Forex News

• USD/JPY trades around 158.85 on Friday, coming under pressure after the previous day’s rebound.
• Accelerating underlying inflation in Japan reinforces expectations of higher Japanese interest rates.
• US business activity accelerates in August, but the US Dollar remains weighed down by reduced bets on an immediate rate hike.

USD/JPY trades around 158.85 on Friday at the time of writing, edging lower after rebounding from the 158.00 level on Thursday. The pair remains under pressure as the Japanese Yen (JPY) benefits from fresh inflation data supporting further monetary tightening in Japan, while the US Dollar (USD) remains close to its lowest levels since May.

In Japan, the core Consumer Price Index (CPI), which excludes fresh food, rose 1.8% YoY in July, following a 1.6% increase in June. This marks its fastest pace since January. The index excluding both fresh food and energy also accelerates to 1.8%, from 1.7% previously.

These figures reinforce expectations that the Bank of Japan (BoJ) could continue normalizing its monetary policy. The prospect of higher Japanese interest rates therefore provides support to the Japanese Yen, although the still-wide interest rate differential between the United States (US) and Japan could limit the Japanese currency’s appreciation.

On the US side, the US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, remains close to its lowest level since May 14. Investors are scaling back expectations of immediate monetary tightening by the Federal Reserve (Fed), although inflation risks continue to keep the possibility of another rate hike later this year alive.

The latest activity data nevertheless provide an argument for US policymakers favoring a restrictive monetary stance. The preliminary US S&P Global Composite Purchasing Managers Index (PMI) accelerated to 56 in August from 54.5 in July, signaling a faster expansion in private-sector activity.

The improvement is mainly driven by services. The S&P Global Services PMI rose to 56.8 in August from 54.6 previously, while the Manufacturing PMI slowed to 53.2 from 53.9 in July. Both indicators nevertheless remain above the 50 threshold separating expansion from contraction.

The resilience of the US economy could limit downside pressure on the US Dollar by reducing the need for monetary easing. For USD/JPY, the outlook therefore remains caught between expectations of a more restrictive BoJ, which support the Japanese Yen, and solid US economic activity that could sustain the higher-for-longer interest rate scenario in the United States.

Japan data bolsters BoJ tightening bets as JPY mood turns cautiously firmer

Strategists at Scotiabank highlight that Japan’s latest data run is reinforcing expectations for Bank of Japan tightening. They note that “Japan’s July CPI rose to 1.9% in the year, in line with expectations, extending the steady pick up in prices seen since February,” while “preliminary August PMI data reports were all stronger than expected as well, indicating firm momentum in services and manufacturing.”

According to Scotiabank, this combination of firmer inflation and activity “added marginally to conviction that the BoJ will tighten next month, with 20bps or hikes reflected in swaps.” They add that the “price data helped lift the JPY to a 0.4% rise against the soft USD on the day,” underscoring a modest but notable shift in currency sentiment.

From a market perspective, Scotiabank characterizes the technical backdrop as “neutral/bearish—A net loss for the USD on the week may herald some relief for the JPY. USD dips drew firm support last week but that conviction has not been evident this week.” In their view, “the near-term mood on the JPY may be shifting, if only slightly,” with “USD losses below 158.25” seen as potentially signaling “a bit more weakness ahead.”

(This story was corrected on August 21 at 15:30 GMT to correct that Japan CPI ex food and energy was 1.8%, not 1.9%).

Norman Liebke at Commerzbank warns that low European gas storage, suspended LNG exports from Qatar and the end of the refilling phase are keeping European gas prices elevated. The TTF benchmark is already above EUR 65 per MWh, and the bank cautions that a widening storage gap and ongoing Middle East tensions could push prices sustainably higher.

TTF risk from low storage

"Against the backdrop of low European gas storage levels, the continued suspension of LNG exports from Qatar, and the approaching end of the refilling phase, European gas prices are also high."

"Should the gap from the usual storage level - currently 17 percentage points widen further, the TTF benchmark price could even sustainably exceed the 65 EUR per MWh mark."

"Across the EU, gas storage levels are just over 61%, marking the lowest seasonal level since the data series began in 2009. In Germany, storage levels are only at roughly 50%, which is 27 percentage points below the five-year average."

"At least for Europe, we calculated this Tuesday that European LNG imports would have to increase significantly from their current levels in order to achieve sufficient gas storage levels by the end of March next year."

"Additional upward pressure could arise if tensions in the Middle East persist and Europe has to continue its competetion with Asia for available LNG shipments."

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

Royal Bank of Canada economists Nathan Janzen and Abbey Xu expect Canadian gross domestic product data for June and Q2 to confirm a strong rebound after winter stagnation. Monthly GDP is tracking above 3% annualized, supported by firmer labour markets, stronger consumer spending, and improved business and residential investment, though they warn that auto-led trade gains and demographic and trade headwinds will limit future growth.

