Forex News

• US CPI hits a three-year high, but the US Dollar slips afterward.
• Middle East flare-up keeps markets cautious ahead of the PPI release.
• BoE hike bets support Sterling ahead of UK GDP.

The Pound Sterling (GBP) rises by over 0.19% on Wednesday after US inflation matched estimates, though the headline Consumer Price Index (CPI) reached a three-year high in May. The GBP/USD pair trades near 1.3400 after bouncing off daily lows of 1.3362.

US-Iran exchange fire, talks stall

Tensions in the Middle East remain high even though newswires reported that the US and Iran might be close to finding common ground regarding Tehran’s uranium enrichment program. Nevertheless, talks took a step back as Iran shot down a US helicopter, which triggered a retaliation by Washington.

Prices in the US rise, traders eye a Fed rate hike

Data from the US reflected the impact of the war in Iran as the CPI in May met expectations at 4.2% YoY, up from April’s 3.8% print. Core CPI, which excludes volatile items, expanded by 2.9% YoY, as expected, up from 2.8%.

Despite registering red-hot inflation, the Greenback is on the back foot, according to the US Dollar Index (DXY). The DXY, which measures the buck's performance against six currencies, is down 0.11% to 99.87.

Meanwhile, money markets speculate with a potential Federal Reserve rate hike towards the end of the year, with traders pricing 22 basis points of tightening.

Sterling is underpinned by interest rate probabilities

In the UK, the British Pound remains underpinned by investor expectations of 44 basis points of rate hikes by the Bank of England (BoE) toward the end of 2026. The markets' focus shifts to the release of Gross Domestic Product (GDP) figures on Friday.

In the US, traders would focus on the release of Initial Jobless Claims data and the May Producer Price Index (PPI).

GBP/USD Price Forecast: Technical outlook

In the daily chart, GBP/USD trades at 1.3392, holding a mildly bearish near-term bias as price sits under the latest triple simple moving average cluster around 1.3461 and below the reclaimed breakout area of the former rising trend line at 1.3408. The Relative Strength Index (14) at roughly 45 keeps momentum on the soft side of neutral, suggesting sellers retain the upper hand while the pair struggles to regain its lost support zone.

On the topside, immediate resistance is now located near 1.3408, where the broken upward trend-line area turns into a nearby cap, followed by the triple simple moving average around 1.3461. Above that, the bearish diagonal structure remains in play, with further resistance at the prior break level of the descending trend line at 1.3573 and then at its origin near 1.3869. On the downside, structural support is distant, with the rising trend-line anchor around 1.3159 emerging as the next key floor if selling pressure resumes.

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

• US CPI accelerated to 4.2% YoY in May, reinforcing expectations for a higher-for-longer Fed stance.
• Core CPI rose just 0.2% MoM, slightly below consensus.
• NAB expects the RBA’s next move to be a rate cut, adding pressure on the Australian Dollar.

The AUD/USD pair trades near 0.7020 on Wednesday, as the Australian Dollar (AUD) continues to lose value after the latest United States (US) inflation report was released mostly in line with expectations, reinforcing the view that the Federal Reserve (Fed) could keep interest rates elevated for longer.

The May Consumer Price Index (CPI) rose 0.5% MoM, matching forecasts but decelerating from the previous 0.6% pace. Annual headline inflation climbed to 4.2% YoY from 3.8%, meeting market expectations and highlighting persistent price pressure in the US economy.

Meanwhile, core CPI, which excludes food and energy, increased 0.2% MoM, below the expected 0.3% and down from 0.4% previously. Annual core CPI edged up to 2.9% from 2.8%. After the report, the US Dollar (USD) failed to find support.

On another note, the National Australia Bank (NAB) maintained that the Reserve Bank of Australia’s (RBA) next policy move is likely to be a rate cut, although the timing remains uncertain. NAB no longer expects another rate hike and believes the current cash rate could represent the peak of the tightening cycle, weighing on the AUD.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.7019, maintaining a bearish near-term bias as it remains below both the 20-period Simple Moving Average (SMA) at 0.7045 and the 100-period SMA at 0.7127. The clustering of nearby resistance levels just overhead suggests rallies are likely to be sold into, while the Relative Strength Index (RSI) hovering around 35 hints at lingering downside pressure without yet signaling outright oversold conditions.

On the topside, initial resistance is aligned at 0.7027, followed by 0.7038 and the 20-period SMA at 0.7045, with the 100-period SMA further up at 0.7127 reinforcing the broader cap. On the downside, immediate support is located at 0.7018, ahead of a lower horizontal floor at 0.6998, where a break would open the door to a deeper extension of the current bearish phase.

