Category: economy

• EUR/USD slipped to around 1.1540, down 0.1%, marking its fourth decline in the past four sessions.
• The ECB’s rate hike to 2.50% takes effect on Wednesday, the same day the Fed announces its decision at 18:00 GMT.
• Eurozone ZEW economic sentiment dropped to 25.8, well below the 39.9 forecast, with banking the only sector showing an improvement.

EUR/USD ended Tuesday around 1.1540, down 0.1%, extending its decline for a fourth straight session. The pair weakened as the European Central Bank (ECB) lifted its deposit rate to 2.50%, with the increase taking effect on Wednesday—the same day the Federal Reserve is expected to raise rates for the first time since July 2023.

Two ECB hikes, none from the Fed yet, but the Euro remains under pressure

EUR/USD reflects the interest-rate expectations between the ECB and the Federal Reserve. The ECB has raised its deposit rate twice since June to 2.50%, while the Fed’s upper bound currently stands at 3.75%. Wednesday’s expected hike would lift the US rate ceiling to 4.00%, widening the policy-rate gap to 1.50 percentage points.

Markets expect the Fed to reach 4.25% or higher by March and potentially 4.50% or above by June, while the ECB is not widely expected to move again before December.

Both central banks are responding to rising inflation pressures linked to crude oil prices above $100.00. However, their economies face different energy dynamics: the United States is a net petroleum exporter, while the Eurozone relies heavily on imported crude. Higher oil prices therefore create different policy challenges for the two regions.

The ECB President described last Thursday’s decision as straightforward, with the vote passing unanimously. The central bank forecasts inflation at 3.0% this year and 2.5% next year, while growth projections were upgraded to 0.9% for this year and 1.4% next year. EUR/USD was trading near 1.1600 when the ECB delivered its first hike on June 11, compared with Tuesday’s close near 1.1538.

Banking gains as Eurozone sentiment deteriorates

Eurozone investor sentiment weakened sharply in September. The ZEW indicator fell to 25.8 from 31.4 in August and missed the 39.9 forecast. Germany’s reading also declined to 34.7 from 42.5, below expectations of 42.5.

Current conditions improved, however, with the Eurozone reading rising to -13.9 from -21.5 and Germany’s improving to -47.1 from -61.1. This suggests that current economic conditions are viewed somewhat more positively even as expectations for the months ahead deteriorate.

ZEW survey analysts linked the weaker outlook to energy costs associated with the war and what they described as hybrid attacks. Germany’s 10-year yield has also climbed to its highest level since 2011 following the ECB’s latest decision, reflecting expectations for further rate increases.

Banking was the only sector to register an improvement, rising 8.2 points to 52.9. By comparison, the automotive sector stood at -22.6 and steel at -16.7. The weaker sentiment could complicate expectations for another ECB hike in December and potentially limit the Euro’s future rate advantage.

ECB events come shortly before the Fed decision

Eurozone industrial production for July is due at 09:00 GMT on Wednesday, with economists expecting a 0.2% decline after June’s flat reading. Two ECB Governing Council members are scheduled to speak at 12:15 GMT and 13:00 GMT, followed by the ECB President at 17:00 GMT—just one hour before the Fed’s decision.

The ECB has avoided committing to a specific future policy path, with officials saying they did not discuss their next move at last week’s meeting.

The Federal Reserve announces its decision at 18:00 GMT, with markets pricing in a 92.5% probability of a 25-basis-point hike. Investors also expect another increase by December and a further move by March. The Fed Chair’s press conference follows at 18:30 GMT.

US retail sales are due earlier at 12:30 GMT, with an expected 0.8% increase. Thursday brings further Eurozone data, including final August inflation, while the Bank of England is also scheduled to announce its policy decision.

Key technical levels and bias

Resistance: Monday’s high just below 1.1600 is the first major barrier. The 50-day and 200-day EMAs are clustered slightly above 1.1550, and Tuesday’s close below both marked the first such move since the mid-August breakout. The September highs near 1.1650 represent the next resistance zone.

Support: Tuesday’s low was around 27 pips above 1.1500, making 1.1500 the first key support level. This area also marks the mid-August base that preceded the previous rally. Below it, the late-July low near 1.1450 becomes the next notable support.

