Forex News

ING’s Frantisek Taborsky expects the Central Bank of the Republic of Türkiye (CBRT) to keep its 37.00% rate unchanged, with geopolitical tensions, Oil above $90 and tariff changes limiting scope to absorb higher energy costs. He anticipates cautious liquidity conditions, hawkish guidance and a meeting-by-meeting approach, with rate cuts resuming in Q4 toward 35.00% while Turkish Lira (TRY) remains attractive thanks to carry and reserve accumulation.

Turkish Lira carry appeal persists

"The Central Bank of Turkey is likely to leave rates unchanged at 37.00% today. The policy outlook has shifted in recent days, both because of geopolitical tensions which have pushed oil prices above $90/bbl, and a decision to gradually unwind a sliding scale tariff mechanism, which reduces the room to absorb the impact of higher oil prices, despite measured regulated price hikes."

"This backdrop will likely lead the central bank to be more cautious in easing liquidity conditions. While markets see some chance of the CBRT restarting one-week repo auctions at 37% today, we expect funding to remain at the upper end of the corridor for an extended period."

"We also expect hawkish guidance, with the CBRT stressing a meeting-by-meeting approach rather than opening the door to a rate-cutting cycle."

"The rates market has seen only a little repricing with the re-escalation of the US-Iran conflict compared to previous months. The market is roughly pricing in a reduction in the effective rate to 38.50% today and matching the key rate from October this year. "

"Although we do not expect a restart of auctions at today's meeting, we expect the CBRT to return to rate cuts in 4Q, taking rates to 35.00% at the end of the year."

"On the FX side, the situation looks more optimistic with the CBRT accumulating reserves in recent weeks and at the same time essentially returning long positions in the TRY market to previous highs. The market clearly agrees with our view that despite the thinning carry, TRY remains an attractive currency, which is unlikely to change in the near future."

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Societe Generale strategists note that Oil and Natural Gas prices have surged since the June European Central Bank (ECB) meeting, reversing optimism that followed the US–Iran Memorandum of Understanding (MoU). They expect policy to stay on hold today but see a real risk of further tightening if Gulf tensions persist. Market pricing now discounts two additional rate hikes by early 2027 as energy shocks threaten second-round effects.

Energy spike reshapes ECB outlook

"The MoU between the US and Iran had, wrongly now it transpires, fanned optimism for a durable decline in oil prices to pre-war levels and doused speculation of additional ECB tightening in 2H. If one week is a long time in politics, it is an eternity in geo-politics or geo-economics."

"The backdrop to today’s ECB meeting is quite straightforward: oil prices have spiked over $20 in the aftermath of the June council meeting and trade roughly where they were when the depo rate was raised by 25bp. Nat gas is up a whopping 25% compared to 11 June when the ECB took out insurance."

"Second round effects to non-energy goods and wages have so far not materialised but money markets have gone back to discounting two additional rate increases by 1Q-27."

"Policy will stay on hold today but we wouldn’t frankly be surprised if discussions took place over a second rate increase. Without de-escalation in the Gulf, a hike in the depo rate to 2.50% could be inevitable in September to lean against the second-round effects of the energy supply shock."

"For EUR/USD, positioning is short into the GC [Governing Council] meeting for the first time since early 2025. Hawkish policy deliberations are outweighed by the growth sapping effect of higher energy prices and hit to Europe’s terms of trade. A return over 1.1480/1.1510 is still a big ask."

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Brown Brothers Harriman’s (BBH) Elias Haddad notes AUD/USD is consolidating near 0.7000 after strong Australia employment data. Solid June job gains keep Reserve Bank of Australia (RBA) hike expectations alive, with cash rate futures now virtually fully pricing a move to 4.60% by year‑end. Haddad, however, sees risks skewed toward a more extended RBA pause, posing a headwind for the Australian Dollar.

Strong jobs but policy pause risk

"AUD/USD is consolidating around 0.7000. Australia’s solid June labor force survey will keep RBA rate hike bets live. The economy added more jobs than anticipated in June (actual+76.3k, consensus: +15.0k, May: +44.0k), with full-time employment up +29.3k and part-time employment up +47.0k."

"In line with consensus, the unemployment rate was unchanged at 4.4% for a second straight month, leaving it marginally above the RBA’s 4.2% projection. But that’s largely because more people entered the labor force as the participation rate rose +0.3ppt to near a one year high at 67.0%."

"RBA cash rate futures virtually fully price in a 25bps hike to 4.60% by year end, up from roughly 60% before the data. In our view, the risk is skewed towards a more extended pause in the RBA tightening cycle which is a headwind for AUD."

"First, the RBA projects real GDP growth to be below potential over the next two years. Second, the RBA cash rate at 4.35% currently sits near the top of the range of model-based central estimates of the nominal neutral rate."

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Silver prices (XAG/USD) fell on Thursday, according to FXStreet data. Silver trades at $58.84 per troy ounce, down 1.67% from the $59.83 it cost on Wednesday.

