Forex News

• GBP/JPY comes under renewed selling pressure on Monday amid a broad-based JPY rally.
• A more hawkish BoJ repricing and a suspected intervention continue to underpin the JPY.
• Japan’s fiscal concerns and a modest GBP strength could help limit losses for spot prices.

The GBP/JPY cross meets with heavy supply during the early part of the European session on Monday and weakens below the 209.00 mark, hitting its lowest level since February 24 amid a broad-based rally in the Japanese Yen (JPY).

Following a brief pause on Friday, the JPY regains strong positive traction at the start of a new week amid aggressive repricing toward a faster pace of interest rate hikes by the Bank of Japan (BoJ). In fact, traders now seem to have fully priced in a 25 basis point (bps) rate hike at the next BoJ meeting on September 17–18. Moreover, some analysts see the risk of a jumbo hike to anchor rising inflation expectations, cap long-end yields and ultimately support the JPY.

Apart from this, renewed speculation of another currency market intervention by Japanese authorities further boosts the JPY and exerts heavy downward pressure on the GBP/JPY cross. Meanwhile, the latest leg of a steep decline witnessed over the past hour or so could further be attributed to technical selling following a decisive break and acceptance below the 210.00 psychological mark. However, concerns over Japan’s fiscal outlook might keep a lid on further JPY gains.

Furthermore, a modest uptick in the British Pound (GBP), bolstered by a broadly weaker US Dollar (USD), should contribute to limiting the downside for the GBP/JPY cross. Nevertheless, the aforementioned fundamental backdrop, along with a technical breakdown, suggests that the path of least resistance for spot prices remains to the downside. Hence, any attempted recovery move might now be seen as a selling opportunity and is more likely to be limited.

BNY’s Geoff Yu notes that strong U.S. payrolls have lifted September Fed hike odds back toward 60%, leaving rate expectations highly data-dependent as the Fed enters its blackout. With inflation now in focus, August Consumer Price Index (CPI) will be pivotal in determining whether markets reinforce or unwind renewed tightening expectations.

Inflation prints steer Fed expectations

"Last week’s upside surprise in U.S. payrolls – with nonfarm payrolls (NFP) at 162,000 vs. the expected 55,000 – pushed market-implied odds of a September Fed hike back up to around 60% from 50%, underscoring how much rate expectations remain tethered to the data backdrop."

"With the Fed now entering its two-week communications blackout, the focus of this holiday-shortened week will be squarely on inflation data."

"The most important release this week is CPI, particularly the core measure, as it will shape whether last week’s jobs strength is interpreted as confirmation of resilient underlying demand or as an isolated labor-market outlier."

"A firm print across both would likely reinforce the case for a September hike and could extend the recent backup in short-end rates."

"By contrast, a softer CPI would give markets room to fade some of the renewed tightening odds, especially with the Fed sidelined and unable to steer the narrative."

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

ING’s Chris Turner argues that Euro fundamentals remain contained despite German regional election results highlighting political tensions for Chancellor Merz’s CDU. Solid Eurozone growth and investor confidence are offset by downside risks from this week’s ECB meeting. ING expects EUR/USD to hold a narrow 1.1580-1.1640 band with a slight downside bias.

Euro seen contained in tight ranges

"While not a major negative for the euro, Sunday's election results in Saxony-Anhalt will serve as a reminder of the declining popularity of Chancellor Merz's CDU party, and, if backed up by similar results in two further regional elections, raise tensions within the governing coalition."

"So far, the German government's infrastructure and defence spending plans seem to be paying dividends for German growth prospects and international investors will not want to see those interrupted."

"On the subject of growth, today should see eurozone second-quarter growth confirmed at a decent 0.4% quarter-on-quarter figure and also see another decent increase in the Sentix investor confidence data."

"The main event of the week, however, will be Thursday's ECB meeting, where we see some downside risks to the euro."

"Expect EUR/USD to trade a tight 1.1580-1.1640 range today, with our bias to the downside."