Bias: Downside pressure remains in place while the moving averages around 1.1550 continue to limit gains. A move toward 1.1500 would put the mid-August base in focus, followed by 1.1450. The daily Stoch RSI is near 16, below the 20 threshold where the late-July decline previously stabilized. A daily close above 1.1600 would invalidate this bearish technical setup.

• GBP/USD trades slightly lower around 1.3490 during Tuesday’s Asian session.
• Markets increasingly expect the Federal Reserve to deliver a 25-basis-point rate increase on Wednesday.
• Investors await key UK labor market data and the Bank of England’s policy decision later this week.

Fundamental Analysis

The British Pound weakens modestly against the US Dollar on Tuesday, with GBP/USD hovering near 1.3490 during Asian trading. The Greenback remains supported by growing expectations that the Federal Reserve will raise interest rates at its upcoming policy meeting, while traders also prepare for a series of important UK economic releases.

Stronger-than-expected US inflation data released last week reinforced the view that the Fed may need to tighten monetary policy further. Core consumer prices increased by 0.3% in August, exceeding market forecasts and strengthening confidence that policymakers will act to contain persistent inflation pressures.

According to the CME FedWatch Tool, the probability of a September rate hike has climbed above 92%, a significant increase from roughly 67% before the latest inflation figures were published. Investors will closely monitor comments from Fed Chair Kevin Warsh following Wednesday’s FOMC decision. Any indications of a softer policy stance could weigh on the US Dollar, while a more hawkish tone may provide additional support.

In the United Kingdom, attention is focused on this week’s economic calendar, which includes employment figures, inflation data and retail sales. The Bank of England is widely expected to leave interest rates unchanged at 3.75% on Thursday, although market participants have recently increased expectations for a future rate increase amid rising energy costs.

BoE Governor Andrew Bailey recently stated that policymakers have no predetermined plan to raise rates this year unless higher oil prices begin generating more persistent domestic inflation. Nevertheless, financial markets have started assigning a higher probability to additional tightening later in the year.

Analysts note that widening UK-US yield differentials have generally favored Sterling in recent months. While political developments remain relatively muted, investors are also monitoring the UK government’s autumn budget announcement scheduled for late October.

Technical Outlook

GBP/USD continues to display a neutral short-term bias. The pair remains trapped between resistance near the middle Bollinger Band around 1.3557 and support in the 1.3455–1.3445 region, where the lower Bollinger Band converges with the 100-day moving average.

A sustained break above 1.3557 could open the door toward the upper Bollinger Band near 1.3660. Conversely, a move below the 1.3455–1.3445 support zone may increase bearish pressure and shift momentum in favor of sellers.

Washington is now applying pressure across military, energy and financial arenas. The consequences are increasingly becoming visible in the areas that matter most.

In February 2022, Russia learned a critical lesson: foreign-exchange reserves are only truly sovereign to the extent that the financial system holding them allows access.

For years, Moscow had accumulated hundreds of billions of dollars in reserves, partly to protect itself against financial pressure from Western governments. After Russian forces entered Ukraine, the United States and its allies froze a substantial share of those holdings.

For other central banks, the freezing of Russia’s reserves established a precedent that extended far beyond Moscow. A government could spend decades generating foreign currency, running trade surpluses and building reserves, only to discover during a geopolitical crisis that access to part of those savings ultimately depended on decisions made in Washington, Brussels and other Western capitals.

For China, Saudi Arabia and other major reserve holders, the political risks attached to foreign-exchange reserves became increasingly difficult to overlook. Central banks continued adding gold to their reserves, while governments explored local-currency trade and alternative payment systems that rely less heavily on Western financial infrastructure.

Freezing Russian reserves demonstrated the extraordinary reach of US financial power, but it also gave other governments another reason to reduce their dependence on that power.

Four years later, Washington is using similar financial leverage against Iran with greater intensity. Scott Bessent is warning that institutions supporting Tehran could be cut off from the dollar system, while the United States is engaged in a Middle Eastern conflict, seeking access to Venezuelan oil and watching Japanese bond yields rise toward levels not seen in decades. At the same time, America’s strategic reserves are being drawn down while Treasury yields remain elevated.

