Forex News

Deutsche Bank’s Mark Wall and colleagues say the European Central Bank delivered a 25bp hike to 2.50% in September, with President Lagarde describing it as a no‑brainer. They argue the tone remains hawkish, with core inflation projected above target and policy likely shifting into mildly restrictive territory, supporting their call for another hike to a 2.75% terminal rate in December.

Lagarde balances hawkish tone and data

"As expected, the ECB hiked 25bp to 2.50% in September. President Lagarde called the decision a “no-brainer”. The September policy announcement had hawkish and not as hawkish elements. Overall, the message and tone are consistent with our call that the ECB hikes again to a terminal rate of 2.75% in December."

"Core inflation is projected to be 30bp above target at the end of the forecast horizon, implying the tightening cycle is not over yet. The comment about inflation being “well above target for an extended period” implies persistence. Within the ECB’s policy framework, this is consistent with a move away from a “measured” response towards a more “forceful” response. That is, a rising willingness to hike above neutral into mildly restrictive territory."

"At the same time, President Lagarde didn’t want to feed the market’s already hawkish pricing. When asked, Lagarde would not repeat what she said in July about the market understanding the ECB reaction function. Moreover, Lagarde said the Governing Council was not taking a view on the direction of policy going forward. We are inclined to interpret both comments as Lagarde sticking more closely to the ECB’s “data-dependent, meeting by meeting, no precommitment” mantra. Neither rules out a hike to 2.75% in December."

"The risks are two-sided. On the one side, if the data weakens, it’s possible the ECB stops at 2.50%. But the onus is now on the data to weaken quickly to stop the ECB hiking again. It’s not impossible. High energy prices could trigger demand destruction. It’s a question of how much and when. On the other side, further hikes feel difficult when there is no evidence of second round effects and no compelling evidence of indirect effects. But if growth remains resilient, neutral rates rise and energy prices remain elevated, maybe rates do rise to 3%+."

(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 notes the US Dollar (USD) is supported by recent risk aversion and a modestly hawkish Federal Reserve (Fed) repricing after US August Producer Price Index (PPI), but stresses that August Consumer Price Index (CPI) will be decisive for next week’s Fed meeting. A hot CPI would seal a hike and support the Dollar, while a cool print favors a hold and downside via dovish repricing. Even with a hike, Haddad doubts USD can make new cyclical highs as other central banks also tighten.

CPI outcome to steer Fed expectations

"USD is holding on to yesterday’s gains, triggered by oil-driven risk aversion and a brief hawkish Fed repricing after the US August PPI. PPI was broadly in line with expectations, but a few components feeding into PCE ran hot."

"Regardless, today’s pivotal August CPI report will be the main arbiter of next week’s Fed decision. Fed funds futures price in 68% odds of a 25bps hike to 3.75-4.00% on September 16."

"As such, a hot CPI print would all but seal a September hike and underpin a firmer USD. A cooler reading would strengthen the case for a hold and leave USD vulnerable to a dovish Fed repricing."

"More importantly, even if a September Fed hike becomes a done deal, we doubt USD will make new cyclical highs because tightening by other major central banks limits policy divergence."

"Risks around the US August CPI print are finely balanced, setting the stage for an exceptionally volatile market reaction. The August pick-up in the ISM Prices Paid index suggests upside inflation risks have yet to recede."

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

• The Australian Dollar advances on Friday as markets strengthen expectations of further interest rate hikes in Australia.
• Investors see a 72% chance of a rate hike at the Australian central bank’s next meeting.
• Stronger-than-expected producer inflation in the US keeps Fed tightening expectations elevated ahead of CPI data.

AUD/USD advances 0.17% on Friday and trades around 0.7170 at the time of writing. The Australian Dollar (AUD) benefits mainly from growing expectations of further interest rate hikes by the Reserve Bank of Australia (RBA), following a series of hawkish comments from central bank officials.

RBA Assistant Governor Sarah Hunter said on Tuesday that the central bank may need to raise interest rates again if inflation proves more persistent than expected. Her comments therefore keep the possibility of another rate hike at the September meeting alive.

RBA Deputy Governor Andrew Hauser also struck a hawkish tone, saying that inflation remains “one big problem” for the Australian economy. He added that the central bank stands ready to raise interest rates further if such action becomes necessary.