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

DBS Group Research strategist Philip Wee highlights growing downside risks in CHF/JPY after the cross failed to re-enter its February–July 198–204 range and slipped to 193. He notes scope for a move towards 186, citing monetary policy divergence as the Bank of Japan (BoJ) is expected to hike while the Swiss National Bank (SNB) keeps rates at 0%, reducing the Swiss Franc’s (CHF) yield appeal.

Policy divergence weighs on Franc

"The downside risk in CHF/JPY has become more evident."

"The cross rate failed to reclaim its February-July range of 198-204 and has fallen to 193, its lowest level since December. This leaves the door open for a further decline towards 186, around its 100-week moving average."

"First, monetary policy divergence increasingly favours the JPY over the CHF."

"The market has a near-100% conviction that the Bank of Japan will hike by 25 bps to 1.25% at its September 18 meeting. The BOJ has signalled that if underlying inflation evolves in line with its forecasts, financial conditions remain sufficiently accommodative to accelerate policy normalization."

"By contrast, the Swiss National Bank has zero incentive to raise its 0% policy rate at its September 24 meeting. Switzerland’s headline and core CPI inflation remain near the lower bound of the official 0-2% price stability range. Unlike many of its peers, the SNB is looking through the energy-driven rise in inflation. Keeping rates low reduces the CHF’s yield appeal while supporting domestic credit and employment."

"Second, CHF/JPY faces asymmetric FX intervention risks."

"The late-July joint FX intervention demonstrated that Washington shared Tokyo’s urgency to arrest the JPY’s disorderly depreciation. This coordination also redirected investor scrutiny of the fiscal deficit and debt sustainability from Japanese Government Bonds to US Treasuries. Conversely, SNB has repeatedly signalled its readiness to counter excessive CHF appreciation that threatens Switzerland’s export-reliant manufacturing and pharmaceutical sectors."

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

• EUR/CAD holds gains as the Euro remains stronger following the economic data release.
• German July Industrial Production fell 1.1% MoM, coming in weaker than expected.
• Rising crude oil prices following US-Iran tensions could lend underlying support to the Canadian Dollar.

EUR/CAD remains stronger for the second consecutive day, trading around 1.6080 during European hours on Monday. The currency cross remained stronger as the Euro (EUR) held its ground against the Canadian Dollar following the release of Eurozone Sentix Investor Confidence and Germany's weaker-than-expected Industrial Production data. Furthermore, traders remain focused on seasonally adjusted Eurozone Gross Domestic Product figures due later in the day.

Eurozone’s Sentix Investor Confidence data came in significantly higher at 5.1 in September from 0.9 in August. The sentiment data turned positive in August after remaining negative in the previous five months. Germany’s Industrial Production fell 1.1% month-over-month in July, missing market expectations of a 0.3% gain and slowing from 0% in June. On an annual basis, industrial activity dropped 1.6% in July following a 0.5% decline in the prior month.

Despite the sluggish economic output in Germany, the Euro found underlying support from expectations of monetary tightening. The European Central Bank (ECB) is widely anticipated to raise its key interest rates by 25 basis points at its upcoming policy meeting on Thursday. Andrew Kenningham, chief Europe economist at Capital Economics, noted that the ECB Governing Council looks certain to lift its deposit rate from 2.25% to 2.50%.

However, further gains for the EUR/CAD cross could be constrained as higher crude oil prices lend support to the Canadian Dollar. Energy prices surged following a geopolitical escalation over the weekend, when the US targeted three Iranian oil tankers in response to missile attacks against US Navy warships. Tehran subsequently established a new restricted zone beyond the Strait of Hormuz across part of the Persian Gulf, raising widespread concerns over prolonged disruptions to Middle Eastern energy supplies.

