Forex News

Societe Generale’s Kit Juckes notes that recent G10 policy moves, including a BOJ hike, have not produced dramatic FX shifts. He argues that a dovish Fed outcome would favour short USD/JPY positions. The strategy reflects expectations that relative policy dynamics and potential Fed caution could weigh on USD/JPY over the coming weeks.

Dovish Fed scenario supports Yen

"Short USD/JPY and short USD/SEK should deliver results in the event of a dovish outcome; further EUR weakness would follow on from any hawkish surprises."

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

Societe Generale’s Sam Cartwright notes that UK Headline CPI stayed at 2.8% year-on-year in May, undershooting both Bloomberg consensus and the BoE’s April MPR projection, while core inflation edged up to 2.6%. He highlights that stronger services and fuel inflation were counterbalanced by weaker food and goods prices, with specific base effects and airfare dynamics driving services.

Services and fuel drive May CPI mix

"Headline CPI remained at 2.8% yoy in May, 0.2pp below the Bloomberg median estimate and 0.5pp below the BoE’s estimate in the April MPR, while core inflation rose by 0.1pp to 2.6% yoy."

"Stronger services inflation was offset by downside surprises in food and goods"

"Services inflation rose by 0.5pp to to 3.7% yoy, 0.2pp below the BoE’s April MPR estimate."

"Within services, a positive base effect, stemming from the ONS correction to last year’s overestimated rise in Vehicle Excise Duty, added 0.25pp to services."

"In addition, the Easter-related weakness in April airfares unwound, contributing a further 0.15pp to services inflation, while transport by sea added just under 0.1pp."

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

OCBC’s Sim Moh Siong notes FX markets are in a holding pattern as traders await the FOMC, with Oil’s decline easing inflation pressures but seen as having limited further downside. The Fed is expected to keep rates unchanged and drop its easing bias, while the Dollar lacks a clear bearish catalyst, leading OCBC to stay neutral and favour FX cross trades.

Fed hold keeps Dollar directionless

"Waiting on the Fed: FX is in a holding pattern ahead of the FOMC. This persists even as oil continues to drift lower before the expected Friday signing of the US-Iran memorandum. Brent has slipped below USD80/bbl, undercutting many analysts’ year-end forecasts."

"Further downside in oil may be capped. Even if the Strait of Hormuz reopens, normalisation will take time. Mine clearance, insurance reinstatement, restarting shut-in production and precautionary stockpiling should slow the pace of any further decline."

"The Fed is set to keep rates unchanged for a fourth meeting. We expect the FOMC to drop its easing bias with unanimous support. Chair Warsh will likely acknowledge sticky inflation and a firmer labour market but avoid signalling a clear policy tilt."

"With oil prices easing, the Fed can afford to stay patient if the trend holds."

"The case for sustained USD weakness remains weak. We stay neutral on the dollar and prefer relative value in FX crosses."

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

Kit Juckes at Societe Generale highlights that recent G10 central bank actions have not sparked major FX moves, with EUR/USD still range-bound. He notes deeper Eurozone GDP forecast cuts versus other regions. The bank expects EUR/USD to drift toward 1.12 over time rather than 1.20, but sees a need for a fresh catalyst to break the current range.

Euro pressured by weaker growth outlook

"However, the last week has seen three G10 central banks leave rates on hold (RBA, Bank of Canada and Riksbank) while two have hiked rates (BOJ and ECB). The two hikers are both mid-table in the G10 FX rankings over the last week, which doesn’t suggest fireworks are likely, though the arrival of Chair Warsh may change the odds on that a bit and the Eurozone has seen deeper cuts to 2026/27 GDP forecasts than anywhere else since the conflict started."

"Short USD/JPY and short USD/SEK should deliver results in the event of a dovish outcome; further EUR weakness would follow on from any hawkish surprises."

"Either way, we expect EUR/USD to head towards 1.12 over time, rather than 1.20, but are resigned to waiting for a catalyst to emerge, that can replace current range-trading with a clear trend."

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

• Gold trades around $4,332.60 and lacks clear direction ahead of the Federal Reserve’s monetary policy decision.
• Investors await updated economic projections and guidance from Kevin Warsh on the future path of interest rates.
• The interim US-Iran peace deal keeps pressure on the US Dollar and provides limited support to the precious metal.

Gold (XAU/USD) trades around $4,332.60 on Wednesday at the time of writing, little changed on the day, as investors remain cautious ahead of the Federal Reserve’s (Fed) monetary policy decision.

The yellow metal continues to fluctuate within a narrow range, with markets reluctant to place significant directional bets before one of the most closely watched macroeconomic events of the week.

The main catalyst for financial markets remains the Federal Open Market Committee (FOMC) meeting. The Fed is widely expected to leave its benchmark interest rate unchanged within the 3.5%-3.75% range, but attention is focused on the updated economic projections, including the so-called dot plot, as well as comments from Fed Chair Kevin Warsh during his press conference.