Q2 strength and sustainability risks

"Next Friday’s Canadian gross domestic product reports for June and Q2 are expected to confirm a strong rebound in economic activity following stalling growth over the winter."

"We expect a 0.2% increase in June, in line with Statistics Canada’s earlier advance estimate to add to an almost full percentage point increase over April and May."

"Monthly numbers have been highly revision prone, but track above 3% annualized growth in Q2 overall."

"Net trade likely made a substantial positive contribution as exports outpaced imports, led in part by a recovery in the auto sector following winter production disruptions."

"The boost from auto production and net trade in Q2 is unlikely to be repeated in coming quarters."

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

• EUR/USD reverses its intraday advance as the US Dollar finds some stability near three-month lows.
• The broader backdrop stays challenging for the US Dollar amid fiscal and policy concerns.
• The pair remains on course for a fourth straight weekly advance.

EUR/USD reverses its earlier gains on Friday as the US Dollar (USD) steadies after retesting the three-month low touched the previous day. At the time of writing, the pair trades around 1.1677, easing from an intraday high of 1.1711, its highest level since May 14.

Traders also digest preliminary S&P Global Purchasing Managers' Index (PMI) data showing that US business activity remained in expansion in August. The Composite PMI rose to a 52-month high of 56.0 from 54.5, while the Services PMI climbed to a 20-month high of 56.8 from 54.6. The Manufacturing PMI eased to a five-month low of 53.2 from 53.9.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 98.82, recovering from an intraday low of 98.56. Despite the intraday pullback, EUR/USD remains on track for a fourth consecutive weekly gain as the broader macroeconomic backdrop leans against the Greenback.

The US Dollar came under heavy selling pressure earlier this week after the US Treasury announced that it would double its liquidity-support buybacks for longer-dated government securities. The move raised fresh concerns about US fiscal credibility and the sustainability of rising government debt.

Fading expectations of a Federal Reserve (Fed) interest-rate hike also keep US Dollar bulls at bay. The CME FedWatch Tool shows a 65% probability that the central bank will leave interest rates unchanged next month following softer US employment and inflation data for July. However, heightened energy-driven inflation risks stemming from the US-Iran stalemate keep the possibility of a rate hike alive.

Meanwhile, the monetary policy outlook favours the Euro (EUR), with markets widely expecting the European Central Bank (ECB) to raise interest rates in September

BNY Mellon’s Geoff Yu highlights comments from ECB Governing Council member Martins Kazaks, who said the central bank remains “well positioned to tighten policy further if needed,” with Euro area inflation “still near 3% and therefore above target.” Kazaks underscored that “September’s decision remains data dependent,” even as markets have largely priced in “another 25bp hike after June’s move.”

Scotiabank strategists Shaun Osborne and Eric Theoret point out that Japan’s July Consumer Price Index (CPI) and stronger August Purchasing Managers' Index (PMI) data support expectations for Bank of Japan (BoJ) tightening, with about 20 bps of hikes priced in swaps. The resulting JPY strength has produced a modest USD/JPY decline. Technically, they describe the setup as neutral to bearish, with losses below 158.25 seen as opening further downside.

BoJ tightening expectations support Japanese Yen

"Japan’s July CPI rose to 1.9% in the year, in line with expectations, extending the steady pick up in prices seen since February."

"Preliminary August PMI data reports were all stronger than expected as well, indicating firm momentum in services and manufacturing."

"Inflation data added marginally to conviction that the BoJ will tighten next month, with 20bps or hikes reflected in swaps. Price data helped lift the JPY to a 0.4% rise against the soft USD on the day."

"Neutral/bearish—A net loss for the USD on the week may herald some relief for the JPY. USD dips drew firm support last week but that conviction has not been evident this week."

"The near-term mood on the JPY may be shifting, if only slightly. USD losses below 158.25 may signal a bit more weakness ahead."

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

US business activity is predicted to have gained momentum in August, according to the flash reading of S&P Global’s Composite PMI, which ticked up to 56 from 54.5 in July. The index, where any reading above 50 indicates expansion, points to a private sector that seems to be gathering further traction.

The details paint a mixed picture, as Manufacturing is expected at 53.2 from 53.9 the previous month, signalling waning momentum in the sector. Services, by contrast, improved to 56.8 from 54.6, suggesting demand there may be strengthening.

Following the news release, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, argued: “US business is booming, with firms reporting the fastest output growth for over four years so far in the third quarter as the expansion picked up further momentum in August. The survey data for the third quarter are currently pointing to annualized growth approaching 3.0%, up solidly from the 1.5% pace seen in the second quarter.”

This section below was published as a preview of the US S&P Global PMI data at 09:30 GMT.