Against this backdrop, markets now see a 72% chance that the RBA will raise its Official Cash Rate (OCR) to 4.6% at its next meeting, up from 54% at the beginning of the month, according to the RBA Rate Tracker. This repricing of the interest rate outlook supports the Australian Dollar and contributes to the advance in AUD/USD.

On the US side, the Producer Price Index (PPI) rose 5.4% YoY in August, up from 4.8% previously and slightly above the 5.3% market consensus, according to data released on Thursday by the Bureau of Labor Statistics (BLS). On a monthly basis, the PPI increased 0.4%, in line with expectations, while the core index rose 0.2%, slightly less than forecast.

The firmer inflation data also reinforce expectations of monetary tightening in the United States (US). According to the CME FedWatch tool, markets see a near 70% chance of a 25-basis-point interest rate hike by the Federal Reserve (Fed) at its next meeting.

Attention now turns to the US Consumer Price Index (CPI), due later on Friday, the final major inflation release before the Fed’s monetary policy decision next week. Markets expect the headline index to rise 3.4% YoY in August, while core inflation is forecast to increase 2.4%. A surprise in the data could alter US interest rate expectations and determine the next directional move in AUD/USD.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7171, holding a capped tone as it remains below both the 100-period and 200-period simple moving averages (SMAs) at 0.7206 and 0.7192 respectively. The pair is attempting to stabilize after breaking above a descending channel, now offering a resistance line around 0.7162, yet the sub-50 reading of the 14-period Relative Strength Index near 46 still hints at only modest upside momentum while broader pressure persists underneath the clustered moving-average ceiling.

On the topside, immediate resistance emerges at 0.7176, where a horizontal barrier precedes the 200-period SMA at 0.7192 and the higher 100-period SMA near 0.7206, collectively forming a dense supply zone that would need to give way to ease the current cap. On the downside, initial support is seen at the reclaimed trend line around 0.7162, with a more important floor at the horizontal level of 0.7150, where a break lower would likely reopen the path toward deeper hourly losses.

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

Swiss National Bank Chairman Martin Schlegel said during the European trading session on Friday that the Swiss Franc exchange rate has been a challenge for the Swiss economy. However, headed that the real Franc has been stable since 2020.

Additional remarks

Inflation has gone up in recent months, but is staying in price stability range.

High energy prices bear risk of higher prices elsewhere.

We support UBS capital proposals of the Swiss government as they address problems of Credit Suisse crisis.

Market reaction

No impact of SNB Schlegel's comments was seen on the Swiss Franc (CHF). At press time, USD/CHF trades 0.3% higher at around 0.8155.

• USD/CHF rallies above 0.8150, on track for a nearly 0.7% appreciation this week.
• Higher yields and rising bets on Fed rate hikes are supporting the US Dollar.
• US CPI data, due later in the day, will be carefully analysed for further insight about the outcome of next week's Fed decision.

The Swiss Franc extends losses for the sixth consecutive day against the US Dollar on Friday, nearing one-and-a-half-month lows at the mid-0.8100s. The USD/CHF pair has rallied nearly 0.7% in the last two days as US data fed into Federal Reserve (Fed) rate hikes, boosting the monetary policy divergence with the Swiss National Bank (SNB) and with surging global yields dampening risk appetite.

US data released on Thursday revealed that the Producer Price Index (PPI) accelerated to a 5.4% year-on-year (Y-o-Y) rate in August, from 4.8% in July, while the Core PPI rose to 4.6% Y-o-Y from 4.3% in the previous month. These figures prompted investors to raise their bets on a quarter-point Fed hike next week to a nearly 70% chance, from below 60% last week, according to figures from the CME’s FedWatch Tool.

The focus on Friday is on the US Consumer Price Index (CPI), the latest major macroeconomic release ahead of next week's Federal Open Market Committee (FOMC) meeting. Consumer inflation is expected to show a more moderate uptrend than Thursday's PPI, with yearly inflation accelerating 0.4% in August from July's 0.1%, but with the yearly rate steady at 3.4%, well above the Fed's 2% target.

Dollar tracks back-end yields as modest Treasury buybacks support correlation

Beyond that, ING strategist Francesco Pesole observes that the Dollar is “tentatively re-establishing a positive correlation with long-end yields,” a move they link to the “smaller-than-expected $6bn Treasury buyback announcement, which ultimately translated into an even smaller $5.19bn operation yesterday.” ING experts argue that US Treasury Secretary Scott Bessent’s apparent “reluctance to pick a fight with the bond market through oversized intervention remains a necessary condition for that positive USD-back-end rates correlation to regain its footing.”