Silver prices have decreased by 17.23% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 69.54 on Thursday, up from 69.03 on Wednesday.

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Commerzbank’s Antje Praefcke argues the European Central Bank (ECB) can delay action today but will keep a hawkish tone as inflation stays near 3% and core pressures may even rise. She expects the next rate move to 2.50% in September, with today’s communication likely confirming market pricing, but notes the Euro (EUR) may not gain much unless Christine Lagarde surprises.

September hike remains in view

"Ultimately, therefore, despite a general trend toward lower energy prices, inflation is likely to remain just below 3% in the coming months, while the trend in core inflation may even pick up slightly."

"And finally, the ECB will have the new forecasts available in September, on the basis of which another interest rate hike could follow, provided it continues to be deemed necessary."

"In this regard, it is likely still too early for an interest rate hike today, but we stick to our view that the next move - to 2.50% - will occur in September."

"This would also confirm market expectations of a rate hike in September."

"Conversely, however, this means that the euro is unlikely to benefit much from the ECB meeting, barring any hawkish surprises from Lagarde."

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BNY’s Geoff Yu argues that while Norwegian Krone (NOK) should find demand from improved Oil and gas terms of trade and a relatively hawkish Norges Bank, elevated holdings and modest FX purchases limit upside. He warns that rising energy receipts reduce non-oil budget purchase needs, keeping Norges Bank’s support for NOK tepid despite the recent increase in daily buying.

Norges Bank flows constrain NOK

"In G10, NOK will again find demand as markets price in improved terms of trade from oil and natural gas sales. Additional support may come from Norges Bank being seen as the most hawkish central bank in Western Europe. These factors were already true in March, and holdings remain elevated by iFlow standards."

"EUR/NOK is currently only 2.5% away from the 12-month low in May, so risk-reward isn’t compelling. On a holdings basis alone, there is better value in adding to energy equities, especially Norwegian ones. Energy comprises 29% of the MSCI Norway, far above the 4.3% share for the MSCI Europe Index."

"We voiced concern in Q1 that Norges Bank’s own FX transactions would not have any amplification effect and could become a headwind. Oil receipts remain high, which means NOK purchase requirements for the non-oil budget will be relatively low. Norges Bank’s buying of NOK through Q2 was the lightest since purchases restarted 12 months ago."

"The recent drop pushed the July requirement up to NOK 400mn per day, but there is now downside risk to total transactions as energy receipts grow. Coupled with more subdued domestic inflation and wage growth, Norges Bank support for NOK in all forms will stay tepid."

"Don’t chase broad EM FX shorts. Use energy and commodity strength to rotate into select high-carry commodity exporters, especially BRL, CLP and ZAR, while staying cautious on NOK."

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ING’s Michiel Tukker expects the European Central Bank (ECB) to keep the deposit rate at 2.25% at the upcoming meeting, with a September hike seen as likely as Oil prices rise and markets already price in around 23bp. Tukker highlights well-anchored long-term inflation expectations near target and notes that markets are positioned for almost three hikes over the next year.

ECB seen on hold before September

"The ECB should keep the policy rate at 2.25%, but we do see a September hike as likely, especially as oil prices are moving higher again. One could argue for a front-loaded hike today, but over previous years the ECB has always fully telegraphed any policy moves in advance. And with no hikes priced in by markets, deviating from this strategy seems unlikely"

"With longer-term inflation expectations still well-anchored, the ECB can hold rates steady for now. The 10Y inflation swap rose on the back of higher oil prices, but at 2.2% is still close to target. Over the past months, the central bank has communicated a hawkish stance and avoided the word “transitory” at all costs."

"Not enough inflation data is available to argue in favour of more near-term tightening. And given markets are already positioned very hawkish, we don’t see much room to stretch that further. As such, the upside risk to rates seems limited."

"As a result, markets are now positioned for almost three hikes over the next year. While we think this looks stretched, taking a dovish position would quickly be wiped out by more oil volatility. As such, we don’t suggest pushing against current pricing."

"We cannot fully discount the tail risk of an early 25bp hike. The question is whether markets would interpret this as a hawkish policy turn or whether the move would be perceived as front-loading September’s move. We think the latter."

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• USD/CHF rises as the US Dollar has recovered early losses, boosted by rising geopolitical tensions between the US and Iran.
• Marco Rubio warned US strikes on Iran will intensify, cautioning "the price will get higher every night" without negotiations.
• Swiss 10-year bond yields reached nearly two-month highs near 0.49% as rising energy costs fueled inflation fears.

USD/CHF extends its gains for the fourth successive day, trading around 0.8150 during the European hours on Thursday. The pair appreciates as the US Dollar (USD) gains ground after recovering its daily losses amid rising geopolitical tensions between the United States (US)-and Iran.

