Forex News

According to MUFG’s Lee Hardman, rising energy prices are pushing market expectations for further Federal Reserve tightening, with 17bps priced for the 16th September FOMC and the 2-year US Treasury yield at a year-to-date high. A September Fed hike could lift the Dollar, although policy risk premium and buyback-related debasement fears are seen as offsetting factors.

Higher yields versus policy risk premium

"Rising energy prices are encouraging market expectations for other major central banks including the Fed to raise rates further. The 2-year US Treasury yield climbed to a fresh year-to-date high yesterday at 4.41% helping to strengthen the US dollar."

"There are now 17bps of Fed hikes priced in for 16th September FOMC meeting. It will be harder for the Fed to leave rates on hold if energy prices continue to rise ahead of the meeting."

"Fed Governor Michael Barr spoke yesterday and he repeated the message from Jackson Hole. He stated “if trends in the data give me some confidence that inflation is moderating on a path to 2%, then I think we can take a bit more time to assess our policy stance."

"However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates”. A September rate hike is not yet a done [deal] but soft NFP and CPI reports for August are likely required to prevent a hike."

"A Fed hike this month would pose upside risks to our forecasts for the US dollar especially if it marks the start of a tightening cycle. Support for the US dollar from higher yields and higher energy prices has not yet fully fed through to the US dollar which has been held back by the pricing in of a higher US policy risk premium."

"The US Treasury’s plans for bigger US Treasury buybacks to dampen long-term US yields has brought debasement fears over the summer weighing on the US dollar. "

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

• Silver rebounds to around $64.30 on Wednesday after erasing earlier losses.
• Weak private-sector employment data provides some support to the precious metal, although elevated Treasury yields limit gains.
• Markets continue to price a high probability of an interest-rate hike this month following hawkish comments from Federal Reserve officials.

Silver (XAG/USD) rebounds on Wednesday, trading around $64.30 at the time of writing, up 0.32% on the day after recovering from earlier losses. The precious metal finds some support from weaker-than-expected United States (US) employment data, although elevated US Treasury yields and expectations of tighter monetary policy continue to limit its upside.

The latest labor-market figures provide some relief for Silver. The Automatic Data Processing (ADP) Employment Change report shows that the US private sector added 38K jobs in August, below market expectations of 47K and the previous increase of 46K. The softer reading adds to signs of cooling labor demand and could complicate the case for additional monetary tightening.

However, expectations surrounding the Federal Reserve (Fed) remain broadly hawkish. Markets see a roughly 64% chance that the central bank will raise interest rates at its September 15-16 meeting, according to the CME FedWatch tool, compared with 36% a week earlier.

Higher rate expectations have pushed US Treasury yields sharply higher, creating a significant headwind for Silver as a non-yielding asset. The benchmark 10-year US Treasury yield reached 4.81% on Wednesday, its highest level since 2023, before easing modestly.

At the same time, rising tensions in the Middle East have driven Oil prices higher, adding another layer of uncertainty to the inflation outlook. Persistent energy-driven price pressures could encourage the Fed to maintain a restrictive stance for longer, potentially keeping Treasury yields elevated and limiting demand for precious metals.

The US Dollar (USD) also remains supported by the prospect of higher interest rates, although disappointing employment figures prevent the Greenback from gaining stronger momentum.

Against this backdrop, Silver's rebound remains caught between weakening US labor-market signals and persistent expectations of tighter Fed policy. Investors will now turn their attention to Friday's Nonfarm Payrolls (NFP) report, which could provide further clues on the strength of the US labor market and reshape expectations for the Fed's September decision.

XAG/USD technical analysis

In the one-hour chart, XAG/USD trades at $64.36, retaining a bearish near-term tone as it holds below the 100-hour simple moving average (SMA) at $66.81 and the 200-hour SMA at $67.80. This configuration suggests the recent bounce is a correction within a broader downswing, with the cluster of moving averages above price reinforcing the cap on recovery attempts. The Relative Strength Index (RSI) at 48.75 sits just below the neutral line, hinting at easing downside pressure but not yet signaling a decisive shift in momentum.

On the topside, immediate resistance emerges at $66.70, ahead of the horizontal barrier at $67.50, while the 100-hour SMA at $66.81 and the 200-hour SMA at $67.80 stack additional supply if bulls attempt a stronger rebound; a sustained move above these levels would be needed to alleviate the current bearish bias and expose the higher resistance at $71.12. On the downside, initial support is seen at $63.32, with further cushions at $62.19 and $60.87, where buyers would likely look to slow or halt any renewed decline.

