Forex News
- EUR/USD hovers near a two-month low as hawkish Fed expectations favour the US Dollar.
- Markets raise bets on an October Fed rate hike after resilient US economic data.
- The Euro struggles despite upbeat German Ifo figures and expectations of more ECB tightening.
EUR/USD hovers near a two-month low on Thursday as expectations of another Federal Reserve (Fed) interest-rate hike keep the US Dollar (USD) firmly supported. At the time of writing, the pair trades around 1.1372, remaining on the back foot for a fourth consecutive day.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.27 after touching an intraday high of 101.35, its highest level since July 29.
Markets see a growing chance that the Fed will raise interest rates again in October after delivering a 25-basis-point (bps) increase last week. Wednesday’s strong US PMI data and hawkish remarks from Fed officials have strengthened these expectations, with the CME FedWatch Tool placing the probability of a rate hike at around 65%, up from 55% a week ago.
US labour-market figures released on Thursday showed that Initial Jobless Claims edged higher to 197K from 196K previously but came in below market expectations of 201K.
Cleveland Fed President Beth Hammack reinforced the focus on inflation, saying, “Price stability is the responsibility of central banks.” She noted that “supply shocks are a notable challenge for Fed policy right now” and warned that “the longer inflation remains high, the harder it is to bring it back to target.”
The hawkish repricing, combined with higher inflation expectations linked to elevated Oil prices, has pushed US Treasury yields to multi-year highs. The benchmark 10-year yield trades around 5.10%, after hitting 5.15%, its highest level since 2007. Elevated yields support the US Dollar by increasing the appeal of US-denominated assets.
Across the Atlantic, stronger-than-expected German Ifo data released earlier on Thursday lends some support to the Euro (EUR), but broad US Dollar strength keeps the currency under pressure even as markets expect additional European Central Bank (ECB) rate hikes.
ECB Policymaker Dimitar Radev said the central bank should give its previous decisions time to work and stressed that the latest rate increase “doesn’t put us on a predetermined path.” He added that policymakers are “not seeing broad-based second-round effects,” although inflation risks are tilted to the upside and growth risks to the downside.
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.
- The Australian Dollar recovers most of its losses after stronger-than-expected job creation in August.
- Australia's Unemployment Rate rose to 4.6%, limiting the positive impact of the employment report.
- Rising US Treasury yields support the US Dollar, while investors await the meeting between Donald Trump and Xi Jinping.
AUD/USD trims its losses on Thursday and trades around 0.7030 at the time of writing, down 0.15% on the day. The Australian Dollar (AUD) rebounds slightly after facing stronger selling pressure earlier in the day, supported by broadly solid Australian employment data, but remains in loss for the day as the US Dollar (USD) firms.
The Australian economy created 39.5K jobs in August, well above the 20K increase expected by markets. However, the improvement in employment was accompanied by an increase in the Unemployment Rate to 4.6%, compared with expectations and the previous reading of 4.5%.
The strength of job creation could reinforce the case for a restrictive monetary policy stance from the Reserve Bank of Australia (RBA), as a resilient labor market could keep inflationary pressures elevated and limit the central bank's room to ease policy.
The US Dollar (USD), however, continues to receive significant support from the bond market. The 10-year US Treasury yield rose to 5.15% earlier in the day, its highest level in 19 years, helping sustain demand for the Greenback and preventing AUD/USD from fully erasing its losses.
The latest US data also provides little support for a rapid easing of monetary policy. Initial Jobless Claims fell to 197K in the week ending September 19, below the 201K expected and the previous week's revised 198K. Continuing Jobless Claims edged higher to 1.719M.
Meanwhile, Bank of Cleveland Federal Reserve (Fed) President Beth Hammack said on Thursday that US inflation remains elevated while demand and economic activity remain solid. The policymaker sees inflation risks as tilted to the upside and warns that the longer price pressures persist, the more difficult it could become to return inflation toward the central bank's target.
Investors now turn their attention to Thursday's meeting between US President Donald Trump and Chinese President Xi Jinping. Discussions are expected to cover trade, Artificial Intelligence (AI), technology, Taiwan and Middle East energy supplies. US-China trade relations remain particularly relevant for the Australian Dollar due to Australia's close economic ties with China.