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

• Gold trades near an 11-week low as in-line US inflation data keeps Fed rate-hike expectations intact.
• Headline US inflation rises to 4.2%, its highest level since April 2023.
• A break below the 200-day SMA keeps the technical outlook firmly bearish.

Gold (XAU/USD) remains under pressure on Wednesday as the latest US inflation data broadly matched market expectations and did little to alter expectations that the Federal Reserve could raise interest rates later this year. At the time of writing, XAU/USD is trading around $4,125 near 11-week lows, down over 3.0% on the day.

Headline Consumer Price Index (CPI) accelerated to 4.2% YoY in May, its highest level since April 2023. Core CPI rose to 2.9%. However, monthly core inflation eased to 0.2% from 0.4%.

The pickup in inflation comes after the US-Iran war triggered a sharp rise in energy prices, pouring cold water on the Fed's efforts to bring inflation back toward its 2% target.

Before the war began, markets were pricing in at least two rate cuts this year. Those bets have now disappeared, with traders increasingly expecting a rate hike by year-end.

Markets are currently pricing in a 33% chance of a 25-basis-point (bps) rate hike in September, with the odds increasing to 38% for October and 42% for December, according to the CME FedWatch Tool. Higher interest rates are typically negative for Gold because the precious metal offers no yield.

Meanwhile, hopes for a near-term peace deal between the United States and Iran appear slim after both sides launched renewed strikes on Tuesday. US President Donald Trump warned in a Truth Social post that Iran had "taken too long to negotiate a deal that would have been great for them" and that Tehran would now "have to pay the price."

The geopolitical uncertainty, combined with hawkish Fed expectations, has kept the US Dollar (USD) supported near recent highs, creating an additional headwind for Dollar-denominated Gold.

Technical analysis: XAU/USD eyes March low after decisive break below 200-day SMA

XAU/USD remains under heavy selling pressure after breaking below the key 200-day Simple Moving Average (SMA) at $4,443. The Relative Strength Index (RSI) has slipped to oversold territory near 27 on the daily chart, while the Average Directional Index (14) rises above 30, suggesting a strengthening downtrend despite stretched short-term conditions.

On the downside, the March low at $4,098 serves as the next key support level, where buyers may attempt to halt the decline. On the topside, any rebound would first confront the 200-day SMA at $4,443, followed by the 50-day SMA at $4,608 and then the 100-day SMA at $4,782, with the cluster of moving averages overhead likely to limit recovery attempts unless decisively reclaimed.

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

Nordea’s Jan Størup Nielsen notes that Danish consumer prices rose 1.9% year-over-year in May, with core inflation at 2.1%, its highest level since the start of 2024. Monthly inflation was driven by higher hotel and travel prices, while food and non-alcoholic beverages fell. Despite the jump, Danish inflation remains well below Euro area inflation, partly due to lower electricity taxes and different index weights.

Core inflation edges higher in May

"In May, Danish consumer prices increased by 1.9% year-over-year. Core inflation increased to 2.1% and is now at the highest level since the start of the year. Despite this, Danish inflation is still markedly below the Euro area."

"Compared to April, the overall Danish consumer price index increased by 0.6%. This was the largest monthly increase in the consumer price index in the month of May since 2022."

"Annual Danish inflation came in at 1.9% in May, up from 1.4% last month. This is the highest level since December last year."

"Due to the government decision to reduce the tariffs on electricity to the EU's minimum rate from the start of the year, electricity subtracted 0.58 percentage points from the annual inflation rate."

"In May, overall inflation in the eurozone was 3.2%. Thus, inflation in the eurozone is still markedly above Denmark."

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

Bank of Canada (BoC) Governor Tiff Macklem took questions from reporters, offering markets a clearer sense of how the central bank was thinking. His remarks followed the widely expected decision to keep the policy rate on hold at 2.25%.

BoC Macklem press conference key highlights

Core inflation has ticked down.

Food inflation remains high, while shelter prices have moderated.

We’ve got the rate where we think it needs to be right now.

There is no evidence of a broader pass-through of higher energy prices.

Uncertainty around the US trade policy remains.

Consumer spending continues to expand.

There are no shifts in government spending.

Economy is weak but clearly not in recession.

This section below was published at 13:45 GMT to cover the Bank of Canada's policy announcements and the initial market reaction.

The Bank of Canada (BoC) left its policy rate unchanged at 2.25% on Wednesday, in line with market expectations. Attention now shifts to Governor Tiff Macklem's press conference at 14:30 GMT, where investors will be looking for additional colour on the decision and any clues about the future path of monetary policy.

BoC policy statement key highlights

The Bank of Canada said it is continuing to look through the Middle East war's near-term impact on headline inflation.

Policymakers noted there has been limited evidence so far of a broad-based pass-through of higher energy prices to other consumer prices.