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

• EUR/USD trades lower as hawkish Fed expectations support the US Dollar.
• Softer-than-expected ADP employment data and easing Treasury yields limit the Greenback’s advance.
• The ECB is expected to deliver its second interest-rate increase of the year next week.

EUR/USD consolidates its daily losses during American trading hours on Wednesday as the US Dollar (USD) holds firm, supported by hawkish Federal Reserve (Fed) expectations and escalating tensions in the Middle East. However, weaker-than-expected United States (US) labour market data and a modest pullback in US Treasury yields limit the Greenback’s advance. At the time of writing, the pair trades around 1.1580, down -0.11% on the day.

The ADP Employment Change showed that US private-sector payrolls increased by 38K in August, below market expectations of 47K and the upwardly revised July increase of 46K. The figures point to slowing hiring ahead of Friday’s Nonfarm Payrolls (NFP).

US Treasury yields ease across the curve on Wednesday but remain close to recent highs. The benchmark 10-year yield trades around 4.78% after briefly touching 4.81%, its highest level since October 2023. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.74 after reaching a two-week high near 99.87.

New York Fed President John Williams said on Wednesday that “yields are rising on a strong economy and strong outlook,” adding that they “don’t seem to be driven by the inflation outlook.” Williams noted that “there is a correlation between bond yields and the Middle East conflict.”

The broader outlook continues to favour the Greenback as traders increase bets that the Fed could raise interest rates as soon as September, particularly after Fed Chair Kevin Warsh adopted a tougher stance on inflation at the Jackson Hole Symposium last week. According to the CME FedWatch tool, the probability of a rate hike at the September 15-16 meeting stands at around 70%, up from 36% a week ago.

Escalating hostilities between the US and Iran are also supporting the Greenback while weighing on the Euro. The latest exchange of strikes has pushed Oil prices higher, fuelling inflation concerns and raising expectations that major central banks could keep monetary policy restrictive for longer.

Against this backdrop, the European Central Bank (ECB) is widely expected to raise its deposit rate by 25 basis points to 2.50% at its September 9-10 meeting, marking its second increase this year. Preliminary Eurozone inflation data for August showed that the Harmonized Index of Consumer Prices (HICP) accelerated to 3.3% YoY from 2.9% in July, strengthening the case for another rate hike. Looking ahead, the Eurozone Producer Price Index (PPI) is due on Thursday, followed by Retail Sales data on Friday.

ING’s Carsten Brzeski expects the European Central Bank (ECB) to raise rates by 25bp next week, characterizing it as an ‘insurance’ or dovish hike. He notes Eurozone resilience, but stresses that inflation is mainly driven by energy, limiting the case for further tightening. Brzeski argues additional hikes could harm the Eurozone economy and risk recession despite neutral-rate estimates.

ING sees limited further tightening scope

"We expect the ECB to hike interest rates by 25bp next week. As long as inflation remains mainly energy-driven, hiking rates further beyond next week would not make a lot of sense and could harm the eurozone economy."

"At the same time, headline inflation has continued to edge higher and looks set to stay above 3% year-on-year for the remainder of the year, even if other inflation measures like core and services currently provide no reason to panic. With oil prices remaining elevated and the risk of a fresh gas price shock increasing, it will be hard for most ECB policymakers not to see a clear case for another rate hike."

"Even if the ECB doesn’t like the term, the second rate hike this year would also fall into the category of ‘insurance rate hike’, or maybe more to the central bank's liking: a rate hike to strengthen its credibility and to preempt any possible indirect or even second-round effects from the current energy price shock."

"However, with one additional rate hike (next week), the deposit rate at 2.5% would still be within the range the ECB itself calls neutral. Going further would mean that the ECB sees restrictive monetary policy as necessary."

"All in all, we expect the ECB to hike interest rates by 25bp next week. Another insurance rate hike. Or for those who don’t like this term: a dovish rate hike."

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

TD Securities’ Prashant Newnaha now expects the Reserve Bank of Australia (RBA) to raise the cash rate by 25bps to 4.60% at the late-September meeting. The change follows stronger-than-expected Q2 Gross Domestic Product (GDP) and firm discretionary consumption. Newnaha notes growth is running slightly above trend and sees a further hike this year as possible but not its base case.

TD shifts to September rate hike call

"TD now expects the RBA to deliver a 25bps hike at its meeting at the end of the month, taking the target cash rate to 4.60%. The details of today's Q2 GDP print add to the case for the Bank to hike. A follow-up hike this year is a possibility but is not our central view."

