Forex News
ING’s EMEA FX & FI Strategist Frantisek Taborsky highlights that stronger regional hawkish repricing has not prevented rate differentials from narrowing or staying flat, leaving Central and Eastern European (CEE) currencies vulnerable as the Dollar rallies and global energy prices rebound. He maintains a bearish bias on regional FX, expecting further weakness, with the Polish Zloty likely to underperform given the central bank’s relatively dovish stance.
Bearish bias on regional currencies
"A new day brings a new direction for the markets. Market sentiment shifted again yesterday, and we saw a strong hawkish repricing across the region; rates across the region and along the curve returned to previous highs."
"Despite higher regional rates, we observe that rate differentials are actually narrowing or remaining stable. This is currently insufficient to stabilise FX, while the US dollar continues to rally."
"Coupled with a rebound in global energy prices, this creates an overall negative environment for CEE currencies."
"We therefore maintain a bearish bias and anticipate further regional weakness, with the PLN likely to underperform in this environment given the central bank's dovish stance relative to its peers."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- EUR/USD languishes at 1.1385 after nearly 2% depreciation over the last two weeks.
- Strong US data, rising Fed tightening bets, and higher Oil prices are crushing the Euro.
- Commerzbank experts expect the US Dollar to keep rallying in coming weeks.
The Euro (EUR) licks its wounds against the US Dollar (USD) on Thursday, trading around 1.1380, near the lowest level of the last two months, after falling nearly 2% in less than two weeks. A strong US Purchasing Managers' Index (PMI) report on Wednesday, higher US Treasury yields and the rebound in crude oil prices are posing a perfect storm for the Euro.
Preliminary US S&P PMI figures released on Wednesday showed that business activity grew at its strongest pace in more than five years, with jobs and wages rising fast and input prices surging amid higher energy costs,
These figures raised concerns that the US economy might be overheating, and provided additional reasons for the Federal Reserve (Fed) to tighten its monetary policy further in the coming months. Fed Governor Michael Barr confirmed those views later on Wednesday, assessing that “further rate hikes are likely needed to ensure timely return to the 2% inflation.”
Beyond that, a five-year US Treasury auction met poor demand on Wednesday, which sent yields surging to long-term highs. The yield for the benchmark 10-year note crossed above the critical 5% level to reach its highest levels in 19 years at 5.135%, increasing support for the US Dollar
Oil prices pose additional pressure on the Euro
If this was not enough, Oil prices have appreciated about 5% from Tuesday’s lows, with Brent Oil trading at $98.50 at the time of writing, drawing closer to the key $100 level and adding pressure on the Eurozone’s economic growth and inflation.
Analysts at Commerzbank expect this trend to extend as “strong economic performance in the US therefore continues to support the US dollar, at least for the coming weeks.” “Labor market report and US inflation figures for September, in particular, will be the focus of attention in the coming weeks,” say the Commerzbank experts, assessing that “unless these figures turn out to be unexpectedly weak, the market will likely maintain high expectations for the Fed, thereby continuing to support the US dollar.”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Commerzbank’s Antje Praefcke expects the Riksbank to leave its policy rate at 1.75% while continuing to signal a possible hike by year-end. Despite very low current inflation, projections show price pressures rising again as temporary tax cuts expire and energy prices stay high. She sees only minor changes to guidance and today’s decision as broadly neutral for Swedish Krona (SEK).
Low inflation but tightening still signalled
"The Riksbank is also expected to keep its policy rate unchanged at 1.75% today, while continuing to signal that a rate hike is possible by the end of the year. Although August’s inflation figures showed very low price pressure, with a headline rate of +0.3% yoy and a core rate of +0.7%. "
"The halving of the value-added tax on food is one of several temporary fiscal policy measures that will initially curb inflation and then allow it to rise again once the measure expires. In addition, the appreciation of the krona in 2025 is currently having a dampening effect on prices."
"However, energy prices - which have been elevated for several months now - will, on the one hand, cause inflation to rise directly and, on the other hand, indirectly drive up the prices of imported goods and other commodities. Finally, the krona’s depreciation since the beginning of the year is also likely to be reflected in prices in the coming months."
"I therefore expect that the Riksbank will make only minor adjustments to its statements and projections today, while maintaining its restrictive stance. Overall, today’s interest rate decision is likely to be neutral for the SEK. At one point, I could have imagined a delay in the expected tightening - that is, pushing it back into next year - but given the persistently high energy prices and the associated price risks, this is now unlikely."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/CAD posts modest gains near 1.4100 in Thursday’s early European session.