AUD/USD technical analysis
In the one-hour chart, AUD/USD trades at 0.7022, keeping a bearish near-term tone as the pair holds beneath the 100-period simple moving average (SMA) at 0.7094 and the 200-period SMA at 0.7108. The dense overhead structure between 0.7075 and 0.7108 suggests rallies are likely to be capped for now, while the 14-period Relative Strength Index (RSI) at 33.7 hovers just above oversold territory, hinting at persistent, but not extreme, selling pressure.
On the downside, immediate support emerges at 0.7018, ahead of a lower horizontal floor at 0.6984, where sellers could pause or book profits. On the topside, initial resistance is seen at 0.7075, followed by the 100-period SMA at 0.7094 and the 0.7105 barrier, with the 200-period SMA at 0.7108 and the higher resistance at 0.7140 forming a broader cap that AUD/USD would need to reclaim to ease the current bearish bias.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
- BoE’s Sarah Breeden says a path toward lower energy prices is far from certain.
- The indirect pass-through from higher energy prices has remained limited so far.
- A larger and longer-lasting energy shock would increase the likelihood of a monetary policy response.
Bank of England (BoE) Deputy Governor Sarah Breeden said on Thursday that it is “not at all obvious” that there is a path toward lower energy prices, according to Reuters.
Breeden noted that the indirect pass-through from higher energy prices has remained limited so far, potentially reflecting slack in the United Kingdom (UK) economy. However, she warned that the larger and longer the energy shock persists, the more likely it becomes that monetary policy will need to respond.
The BoE policymaker added that the balance of risks has shifted and that a response from the central bank would become increasingly likely if those risks materialize. She also cautioned that policymakers cannot wait too long for conclusive evidence of second-round effects on prices.
Key takeaways
Not at all obvious that there is a path to lower energy prices.
Indirect pass through of energy price rises limited so far, suggests slack in economy.
The larger and longer the energy shock, the more likely policy will need to respond.
Balance of risks has shifted, if risks crystallise increasingly likely BoE will need to respond.
You can't wait too long for conclusive evidence of 2nd round effects.
I like to focus on what firms say about how they're approaching pricing decisions.
DMP survey, PMI, agents' survey are important for me.
Market reaction
Breeden’s comments have little immediate impact on the British Pound (GBP). GBP/USD remains under downward pressure, losing 0.12% on Thursday to trade around 1.3220 at the time of writing.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Commerzbank’s Thu Lan Nguyen argues that the unanimous Federal Reserve rate hike has temporarily restored its credibility and supported the Dollar, prompting a cut in the EUR/USD year-end forecast to 1.15 from 1.17. While both Fed and ECB are seen delivering one more hike this year, Commerzbank expects subsequent rate expectations to be revised down, ultimately weighing more on the Dollar than the Euro and lifting EUR/USD toward 1.18 by end-2027.
Fed support now, Dollar risk later
"As we expect the Fed to deliver one additional rate increase before year-end, major doubts about the central bank’s credibility are unlikely to resurface in the near term. We have therefore lowered our EUR/USD forecast for year-end from 1.17 to 1.15. Previously, we had expected the Fed to leave rates unchanged."
"For next year, however, we maintain our view that the Fed will not tighten monetary policy as aggressively as markets currently expect. Assuming the crisis in the Middle East gradually subsides, as we anticipate, the current inflation shock should also fade over the course of next year, eliminating the need for further rate hikes. In fact, we see a good chance that the Fed will cut rates by the end of 2027."
"However, we believe market expectations for additional tightening have also gone too far. We expect only one further rate hike in December, followed by unchanged rates through the end of 2027."
"Consequently, the dollar is likely to face pressure not only from a downward revision of US rate expectations, but also from renewed concerns that Fed independence is being undermined by the White House. We therefore expect the dollar to come under greater pressure than the euro in the end, despite likely downward revisions to rate expectations on both sides of the Atlantic."
"Nevertheless, if relations between Iran and the US continue to improve, and energy prices consequently fall sharply, EUR/USD could well come under further downward pressure. However, we would not view any resulting dollar strength as sustainable."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Royal Bank of Canada economist Rachel Battaglia explains that Statistics Canada’s upward revision to population data has erased earlier signs of negative growth and now shows Canada’s population rising 0.5% year-over-year in Q2. The changes soften recent per-capita GDP performance and imply more demographic headwinds ahead, with future GDP and employment growth likely to slow as population gains moderate.