Energy spike keeps pressure on risk assets

Analysts at Deutsche Bank note that risk markets lost momentum over the past week as investors contended with another leg higher in energy prices. They highlight that “risk assets struggled to gain much traction, as a fresh rise in energy prices raised fears about more persistent inflation,” particularly against the backdrop of “no signs of progress on reopening the Strait of Hormuz.” In that context, Deutsche Bank points out that “Brent crude oil [was] up +7.80% last week (+0.80% Friday) to $96.28/bbl, their highest in six weeks,” underscoring how the latest oil rally is reinforcing concerns about the durability of inflation pressures.

• Gold trades with a negative bias for the second straight day, though the downside remains limited.
• The upbeat US NFP report boosts Fed hike bets, underpinning the USD and weighing on the bullion.
• Geopolitical risks further benefit the safe-haven USD as the focus now shifts to US inflation figures.

Gold (XAU/USD) shows some resilience below the $4,400 mark and recovers intraday losses during the first half of the European session on Monday. Any meaningful upside, however, seems limited as traders might opt to wait on the sidelines ahead of the latest US inflation figures, due later this week.

The popularly known US Nonfarm Payrolls (NFP) report showed that the economy added 162K new jobs in August, surpassing consensus estimates for a reading of 56K by a wide margin. Other details revealed that the Unemployment Rate was unchanged at 4.1%, as expected, while annual wage inflation, as measured by the change in average hourly earnings, fell to 3.1% from 3.2%. This comes on top of inflation risks stemming from higher energy prices and lifted bets on an interest rate hike by the US Federal Reserve (Fed) later this month. The hawkish outlook, in turn, is seen acting as a tailwind for the US Dollar (USD) and undermining the non-yielding Gold.

US labor backdrop seen as solid and improving

According to TD Securities, the latest data reinforces the view that the US labor market remains resilient. They argue that, when the official figures are assessed alongside a “private-sector that is looking up from a jobs perspective,” it “suggests that the labor market is in a good place, and possibly getting better.”

Meanwhile, Fed Governor Christopher Waller said last Thursday that he was inclined to argue in favor of keeping rates steady if upcoming data confirmed inflation pressures were cooling. This, along with a strong follow-through buying around the Japanese Yen (JPY), weighs on the USD, which, in turn, act as a tailwind for the precious metal. Traders now look to US Producer Price Index (PPI) and the US Consumer Price Index (CPI), due to be published on Thursday and Friday, respectively. The crucial data will be looked at for more cues about the Fed's future policy path. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide a fresh impetus to the Gold price.

In the meantime, the widening US-Iran confrontation in the Strait of Hormuz keeps the geopolitical risk premium in play and underpins the safe-haven buck. US forces struck three Iranian oil tankers on Saturday, while Iran's Islamic Revolutionary Guard Corps said it had targeted six vessels in retaliation. The tit-for-tat attacks have added to concerns over the security of shipping through the strategic waterway and intensified fears of a prolonged disruption to supplies from the Middle East, supporting oil prices and fueling inflation fears. This favors USD bulls, warranting caution before placing fresh bullish bets on the Gold price and positioning for any meaningful upside.

XAU/USD daily chart

Technical Analysis

The XAU/USD pair sits comfortably above the 200-day Exponential Moving Average (EMA) at around $4,318 and the key 50% retracement of the July-August upswing, at roughly $4,324. This positioning suggests the broader uptrend remains intact, even as momentum indicators have cooled. In fact, the Moving Average Convergence Divergence (MACD) has slipped into negative territory, while the Relative Strength Index (RSI) hovers near 51, hinting at a consolidative phase rather than outright exhaustion of the bullish structure.

On the topside, immediate resistance emerges at the 38.2% Fibonacci retracement near $4,411, with a break above this pivot exposing the 23.6% retracement around $4,519 ahead of the recent cycle high region near $4,693. On the downside, initial support is seen at the 50% retracement at $4,324, closely backed by the 200-day EMA near $4,318. A deeper pullback would look toward the 61.8% level at about $4,237 and the 78.6% retracement near $4,113, where buyers would be expected to reassert the broader bullish bias.

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