Investors are looking for clues on whether the US central bank maintains a restrictive stance as inflation remains relatively persistent. According to several analysts, the Fed could remove its easing bias and adopt a more cautious tone regarding potential rate cuts, a scenario that could support the US Dollar (USD) in the near term, which generally supports Dollar-denominated assets such as Gold.

Meanwhile, the announcement of a framework agreement between the United States (US) and Iran continues to influence market sentiment. The memorandum includes a 60-day ceasefire and the reopening of the Strait of Hormuz, reducing concerns about disruptions to global energy supplies. This geopolitical easing has contributed to recent weakness in the US Dollar.

However, several uncertainties remain regarding the details of the agreement, while differences persist between Washington and Tehran over future negotiations concerning Iran’s nuclear program. This uncertainty is limiting market moves and encouraging a wait-and-see approach ahead of the Fed announcement.

Gold’s next move will likely depend on the message delivered by the US central bank. A more dovish-than-expected tone could strengthen demand for the precious metal, while a more hawkish Fed could support US yields and the US Dollar, limiting Gold’s upside potential in the short term.

Societe Generale’s Kit Juckes relays Jan Groen’s view that the US economy shows resilient growth with sticky inflation, keeping the Fed on hold for now. He notes market pricing still leans toward a rate hike in early 2027. Juckes prefers fading Dollar weakness, expecting US resilience and relative rate trends to support the Dollar over time.

Fed stance and Dollar resilience

"Our US Chief Economist, Jan Groen, characterises the US economic outlook as “Resilient growth, Sticky inflation, Fed on hold” with the caveat that “late-2026 hikes are a risk if inflation re-accelerates” . The current 3.3% annual rate of ‘core PCE’ inflation, at 3.3%, is clearly too high for comfort and the 6-month annualised rate at 3.8% is worrying, albeit distorted by second-round effects of the jump in energy prices."

"Market pricing of rate hikes has backed-off a bit in the last 10 days but still looks for a hike in Q1 next year, which strikes me as consistent with Jan’s view – the Fed is on hold, but robust growth, a tight labour market and a booming equity market all represent upside risks to inflation."

"What does this mean for the dollar? Our inclination continues to be to fade dollar weakness, in the belief that a resilient US economy, in both absolute and relative terms, will support the dollar and lead to favourable relative trends in interest rates over time."

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

• USD/JPY eases to 160.20 but remains at intervention levels above 160.00.
• Hopes of a US-Iran peace deal and caution ahead of the Fed's decision are keeping USD rallies subdued.
• Upbeat Japanese macroeconomic data has failed to support the JPY on Wednesday.

The Japanese Yen (JPY) nurses mild gains against the US Dollar (USD) on Wednesday, as the USD/JPY pair eases to 160.20, still above 160.00, considered the limit of tolerable JPY weakness for Japanese authorities. A moderate risk-on mood amid the US-Iran peace deal and caution ahead of the Federal Reserve’s (Fed) decision keep USD rallies subdued.

The Fed is widely expected to keep its monetary policy unchanged in Chairman Kevin Warsh’s first meeting. Investors will be attentive to Warsh’s press release to spot the differences with his predecessor, Jerome Powell, who maintained his position as a voter on the committee. 

Markets will also have the bank's economic and interest rate projections to assess the near-term direction of the bank's monetary policy. Market rumours, however, suggest that Chairman Warsh might refrain from participating in the “Dot Plot.”

Meanwhile, hopes of a lasting peace in the Middle East are feeding a mild appetite for risk, adding pressure on the Greenback. US President Donald Trump affirmed on Tuesday that he expects to leave the war ”in the rearview mirror." Iranian officials, on the other hand, have vowed a “hard response” to Israel's attacks in Lebanon, keeping investors on their toes.

In Japan, data released on Wednesday has shown a narrower-than-expected trade deficit in May, as exports rose beyond expectations, while Machinery Orders posted another positive surprise. The impact on the Yen, however, was minimal. Earlier in the week, the Bank of Japan (BoJ) hiked interest rates to a 31-year high of 1%, still well below the rest of the major central banks, which is acting as a headwind for a significant Yen reversal.

OCBC’s Christopher Wong notes the RBA kept rates at 4.35% while retaining a tightening bias, signalling readiness to hike if needed. However, slowing growth and rising unemployment point to a prolonged pause. AUD/NZD is seen as toppish as the RBA nears cycle end and the RBNZ leans more hawkish, though the Australian Dollar remains supported by its G10 yield advantage.

RBA bias but extended pause likely

"Holding Pattern: Australia’s RBA kept rates steady at 4.35% after three consecutive hikes earlier this year. In both the statement and press conference, policymakers retained a tightening bias, noting they stand ready to hike if needed."

"Inflation remains above target, but growth is slowing and unemployment has edged higher. This backdrop points to an extended pause, even as the RBA resists calling an end to the hiking cycle."

"AUDNZD appears toppish as the RBA nears the end of its cycle while the RBNZ leans more hawkish. Still, the AUD should find support from its position as a top yielder in G10 FX."

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