Population revisions alter growth metrics
"The revisions could impact the outlook for measures like total GDP growth, and employment growth too. More modest population declines in recent quarters could mean more aggressive slowdowns in future—impacting GDP growth and employment as both are functions of population growth."
"Still, the broader economic narrative doesn’t materially change. Canadian structural demographic growth headwinds are still significant—Canada’s population no longer looks on track to decline outright for the first time on record in 2026, but the pace of growth is still tracking the smallest increase on record."
"Demographic estimates have been expected to be more revision-prone than usual, and that’s shifted focus to economic indicators that are less impacted by changes in population growth trends as more reliable gauges of the health of the economy. Those measures—like the unemployment rate—are not impacted significantly by population revisions, and have still been showing signs of improvement to-date in 2026."
"It is worth noting that GDP data is also revised regularly, including annual benchmark revisions expected in November."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Hammack says inflation remains elevated as demand and economic activity stay solid.
- The policymaker sees inflation risks as tilted to the upside.
- Persistent price pressures could make inflation increasingly difficult to bring back to target.
Cleveland Federal Reserve (Fed) President Beth Hammack warned on Thursday that inflation remains elevated in the United States (US), stressing that persistent price pressures could make the Fed’s task increasingly difficult.
Speaking on monetary policy, Hammack emphasized that price stability is the responsibility of central banks and noted that inflation remains elevated against a backdrop of solid output and demand, according to Reuters.
The Cleveland Fed President added that risks surrounding inflation are tilted to the upside, while supply shocks currently represent a notable challenge for monetary policy.
Hammack also warned about the consequences of allowing above-target inflation to persist. According to the policymaker, the longer inflation remains elevated, the harder it becomes to bring price growth back toward the central bank’s target.
Fed’s Hammack flags upside inflation risks, keeping Dollar bulls alert
Fed’s Hammack speech scores 7.4/10 on the FXS Speechtracker, a touch softer relative to the historical average of 7.6/10 but still firmly hawkish in tone.
The FXS Fed Sentiment Index slipped by 0.46 points to 148.18, indicating a modest pullback in hawkish intensity versus recent communications. However, with the index still far above the neutral 100 threshold, the Fed remains in clearly hawkish territory despite the slight easing in tone, and the combination of elevated index levels and a strong FXS Speechtracker score continues to underpin a constructive bias for the Dollar.
Market reaction
The US Dollar (USD) shows little reaction to Hammack’s comments, with the US Dollar Index (DXY) maintaining its upward bias on Thursday. The index, which tracks the Greenback against a basket of six major currencies, gains 0.14% on the day to trade around 101.25 at the time of writing. Expectations for further Fed tightening are already elevated, potentially limiting the immediate impact of Hammack’s remarks. According to the CME FedWatch tool, investors now assign a roughly 71% chance to another rate hike at the October meeting, up from around 55% a week earlier.
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.
ING’s Carsten Brzeski highlights that Germany’s IFO index has risen for five consecutive months, pointing to a cyclical rebound and unexpected resilience in the German economy. He notes that fiscal stimulus and recovering order books support activity, but warns that multiple downside risks and political uncertainty mean this is not yet a structural recovery. ING expects German GDP growth around 1% this year.
IFO-led rebound faces structural hurdles
"Almost secretly, the German economy has developed unexpected resilience, with its leading indicator, the Ifo index, now up for the fifth consecutive month. In September, the Ifo index stood at 89.9, up from 88.8 in August, and is now at its highest level in more than a year. And you actually start wondering, “why?”."
"At the same time, though, order books have started to recover in recent months, pointing to some positive momentum in industry. And the billions of euros from the government’s fiscal stimulus on defence and infrastructure have started to trickle down into the economy."
"Looking ahead, there are clear risks posed to the German outlook: the war in the Middle East, which it seems could be slowly turning into a forever war, oil prices remaining at elevated levels, as well as the likely upcoming shock of higher gas prices in the next heating season and renewed trade tensions."
"While there are still clear downside risks to the short-term outlook, the strong first half of the year alone has prepared the economy for its best growth performance since 2022. We currently expect GDP growth of around 1% this year."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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