The Bank expects total inflation to hover around 3% in the near term before gradually easing back towards its 2% target.

Officials also said recent data suggest economic growth will resume in the second quarter.

At the same time, the Bank acknowledged that economic activity in Canada has been weak and uncertainty surrounding US trade policy persists.

The Governing Council stressed that it will not allow higher energy prices to become a source of persistent inflation.

Even with some improvement in activity, policymakers expect the economy to remain in excess supply.

Market reaction

The Canadian Dollar (CAD) trades with marked gains vs. the Greenback on Wednesday, prompting USD/CAD to confront the key 1.3900 contention zone in the wake of the central bank’s interest rate decision.

This section below was published as a preview of the Bank of Canada's (BoC) monetary policy announcements at 09:00 GMT.

• The Bank of Canada is expected to keep its interest rate at 2.25%.
• The Canadian Dollar remains weak, with USD/CAD near 1.4000.
• Markets pencil in around 36 bps of hiking by the BoC this year.

The Bank of Canada (BoC) is widely expected to keep its policy rate unchanged at 2.25% on Wednesday. This would be the fifth consecutive gathering with the bank keeping its hand steady.

At its April event, the BoC left rates unchanged at 2.25%, as expected, but the overall message was far from dovish.

While policymakers see some softness in near-term growth, inflation is proving a little more stubborn than anticipated, with wage growth still running in the 3% to 3.5% range. In other words, the economy is slowing, but not enough to completely remove inflation concerns.

Governor Tiff Macklem reiterated that there is no preset path for rates and stressed that policymakers remain guided by incoming data. Importantly, he refused to rule out further tightening, noting that persistently high energy prices could eventually require a policy response. At the same time, he said, existing economic slack should help to contain the inflationary impact of higher energy prices.

Macklem also warned that inflation expectations may be less firmly anchored than they were before the pandemic, while Deputy Governor Carolyn Rogers highlighted trade tensions as a longer-term risk to the outlook.

All in all, the bank remains firmly in wait-and-see mode, but it is not signalling rate cuts anytime soon. Inflation risks still lean modestly to the upside, allowing for further tightening if price pressures prove more persistent than expected.

Inflation, however, remains the key watch point after the headline CPI rose by 2% in the year to April, below the previous month’s print of 2.2% and matching the bank’s target. In the same direction, the BoC’s core inflation eased to 2.1% from a year earlier. The bank’s preferred measures, CPI-Common, Trimmed and Median, also ticked lower, but at 2.5%, 2% and 2.1%, respectively, they still remain above target.

When will the BoC release its monetary policy decision, and how could it affect USD/CAD?

The Bank of Canada will announce its policy decision on Wednesday at 13:45 GMT, followed by a press conference with Governor Tiff Macklem at 14:30 GMT.

Markets anticipate the central bank maintaining its current stance, with a projected tightening of just over 35 basis points by the end of 2026.

Pablo Piovano, Senior Analyst at FXStreet, points out that the Canadian Dollar (CAD) has been depreciating steadily against the Greenback since May, lifting USD/CAD to an area close to the psychological 1.4000 barrier earlier this week.

Piovano says the continuation of the ongoing bullish momentum could prompt the spot to initially reclaim the 2026 ceiling at 1.3966 (March 31). Up from here comes the key 1.4000 threshold, seconded by the November top at 1.4140 (November 5).

On the downside, he adds, "The loss of the 200-day SMA at 1.3813 could pave the way for extra weakness, targeting the weekly floor at 1.3770, which appears reinforced by the provisional 55-day SMA. Down from here emerges the May base at 1.3949 (May 29), ahead of the March trough at 1.3525 (March 9) and the February valley at 1.3504 (February 11).

“Momentum favours extra gains,” he suggests, noting that the Relative Strength Index (RSI) hovers near the 68 level, while the Average Directional Index (ADX) just past 30 is indicative of a strong trend.

• Euro gains ground as the US Dollar eases after the latest US inflation report.
• Markets look past higher annual CPI and focus on softer monthly core inflation.
• Traders await ECB's monetary policy decision due on Thursday, with a 25-basis-point rate hike fully priced in.

The Euro (EUR) holds modest gains against the US Dollar (USD) on Wednesday as the Greenback comes under modest pressure following the release of US inflation data. At the time of writing, EUR/USD trades around 1.15548, up 0.15% on the day.

Headline Consumer Price Index (CPI) eased to 0.5% MoM in May from 0.6% in April. Core CPI slowed to 0.2% from 0.4%, falling short of market expectations of 0.3%.

However, on a yearly basis, CPI accelerated to 4.2% from 3.8%, its highest level since April 2023, while core inflation edged up to 2.9% from 2.8%. Both readings matched market expectations.