There is a straightforward explanation for each of these developments individually. The broader pattern becomes more difficult to ignore when they occur simultaneously.

Over recent weeks, we have examined several of these pressures separately. What is becoming increasingly apparent is how quickly they are beginning to interact.

This is de-dollarisation taking place in real time.

When the Dollar Becomes a Financial Weapon

The extraordinary influence of the dollar comes partly from how difficult it is for countries and institutions to operate without it.

International banks need access to dollar clearing. Commodities are still traded predominantly in dollars. Central banks hold US Treasuries as reserve assets. Companies borrow in dollars. Even financial institutions located thousands of kilometres from New York often depend on infrastructure ultimately connected to the US financial system.

Washington has spent decades turning that dependence into geopolitical leverage.

Bessent has now pushed this strategy considerably further. Through what the Treasury Department calls Operation Economic Outcast, the United States is seeking to disrupt Iran’s financial connections around the world. Bessent’s message is direct: institutions facilitating Iranian financial activity could lose access to the US dollar system.

The campaign extends across oil networks, shipping, aviation, technology, digital assets and even gold.

If the United States controls the world’s most important financial network, denying an adversary access to that network provides extraordinary leverage.

But the longer-term consequences are more complicated.

Every demonstration of US financial power also gives governments another incentive to reduce their dependence on the system.

China has already learned this lesson. Banks facilitating sanctioned transactions could eventually face a difficult choice between conducting business with Iran and maintaining access to the dollar network. Even governments that have little sympathy for Tehran can understand the broader precedent.

Foreign-exchange reserves held within another country’s financial infrastructure are, to some degree, reserves held at that country’s discretion.

De-dollarisation does not necessarily require governments to oppose the United States. Self-preservation alone can be sufficient.

As we argued recently in The Dollar’s Long Goodbye, the dollar does not need to collapse for this trend to become significant. Governments simply need to become somewhat less willing to keep their reserves within another country’s financial architecture.

The Price of Fighting on Multiple Fronts

Financial pressure is only one of the challenges facing Washington.

The Iran conflict has already placed considerable strain on US strategic resources. The Strait of Hormuz is at the centre of the confrontation and represents one of the world’s most important oil transportation routes.

Meanwhile, America’s Strategic Petroleum Reserve, specifically designed to provide protection during severe energy disruptions, has fallen to roughly 286 million barrels following substantial withdrawals during the early months of the conflict, according to the data used in this analysis.

That makes the significance of Trump’s Venezuelan oil agreement easier to understand.

Washington has announced majority control over 17 Venezuelan oilfields containing more than 65 billion barrels of proven reserves. That figure is enormous, although its immediate strategic value becomes less straightforward once the practical challenges are taken into account.

The United States possesses enormous military and financial resources. Yet it is increasingly looking abroad for energy resources while its domestic strategic buffers become smaller.

Reserve-currency systems have never been based solely on financial markets. They also depend on confidence that the country issuing the reserve asset possesses sufficient economic, political and military strength to maintain the broader system supporting it.

As those commitments become increasingly expensive, the pressure eventually feeds back into the currency that supports them.

When Japanese Capital Starts Returning Home

Japan represents another important part of the equation.

For decades, Japan provided one of the less visible supports underpinning America’s financial dominance.

Japanese interest rates were held near zero. The Bank of Japan accumulated enormous quantities of government debt. Japanese investors searched overseas for higher returns, while global investors borrowed cheaply in yen and invested those funds in higher-yielding assets around the world.

The United States benefited significantly from this capital flow.

Japan remains America’s largest foreign creditor, holding more than $1 trillion in US Treasuries. But Japanese government bond yields are now rising toward levels not seen for decades. The 10-year JGB has approached 3%, while the 30-year bond has moved above 4%.

When domestic Japanese bonds offer yields around 3%, there is less incentive for Japanese capital to seek returns abroad.

Japanese insurers, for example, no longer face the same trade-off between earning almost nothing at home and purchasing US assets to generate higher returns. