%.

On an annual basis, the PPI hit 4.7% in July, slowing markedly from 5.5% in June and coming below the 4.9% increase expected by economists.

Underlying inflationary pressure also moderated. The core PPI, which excludes more volatile components, increased 0.2% MoM in July, down from a revised 0.4% in June and below the 0.3% market consensus. On a yearly basis, the core PPI slowed to 4.2% from 4.7%, matching expectations.

Overall, the weaker-than-expected producer inflation report reinforces the disinflationary signal delivered by Wednesday's CPI figures. The combination of softer consumer and producer price pressure could strengthen expectations that inflation in the US is moving in a direction more favorable to near-term monetary policy holds by the Federal Reserve (Fed).

Market reaction

The US Dollar Index (DXY), which tracks the value of the US Dollar (USD) against a basket of six major currencies, remains under pressure following the release, losing 0.04% on Thursday and trading around 99.93 at the time of writing.

National Bank of Canada's (NBC) Taylor Schleich and Ethan Currie reaffirm their Bank of Canada (BoC) rate call, arguing that despite stronger Canadian labour data and robust Q2 GDP, accumulated slack and data lags should delay tightening. They continue to see the first BoC rate hike in Q1:2027, later than OIS pricing but earlier than Bloomberg’s median forecast, and expect short-term GoC bonds to underperform U.S. Treasuries.

BoC liftoff pushed into early 2027

"With inflation near 3% and set to remain above target, one might argue a sustained economic rebound will prompt a BoC rate hike this year."

"Given the lags in data publication (e.g., Q3 GDP isn’t published until late November), it’s hard to see the conditions for lift-off being met in 2026."

"We therefore continue to view Q1:2027 as a more plausible starting point for BoC tightening."

"That’s a tad later than OIS markets imply but well before Bloomberg’s median forecast, which sees the BoC sidelined until H2:2027."

"If we’re right, short-term GoC bonds are poised to underperform U.S. Treasuries over the next year."

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

• Initial Jobless Claims ticked higher to 209K vs. the previous week.
• Continuing Jobless Claims went down to 1.777M.

According to a report from the US Department of Labour (DOL) released on Thursday, the number of US citizens submitting new applications for unemployment insurance rose to 209K for the week ending August 8. The latest print came in above initial estimates (202K) and was higher than the previous week’s 200K (revised from 199K).

Additionally, the 4-week moving average held steady at 199K vs. the previous week’s revised prints.

The report also indicated that Continuing Jobless Claims shrunk by 22K to 1.777M for the week ending August 1.

Market reaction

The Greenback navigates a narrow range and declines slightly on Thursday, with the US Dollar Index (DXY) lingering just below the key 100.00 threshold.

• WTI Oil edges lower as weaker demand forecasts from OPEC and the IEA weigh on sentiment.
• Persistent disruption in the Strait of Hormuz keeps supply risks elevated and limits the downside.
• WTI trades below the 20-day SMA, while RSI and MACD point to limited directional momentum.

West Texas Intermediate (WTI) Oil trades modestly lower on Thursday as traders weigh weaker demand forecasts from OPEC and the International Energy Agency (IEA) against supply disruptions in the Middle East. At the time of writing, WTI trades around $80.50 per barrel, down 1.35% on the day.

There are still no signs that the Strait of Hormuz will reopen soon, with both the United States and Iran claiming control of the waterway. Commercial shipping remains well below pre-war levels, keeping a geopolitical risk premium embedded in energy prices and limiting WTI’s decline.

OPEC now expects global Oil demand to grow by 580,000 bpd in 2026, down from its previous forecast of 780,000 bpd. The IEA is considerably more bearish, forecasting demand to fall by 1.6 million bpd over the same period.

Meanwhile, the technical picture points to neutral momentum despite heightened price volatility.

On the daily chart, WTI Oil retains a modest bearish bias as it trades below the 20-day Bollinger Band Simple Moving Average (SMA) at $81.63. The widening Bollinger Bands point to rising volatility, with the upper band at $90.13 and the lower band at $73.12.

The Relative Strength Index (RSI) hovers near the neutral 50 mark, while the Moving Average Convergence Divergence (MACD) indicator flattens around the zero line. Both indicators suggest that directional momentum is limited despite increased price swings.

On the upside, immediate resistance is located at the 20-day SMA at $81.63. A sustained break above this level could expose the upper Bollinger Band at $90.13. On the downside, the lower band at $73.12 offers the next notable support if the decline extends.

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