• The US S&P Global flash PMIs for August are expected to show that economic activity kept growing at healthy levels.
• Services and manufacturing PMIs are seen ticking down but highlighting comparatively strong economic activity.
• The US Dollar is likely to remain on the back foot, weighed by the US Treasury’s plans to boost long-term Government Bonds.

S&P Global will release the preliminary figures of August’s United States Purchasing Managers' Indices (PMIs), a report collecting top private sector executives' opinions about business conditions, to provide an early indication of momentum in the world’s largest economy.

The report includes three measures: the Manufacturing PMI, the Services PMI, and the Composite PMI (a weighted combination of the two), and covers a wide range of aspects, from production or export activity to capacity utilisation, employment, and inventory levels.

PMI numbers indicate sector expansion when above 50 and contraction otherwise.

July’s figures highlighted a sharp improvement in business activity, as the S&P Global Composite PMI jumped to 54.5 from June’s 51.9, beating market expectations and recording its best performance since October 2025. Nevertheless, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, warned that manufacturing activity slowed down, weighed down by supplier delays due to the Middle East conflict.

What can we expect from the August S&P Global PMI report?

For August, the market consensus anticipates a mild slowdown in economic activity, with the Manufacturing PMI ticking down to 53.8 from July’s 53.9 reading and the Services PMI easing to 54.0 from last month’s 54.6.

Barring a significant miss, August figures will still highlight healthy growth in both the manufacturing and services sectors, especially if compared with most developed economies. In general terms, PMI data from July and August is likely to remain consistent with steady GDP growth and endorse the view of US economic exceptionalism amid a struggling global economy. 

July’s report warned that some of the improvements seen in the last month would prove short-lived, as the gain in hospitality spend was mostly due to special, one-off events such as the World Cup while upside price pressures threaten to weaken demand and constrain growth.

In that sense, a sharper-than-expected slowdown is likely to increase investors’ concerns about the economic outlook, triggered by the disappointing US Nonfarm Payrolls report seen earlier in the month. This would add bearish pressure to an already weak US Dollar, which has been hammered this week by the US Treasury’s plan to increase its purchases of long-term Government debt to stem the bond crisis.   

A positive surprise, on the contrary, is likely to improve confidence in the US economy, although the impact on the US Dollar will likely remain limited, unless there is a sharp deviation from market expectations.

When will the August flash US S&P Global PMIs be released, and how could they affect EUR/USD?

The S&P Global Manufacturing, Services, and Composite PMIs report will be released at 13:45 GMT and is expected to show a moderate slowdown in US business activity. 

Earlier on the day, the Eurozone’s HCOB Flash PMIs beat expectations, as manufacturing activity expanded at a faster pace than anticipated and Services PMI kept growing at a steady pace, although at levels consistent with slow growth. The data had a moderately positive impact on the EUR/USD.

EUR/USD Daily Chart

Guillermo Alcalá, FX analyst at FXStreet, observes the EUR/USD technical picture showing a solid bullish momentum after breaching the top of the last two months' trading range, and the key 200-day Simple Moving Average (SMA), at 1.1630, a very popular indicator for FX traders. The Relative Strength Index (RSI), however, highlights heavily overbought levels in most timeframes, which should act as a warning for buyers. 

A confirmation above the late May highs at 1.1685 would clear the path towards the 1.1800 resistance area, which capped bulls several times in early May. Failure to breach 1.1685, on the other hand, would bring the mentioned 200-day SMA back into focus.

TD Securities’ Ryan McKay and Bart Melek note that Gold and broader precious metals are trading in a higher range that could trigger another round of CTA (Commodity Trading Advisors) buying. Their scenario analysis shows upside asymmetry for Gold into next week, supported by Treasury efforts at the long end and a Federal Reserve willing to look past higher energy prices, though 2027 rate hike pricing keeps them cautious.

CTA triggers approach for Gold

"Precious metal pricing moves closer to another round of CTA buying, and pricing simulations highlight upside asymmetry across the complex into next week."

"CTAs test precious metal upside into weekend. While the barrage of recent flows has notably slowed, and interest rates have cast doubt on the feasibility of the Treasury's liquidity plans, gold and precious metals are likely to find comfort in this higher range."

"The signal of the Treasury looking to support the longer end may offer enough support on its own, alongside a Fed willing to look past higher energy prices."

"Top SHFE traders have also been strongly back on the bid in gold in recent days, while Chinese ETF inflows have recovered after a brief spell of outflow."

"However, with the market still pricing in hikes for 2027, we remain cautious regarding expectations for the next leg higher in gold, which may require the broader market to become more convinced that the Fed remains on hold."

"Prices are now closer to new buying triggers across the complex, and our pricing scenarios for gold, silver and platinum point to notable upside asymmetry for CTA positioning in a flat to uptape price path through next week."

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