The data suggests underlying inflation remained relatively stable, while the rise in headline inflation was largely driven by higher energy prices.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading around 99.85, consolidating minor losses as the data did little to alter recent hawkish repricing of Federal Reserve (Fed) interest-rate expectations.

Meanwhile, resilient US economic growth and a stabilizing labor market support the view that the Fed can keep interest rates unchanged for longer, with traders increasingly pricing in a rate hike by year-end.

At the same time, ongoing tensions in the Middle East continue to underpin safe-haven demand for the US Dollar. US President Donald Trump warned in a Truth Social post that Iran had "taken too long to negotiate a deal that would have been great for them" and that Tehran would now "have to pay the price."

Attention now turns to the European Central Bank (ECB) monetary policy decision on Thursday. Markets have fully priced in a 25-basis-point (bps) rate hike.

Traders will closely watch ECB President Christine Lagarde's post-meeting press conference for clues on whether more rate hikes could follow and how policymakers plan to balance rising inflation with slowing economic growth amid higher energy costs.

Scotiabank’s Shaun Osborne and Eric Theoret say the Japanese Yen (JPY) is soft and underperforming most G10 currencies despite stronger Producer Price Index (PPI) data, with markets fully pricing a 25 bps Bank of Japan (BoJ) hike next week and another by December. For USD/JPY, they highlight a bullish technical configuration with a rising RSI nearing overbought territory and limited resistance seen ahead of 162.

Yen weak as USD/JPY eyes 162 level

"The yen is soft, trading defensively vs. the USD while underperforming most of the G10 currencies into Wednesday’s NA session."

"The May PPI figures came in stronger than expected, pricing 6.3% y/y—a pace that is likely to maintain hawkish expectations into next week’s BoJ."

"Media have reported of a hospitalization for Gov. Ueda, leaving the central bank without its chief at next Tuesday’s decision. A 25bpt hike is widely expected and fully priced, with markets pricing an additional 25bpt hike by December."

"For USD/JPY, the technical setup is bullish, with a rising RSI that appears to be closing in on the overbought threshold at 70. We see limited resistance ahead of 162."

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

TD Securities strategists note that a softer United States (US) core Consumer Price Index (CPI) print triggered only modest US Dollar (USD) weakness. They argue the broad USD uptrend remains in place, supported by strong payrolls and geopolitical tensions. They expect US Dollar Index (DXY) to hold near 99.86–100.00 into next week’s FOMC, where Chair Warsh’s guidance could drive the next USD breakout.

Dollar dip seen as temporary

"Consumer price inflation matched consensus expectations in May, with the headline posting another firm increase at 0.5% m/m (0.473% before rounding; TD: 0.48%, consensus: 0.5%) largely owing to the lingering impact from high crude prices (gasoline +7% m/m)."

"The core segment came in softer than expected, rising 0.2% m/m (0.208% before rounding; TD: 0.23%, consensus: 0.3%). As expected, the deceleration in the core was largely the result of normalization in OER/rents after a surge in April."

"The USD saw modest knee-jerk weakness as core CPI mom surprised to the downside vs consensus forecast. Nonetheless, the USD has already entered a broad-based uptrend, and the trend is unlikely to reverse on one modest core CPI miss."

"Last week's upside US payrolls surprise and escalating headlines for the US/Iran conflict are sufficient to keep the USD supported."

"Our baseline is for the DXY index to stay elevated around the 99.86-100.00 level into next week's FOMC, where we expect Chair Warsh's forward guidance to be a key driver of the next directional breakout for the USD."

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

Rabobank strategists Molly Schwartz and Christian Lawrence discusses Mexico in its latest Mexican Peso (MXN) Market Musings, noting that the Mexican Peso has gained against the US Dollar (USD) year-to-date but weakened recently. They expect deteriorating MXN carry attractiveness as rate differentials narrow and implied volatility rises, yet remains constructive versus other currencies. They forecast USD/MXN moving higher toward 17.9 over a three‑month horizon.

Carry erosion but relative MXN resilience

"MXN has appreciated 3.57% against USD year-to-date, but has depreciated on a month-to date view."

"Non-commercial speculators net long MXN positioning has been slowly falling, and we foresee further contraction in long positioning."

"We foresee deteriorating MXN carry attractiveness due to narrowing interest rate differentials and rising implied volatility as a driving factor in further MXN weakness, but we still remain constructive of MXN relative to many other currencies as carry demand provides support on a relative basis."

"Banxico has cut the overnight policy rate to 6.50%. The market is pricing in 34bp of hikes by year end, but we expect the Bank to hold."

"USD/MXN implied volatilities have been trading sideways across the term structure for the past month."

"We forecast USD/MXN trading up to 17.9 on a three month view."

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