- Traders now see a nearly 69.7% chance of another increase when the Fed next meets in October.
- The constructive view of the pair prevails above the 100-day SMA, with bullish RSI momentum.
- The first upside target to watch is 1.4115; the initial support level emerges at 1.3960.
The USD/CAD pair trades in positive territory around 1.4100 during the early European trading hours on Thursday. The US Dollar (USD) edges higher against the Canadian Dollar (CAD) as stronger US Manufacturing Purchasing Managers Index (PMI) data reignited inflation fears and reinforced US rate-hike bets. Traders will take more cues from the Fedspeak later in the day.
According to the US S&P Global flash PMI released on Wednesday, the Composite PMI climbed to 58.4 in September from 56.0 in August. Additionally, the Manufacturing PMI rose to 57.0 in September, versus 53.9 prior, above the market consensus of 53.5. The Services PMI improved to 58.7 in September, compared to 56.5 in August, better than the forecast of 56.0.
"Given the relative strength of US growth and increasingly aggressive Fed rate-hike pricing, the US dollar continues to stand firm in its attraction to own," said Chris Weston, head of research at Pepperstone.
Markets are now pricing in roughly a 69.7% odds that the US Federal Reserve (Fed) would hike rates by a quarter percentage point in October, up from 48.7% one week ago, according to the CME FedWatch tool.
Meanwhile, crude oil prices fall amid hopes for diplomatic progress between the US and Iran. Iran said on Wednesday that it remained open to diplomacy to end the US-Iran conflicts, though the two countries remain far apart on ways to do so, per Reuters. It is worth noting that Canada is a major oil-exporting country, and low crude oil prices generally have a negative impact on the CAD.
BoC tone unchanged as Macklem keeps door open to tighter policy
Strategists at Scotiabank note that BoC Governor Tiff Macklem’s latest remarks left the policy narrative largely intact, with “comments yesterday [that] did not advance the interest rate debate to any degree.” According to the bank, his guidance was “broadly consistent with the tone of the latest policy statement which balanced trade tensions against sticky price pressures,” reinforcing the sense of continuity in the BoC’s communication.
Scotiabank adds that “the door to tighter policy remains open but we may have to wait for the October policy decision to get a clearer sense of the rate outlook.” While they acknowledge that “a lower CAD will add to inflation risk at the margin,” they also stress that “CAD losses since early September have not been all that significant and the Bank generally views the FX pass through (to inflation) as lagging and limited.” Together, these points suggest policymakers remain alert to currency-driven price pressures but are in no rush to signal a decisive shift ahead of the next meeting.
Fed’s Barr flags more hikes as inflation risks rise, supporting Dollar upside
Fed’s Barr delivered a notably hawkish message, with an FXS Speechtracker score of 8/10, stronger relative to the historical average of 7/10. The emphasis that “further rate hikes [are] likely needed” and that risks to achieving 2% inflation have increased, while labor market risks have receded, underscores a clear bias toward tighter policy and supports Dollar strength. Acknowledging that the Fed was “out of position” and needed to recalibrate policy, alongside strong growth and a solid labor market, reinforces the narrative that the policy stance may still be too loose for the inflation objective.
The FXS Fed Sentiment Index rose by 0.42 points to 148.81, signaling a modest but meaningful hawkish shift in aggregate Fed communication. With the index well above the neutral 100 mark, this speech contributes to keeping the Fed firmly in hawkish territory, aligning with the elevated FXS Speechtracker score and underpinning expectations for further policy tightening.
Technical Analysis: USD/CAD retains a positive outlook above the 100-day SMA
In the daily chart, USD/CAD maintains a bullish near-term bias as price holds above the 100-day Moving Average (MA) and the Bollinger Bands 20-period middle simple moving average (SMA). The pair is now pressing toward the upper Bollinger band, while the Relative Strength Index (14) near 69 suggests strong but increasingly stretched upside momentum, hinting that the advance could be vulnerable to consolidation or a minor pullback.
On the topside, immediate resistance level is located at the Bollinger upper band at 1.4115. A sustained break above this ceiling likely to extend the bullish phase to the June 24 high of 1.4248.
On the downside, initial support is seen at the 100-day MA at 1.3960, followed by the Bollinger middle band at 1.3915. A deeper weakness would expose the lower Bollinger band support around 1.3715.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
Deutsche Bank notes a broad setback in global equities, with the S&P 500, NASDAQ and Russell 2000 all posting notable declines despite stronger growth data. European benchmarks such as the STOXX 600, DAX and CAC 40 also retreated, while Asian markets including Hang Seng, CSI 300, Shanghai Comp and S&P/ASX 200 weakened. Only the Nikkei advanced, largely on a catch-up move.
Global stock indices face broad losses
"All that put a lot of pressure on equities, even though the growth data surprised on the upside. So the S&P 500 (-0.75%) posted its biggest decline in a month, with all the major sector groups apart from energy (+1.04%) losing ground."
"The NASDAQ (-1.13%) and the small-cap Russell 2000 (-1.77%) saw even larger falls."
"Meanwhile in Europe, the STOXX 600 (-0.44%) also saw a pullback, alongside declines for the DAX (-0.66%) and the CAC 40 (-0.39%) as well."
"So equities have also struggled, with losses for the Hang Seng (-0.52%), the CSI 300 (-1.29%), the Shanghai Comp (-0.93%) and the S&P/ASX 200 (-0.80%)."
"The main exception has been the Nikkei (+0.94%) although that reflects a catch-up after the index has been closed for the previous three days."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Commerzbank’s Michael Pfister highlights notable Swiss Franc weakness since July, with EUR/CHF approaching 0.95 as markets price more European Central Bank (ECB) tightening than from the Swiss National Bank (SNB). He argues the SNB is likely comfortable with higher EUR/CHF and will keep guidance largely unchanged. Expectations between Euro area and Switzerland cannot diverge much further, suggesting EUR/CHF upside may slow around 0.95.
SNB likely comfortable with weaker Franc
"Since the beginning of July, the Swiss franc has weakened considerably; EUR/CHF has risen steadily from around 0.92 to occasionally approach 0.95. The reason for this is fairly obvious: the price of oil has risen significantly and expectations regarding the ECB have continued to increase. But the market has not priced in a similar degree of tightening from the SNB. Consequently, the expected difference in monetary policy tightening by the end of December has more than doubled. This leaves three possible outcomes for today's SNB decision:"
"Do officials see scope to rebuild a buffer for interest rate cuts? This question has been circulating for some time. Proponents essentially argue that now might be the time to raise interest rates so that there is scope for rate cuts again in the event of another crisis. While this may sound reasonable, the SNB’s interest rate cuts from 1.75% to 0% in recent years have had virtually no effect. Each rate cut has briefly weakened the franc on the day of the meeting, only for it to resume its appreciation trend afterwards. One or two interest rate rises are unlikely to achieve a different outcome through rate cuts in the event of a future crisis."
"Are the authorities concerned about the weak franc? In recent years, they have often emphasised that they respond to inflation with interest rate changes and to excessive CHF movements with interventions (and interest rates). Four years ago, they deployed substantial funds to artificially strengthen the franc and thus mitigate imported inflationary pressure. However, times have changed since then, and the SNB no longer seems quite so keen to resort to strong interventions. As inflation remains rather subdued, unlike four years ago, the time for such a shift is probably not yet upon us."
"Is the SNB perhaps simply satisfied with the latest developments? We consider this to be the most realistic assessment. In March, it intervened verbally several times to prevent the franc from appreciating further. Higher EUR/CHF levels are therefore likely to suit it quite well. Furthermore, the SNB is also expected to raise interest rates following the rise in oil prices, though not quite as sharply as the ECB. This suggests that the market believes the SNB is capable of responding to higher inflationary pressures. Even though there have recently been reports that the SNB expects no change in interest rates until the end of 2027, it is probably still too early to revise expectations for the coming year."
"In light of these arguments, we strongly anticipate that the SNB will not introduce any significant changes to its guidance today, merely reiterating the risks. But, it should be clear that expectations between the euro area and Switzerland cannot diverge much further. In other words, at levels around 0.95, EUR/CHF is likely to start slowing down, as we have already seen in recent days."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Forex Market News
Our dedicated focus on forex news and insights empowers you to capitalise on investment opportunities in the dynamic FX market. The forex landscape is ever-evolving, characterised by continuous exchange rate fluctuations shaped by vast influential factors. From economic data releases to geopolitical developments, these events can sway market sentiment and drive substantial movements in currency valuations.
At Rakuten Securities Hong Kong, we prioritise delivering timely and accurate forex news updates sourced from reputable platforms like FXStreet. This ensures you stay informed about crucial market developments, enabling informed decision-making and proactive strategy adjustments. Whether you’re monitoring forex forecasts, analysing trading perspectives, or seeking to capitalise on emerging trends, our comprehensive approach equips you with the insights needed to navigate the FX market effectively.
Stay ahead with our comprehensive forex news coverage, designed to keep you informed and prepared to seize profitable opportunities in the dynamic world of forex trading.