US Secretary of State Marco Rubio warned that military strikes against Iran could intensify as long as the nation refuses to negotiate, cautioning that "the price will get higher every night" until they yield. Rubio also urged the Houthis to halt their attacks. Turning to Asia, he clarified that the US has not eased sanctions on Hong Kong, where a significant number of individuals remain sanctioned.

Regional tensions spiked as US President Donald Trump threatened strikes on Iranian infrastructure over Strait of Hormuz ship attacks, drawing threats of retaliation from Tehran against US-linked energy assets. Meanwhile, Iran-backed Houthi militants fired missiles and drones at two Saudi oil tankers in the Red Sea. The first direct strikes on tankers in this waterway threaten a key alternative export route for Saudi crude and open a dangerous new front in the conflict.

The Swiss Franc (CHF) may gain support as higher bond yields make Swiss fixed-income assets slightly more attractive. Switzerland’s 10-year government bond yield climbed near a two-month high of around 0.49%, driven by escalating Middle East tensions and rising energy costs. The spike reflects growing market anxiety over inflation and monetary policy. However, the SNB is expected to intervene in foreign exchange markets by selling CHF, which puts a natural ceiling on currency spikes.

• EUR/USD remains above 1.1420, surprisingly steady amid the deteriorated market sentiment.
• Escalating hostilities in the Middle East and the jump in Oil prices pose significant headwinds for the Euro.
• FX Analysts see the Euro supported by ECB rate-hike expectations.

The Euro (EUR) remains steady above 1.1400 against the US Dollar (USD) on Thursday, showing a surprising resilience to the surging Oil prices and the escalation of hostilities in the Middle East. Analysts from some of the world’s major commercial banks point to bets on European Central Bank (ECB) rate hikes as the main support for the common currency.

In a few hours, the ECB is widely expected to leave its benchmark Rate on the Deposit Facility steady at 2.25%, following a 25 basis points rate hike in June. The cooling inflationary pressures seen earlier this month have provided a valuable margin for the bank to assess further developments, but the sharp recovery in Oil prices has fuelled hopes of further tightening down the road.

MUFG Analysts: Yield spreads move against the USD

Analysts at MUFG note that in response to rising energy prices, market participants have been moving to price in "more hawkish expectations for major central banks including the ECB and Fed, resulting in short-term yields rising to fresh year-to-date highs.”

The MUFG experts observe that “the Eurozone rate market is now pricing in two to three further ECB rate hikes in the year ahead, while the US rate market is pricing in around two Fed hikes over the same period.” In that context, short-term yields “have risen more recently in Europe than in the US, resulting in yield spreads moving against the USD.”

In the same line, Societe Generale’s FX team reports that the EUR/USD: 1.1406 - 1.1436 overnight range remains “cheap relative to 2y spread but conviction is low as Gulf war spreads, oil marches on.”

They warn that “hawkish policy deliberations are outweighed by the growth-sapping effect of higher energy prices and hit to Europe’s terms of trade,” meaning that “a return over 1.1480/1.1510 is still a big ask.” In General terms, however, Societe Generale's analysts affirm that “oil-FX correlations remain relatively muted overall despite the price action in energy of the last two weeks,” underscoring the Euro’s struggle to fully benefit from the recent shift in rate expectations.

MUFG’s Lee Hardman highlights that rising Oil and natural gas prices are pressuring the Japanese Yen (JPY), with USD/JPY hitting fresh year-to-date highs above 163.00. The report notes that Japanese policymakers face a tougher backdrop as global yields rise, and that the Bank of Japan (BoJ) may hike rates as soon as September, though a single move may not reverse Yen weakness.

Energy shock and BoJ hike risks

"The low yielding currencies of the Swiss franc and yen have continued to underperform this month. It has resulted in USD/JPY rising to fresh year-to-date highs above the 163.00-level while EUR/CHF has risen back up to the 0.9300-level where it was last trading at the start of this year. The Swiss franc and yen have been two of the worst performing G10 currencies since the US-Iran conflict started in late February."

"The combination of rising energy prices and yields outside of Japan is creating a more challenging backdrop for Japanese policymakers by encouraging the yen to weaken further. Finance Minister Katayama has again attempted to dampen yen weakness overnight by repeating that they will take decisive action as needed but the comments have had limited impact on the yen as they did not mark a significant step up in the risk of imminent intervention."

"At the same time, Bloomberg reported yesterday that BoJ officials are open to raising rates at a faster pace than the consensus amongst economists, as the yen’s continued weakness adds to upside inflation risks according to people familiar with the matter."

"The Bloomberg report supports our forecast for the BoJ to hike rates as soon as in September. While rising yields in Japan would offer more support for the yen, we are not convinced another BoJ hike on its own will reverse the weakening trend. The yen would likely benefit more from an unwind of carry trades if global financial conditions were destabilized by the intensifying energy price shock putting pressure on major central banks like the Fed to deliver tighter policy."

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