Regarding the US CPI reading, Pesole sees USD risks skewed to the upside: “Oil may prove the deciding factor, having rallied around 15% since then.” Against this background, “a softer CPI print could weigh on the dollar,” says Pesole, who warns that it “may not be enough to push September hike pricing below 50%, a level we suspect would be sufficient to bring any unconvinced FOMC members on board.”

In Switzerland, the calendar was thin this week, but last week's releases showed strong retail consumption and consumer inflation levels and an upbeat Gross Domestic Product (GDP) growth in im the second quarter. These figures, however, do not alter the view that the SNB will keep interest rates at 0% this year and well into the next, which keeps the Swiss Frank on the defensive against most of its main peers.

United Overseas Bank (UOB) strategists Quek Ser Leang and Lee Sue Ann report that GBP/USD’s sharp drop to 1.3493 looks stretched short term, favouring consolidation between 1.3495 and 1.3535 intraday. On a one-to-three-week horizon, however, building downside momentum means a close below 1.3495 would likely open the way to 1.3475, while resistance is now clustered near 1.3560.

Consolidation now but risks lower

"24-HOUR VIEW: Yesterday, we indicated that GBP “could trade between 1.3520 and 1.3570.” GBP then edged to a high of 1.3559 but during the NY session, it fell sharply to 1.3493. The sharp drop appears to be overdone, and instead of continuing to decline, GBP is more likely to consolidate between1.3495 and 1.3535."

"1-3 WEEKS VIEW: Tracking our neutral view from late last week, we highlighted the following yesterday: “Although GBP has been edging higher over the past few days, there has been no significant increase in upward momentum. We continue to hold a neutral stance, but a narrower range of 1.3495/1.3590 is likely enough to contain the price movements for now.” We did not expect GBP to then fall and test the 1.3495 level with a low of 1.3493. Downward momentum is starting to build, and if GBP closes below 1.3495, it will then likely break the next support at 1.3475 as well. The downward momentum will continue to build as long as GBP holds below 1.3560 (‘strong resistance’ level)."

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

• AUD/JPY trades around 110.50 on Friday, little changed on the day.
• Hawkish comments from RBA officials strengthen expectations of further interest-rate hikes.
• The Japanese Yen benefits from prospects of monetary tightening following elevated producer price data.

AUD/JPY trades around 110.50 on Friday at the time of writing, posting a modest 0.04% decline on the day. The pair remains broadly stable as both the Australian Dollar (AUD) and the Japanese Yen (JPY) benefit from growing expectations of monetary tightening by their respective central banks.

Australia's economic calendar remains empty on Friday, leaving investors focused on recent hawkish comments from Reserve Bank of Australia (RBA) officials. These remarks have strengthened expectations of higher interest rates, with markets now pricing in around 50 basis points of additional tightening by the end of 2027, which would bring the policy rate to around 4.85%, its highest level since 2008.

RBA Assistant Governor Sarah Hunter said on Tuesday that the central bank may need to raise interest rates again if inflation proves more persistent than expected. Her comments keep alive the possibility of another rate hike at the September meeting.

RBA Deputy Governor Andrew Hauser also struck a hawkish tone, saying that inflation remains "one big problem" for the Australian economy. Hauser added that the central bank stands ready to raise interest rates further if it believes such action is necessary.

Against this backdrop, markets now see a 72% chance that the RBA will raise its Official Cash Rate (OCR) to 4.6% at its next meeting, up from 54% at the start of the month, according to the RBA Rate Tracker. These expectations could help limit downside pressure on the Australian Dollar.

On the Japanese side, data released on Friday also strengthen the case for further monetary tightening by the Bank of Japan (BoJ). The Producer Price Index (PPI) rose 7.6% YoY in August, following a 7.7% increase in July and exceeding market expectations for a sharper slowdown to 7.4%.

The Japanese Yen therefore remains supported by growing expectations of more aggressive monetary tightening from the BoJ. The ongoing unwinding of carry trades and increased capital repatriation also provide support to the Japanese currency.

However, the JPY's upside potential remains limited by the sharp rise in Oil prices. The persistent conflict between the United States (US) and Iran, with no signs of de-escalation, keeps global inflation risks elevated and weighs on broader market sentiment.

AUD/JPY technical analysis

In the daily chart, AUD/JPY trades at 110.49, maintaining a bearish near-term tone as price holds under both the 200-day simple moving average (SMA) at 110.92 and the 100-day SMA at 113.05. This stack of overhead averages suggests rallies are likely to face supply, while the Relative Strength Index (14) around 31 hints that downside momentum is stretched but not yet in outright oversold reversal territory.

On the downside, initial support is seen at the recent horizontal floor near 109.24, ahead of a stronger base around 107.70 if selling pressure resumes. On the topside, the 200-day SMA at 110.92 is the first barrier that bulls would need to reclaim to ease immediate pressure, with further resistance aligning at the 100-day SMA near 113.05 and then the more distant horizontal cap around 115.00.

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

ING analysts David Havrlant and Frantisek Taborsky say the Czech market is being driven mainly by global factors and high energy prices, but EUR/CZK still reacts to Czech National Bank (CNB) meetings and guidance. They note that a narrowed interest-rate differential remains the best guide for EUR/CZK and see scope for further koruna losses if rate-hike expectations are pared back.

Koruna pressured by rates and energy

"Despite the rise in CZK rates, the interest-rate differential has narrowed and remains the best guide to EUR/CZK. Dovish signals from policymakers, alongside market pricing of roughly 100bp of tightening, have weakened the koruna in September, with scope for further losses."

"We expect EUR/CZK to enter next week’s meeting near 24.30. If the press conference confirms our view that a rate hike is not currently under consideration, the pair could move higher as hike expectations are pared back and oil and gas prices continue to rise."

"Rates remain the key focus, but energy prices are still the main driver, while the CNB’s impact is likely to be temporary. After some easing in market pricing over the summer, recent sessions have brought renewed selling, in line with moves in core markets."

"With the CNB having already raised rates in June and the board signalling no urgency to tighten again, we expect some reduction in hike expectations at the front end. However, in the current environment, pricing is unlikely to fall below three hikes."

"The long end should remain under pressure from higher core yields and a larger-than-expected fiscal deficit planned for next year. Overall, we expect the curve, currently among the flattest globally, to steepen."

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

• XAU/USD picks up from lows near $4,300 but is failing to find acceptance above $4,350.
• High energy prices and rising hopes of a Fed rate hike keep precious metals under pressure.
• Gold is hovering right above the neckline of a nearish H&S pattern.

Gold (XAU/USD) nudges higher on Friday, as the US Dollar’s (USD) recovery stalls ahead of the US Consumer Price Index (CPI) release, due later in the day. The precious metal, however, is struggling to return above a previous support area around $4,350, which leaves the key support area around $4,300 exposed.

Bullion rallies remain subdued amid high Oil prices, with both Brent Crude and WTI trading at their highest levels since May, boosting global inflation and forcing central banks to tighten their monetary policies. 

In the US, Producer Price Index (PPI) data released on Thursday confirmed market expectations of an acceleration to a 5.4% year-on-year (Y-o-Y) rate in August, from 4.8% in July. Likewise, the Core PPI rose to 4.6% Y-o-Y from 4.3% in the previous month. Investors have ramped up their bets on a Federal Reserve (Fed) rate hike next week, and the focus shifts now to the US Consumer Price Index (CPI) release, due later today, which will be carefully analysed to confirm those hopes.

Technical Analysis: Hovering above the neckline of a bearish H&S pattern

XAU/USD trades at $4,344, retaining a mildly bearish near-term bias as it clings to the neckline of a bearish Head & Shoulders (H&S) pattern. Momentum indicators in the daily chart hint at moderate, but gradually growing bearish pressure as the Relative Strength Index (RSI) treads further below the key 50 level and the Moving Average Convergence Divergence (MACD) extends within negative levels.

Thursday's recovery attempt is struggling to extend beyond the September 8 and 9 lows in the $4,350 area, which closes the path towards Thursday's highs near, and the more strategic area around the 200-day SMA at $4,538.

A bearish reaction below September's trading floor, at $4,282, on the contrary, would activate the H&S pattern and increase pressure towards the August 6 low, near $4,220. The H&S's measured target lies just below the year-to-date lows in the $3,940 area.

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

Silver prices (XAG/USD) rose on Friday, according to FXStreet data. Silver trades at $64.04 per troy ounce, up 0.72% from the $63.58 it cost on Thursday.

Silver prices have decreased by 9.91% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 67.85 on Friday, broadly unchanged from 67.91 on Thursday.

(An automation tool was used in creating this post.)