Last Updated on 14/08/2026
The US Dollar (USD) remains under pressure against major currencies on Friday, although it has managed to limit its decline as investors reassess the Federal Reserve’s (Fed) monetary policy outlook and monitor ongoing developments in the Middle East. In Europe, markets are awaiting second-quarter Gross Domestic Product (GDP) data, while later in the US session, attention will turn to July Retail Sales and the University of Michigan’s preliminary Consumer Sentiment Index.
US economic data released Thursday showed that annual Producer Price Index (PPI) inflation eased to 4.7% in July from 5.5% in June, coming in below the 4.9% market forecast. Meanwhile, the CME FedWatch Tool shows that markets are now pricing roughly a 33% probability of a 25-basis-point Fed rate hike in September, down from around 50% a week earlier. Against this backdrop, the US Dollar Index remains below the 100.00 level during Friday’s European session.
Fed hawkishness remains as August inflation approaches
Commerzbank analysts believe upcoming US economic data will play a crucial role in determining the Fed’s next policy steps, particularly the August inflation figures due shortly before the next Fed meeting. They also pointed to Cleveland Fed President Beth Hammack’s continued hawkish stance. Hammack argues that inflation is unlikely to decline on its own and that the Fed needs to support its rhetoric with concrete action. She has also suggested that a single rate hike would not be sufficient, highlighting that some policymakers remain focused on combating inflation despite recent signs of easing price pressures.
Meanwhile, US Treasury Secretary Scott Bessent said Thursday that Washington plans to introduce measures against Iran that would be unprecedented, while US Defense Secretary Pete Hegseth stated that the US could maintain its blockade of Iran indefinitely. Oil prices reacted higher early Friday, with crude gaining around 1% to trade near $81.30.
Reuters reported Friday, citing three sources familiar with the matter, that the Bank of Japan (BoJ) could raise interest rates as early as September and may accelerate its tightening pace thereafter from its current pattern of roughly two hikes per year. USD/JPY moved lower during the European morning, trading below 159.30.
Yen reaction remains limited despite BoJ tightening expectations
OCBC analysts noted that the Japanese Yen’s response has remained relatively muted despite growing expectations for another BoJ rate increase. If the central bank hikes rates again in September, it would represent its third increase within nine months and the fastest pace of monetary tightening since the collapse of Japan’s asset bubble in 1989. However, OCBC cautioned that uncertainty remains over the government’s willingness to support further rate increases beyond September or October, leaving investors unsure about the ultimate pace of Japan’s policy normalisation.
Gold remains pressured by Middle East uncertainty
Despite the changing expectations surrounding a September Fed rate move, uncertainty over the Middle East continues to limit Gold’s upside potential. After ending Thursday in negative territory, Gold (XAU/USD) remains under pressure on Friday, trading below $4,350 during the European session and down around 0.5% on the day.
EUR/USD recovered after dipping toward 1.1500 on Thursday and finished the session almost unchanged. The pair extended its recovery slightly on Friday, trading just below 1.1550. The Eurozone economy is expected to have expanded at an annualized rate of 1% in the second quarter.
GBP/USD also moved higher early Friday, fluctuating around 1.3500 after recording modest declines over the previous two sessions.
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