"Annual growth is running a touch above trend, but the Bank has clearly stated growth needs to slow to get on top of inflation. Following today's Q2 GDP release, implied q/q GDP growth to meet the Bank's Aug '26 MPS forecasts is 0.3% q/q in Q3 and Q4."

"S&P's Australia Composite PMI survey covering July and August so far points to growth improving in Q3 and likely exceeding the RBA's implied Q3 q/q GDP forecast."

"Household consumption was roughly in line with the Bank's 0.4% q/q projection, but growth in discretionary spending has accelerated over recent quarters. The monthly household spending data does not exactly track the measure of spending in the national accounts but the monthly household spending data for July revealed discretionary spending remains firm."

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

BNY’s Geoff Yu notes that Canadian Dollar (CAD) positioning remains weak ahead of the Bank of Canada (BoC) decision, with USD/CAD dominating flows and cross-currency activity surprisingly limited. The report highlights that recent CAD inflows were mainly mean reversion, while fundamentals offer little support. Despite trade tensions with the United States (US) and BoC lagging G10 peers on hikes, positioning suggests scope for further USD/CAD-driven mean reversion.

USD/CAD flows dominate CAD dynamics

"CAD interest remains light ahead of today’s BoC meeting. Selling resumed after the July decision, and efforts at an offset have been tame. Early August inflows appeared to be a case of mean reversion for July, while the rest of the month was largely flat."

"Some light interest is re-emerging ahead of the decision, but there is no conviction behind it. The only potential source of support is that a two-month rolling average of -0.29 in scored flow is very weak by G10 standards, providing strong scope for mean reversion opportunities."

"Crucially, there is no sign of damage from the escalating trade dispute with the U.S. Neither is there an impact from the BoC’s inability to hike rates while many G10 peers are moving in the opposite direction. This underscores the strength of weak positioning, leading to mean reversion."

"USD/CAD is fully driving CAD flow. This also shows that there is very limited activity in CAD on the crosses, which is a surprise."

"The challenge is now for USD/CAD to find selling interest based on CAD fundamentals, which are lacking for now."

(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 reports the New Zealand Dollar (NZD) underperformed after the Reserve Bank of New Zealand (RBNZ) delivered a 25 bps hike to 2.75% but signaled reduced need for further tightening. Haddad notes the RBNZ’s virtually unchanged OCR path peaking near 3.25% contrasts with market pricing near 4.00%, leaving room for dovish repricing that could continue to pressure NZD.

Policy path gap pressures NZD

"NZD underperformed across the board after the RBNZ delivered a dovish hike. As was widely expected, the RBNZ raised the Official Cash Rate (OCR) for a second straight time by 25bps to 2.75%."

"However, the RBNZ cautioned that “this decision reduces the risk that the OCR needs to increase by more later.”"

"Indeed, the RBNZ stressed that “spare capacity remains in the economy, particularly in the labour market.” The RBNZ also left its OCR path virtually unchanged from May, still projecting a peak of around 3.25% in 2028."

"In contrast, the swaps curve implies the OCR at 4.00% in the next two years. This gap leaves ample room for a dovish repricing which is a drag on NZD."

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

OCBC’s Sim Moh Siong and Christopher Wong highlight that higher Oil prices and renewed US-Iran tensions have pushed global bond yields higher and strengthened the US Dollar, with markets fully pricing a 25bp Federal Reserve (Fed) rate hike by October. Fed Governor Barr’s comments that further rate increases may be warranted reinforce this hawkish backdrop, while they remain modestly constructive on the USD through early 2027.

Higher yields and policy repricing

"The renewed escalation in the Middle East has brought inflation risks back into focus, pushing global bond yields higher. The move was accompanied by a bearish flattening of the US yield curve, a stronger USD and lower gold prices as markets moved to fully price a 25bp Fed rate hike by October."

"Fed Governor Barr reinforced the hawkish policy backdrop, stating that further rate increases may be warranted if inflation fails to moderate. His comments build on Chair Warsh's hawkish message at Jackson Hole."

"Meanwhile, JOLTS job openings data continues to point to a low-hiring, low-firing labour market. The recent uptick in the vacancy-to-unemployment ratio suggests the moderation in wage growth could soon stabilise."

"We have updated our FX forecasts to reflect recent market moves following the USD's weakness during a period of policy uncertainty triggered by the Treasury's surprise EUR/JPY intervention and expanded buyback programme. Despite these adjustments, we remain modestly constructive on the USD through early 2027."

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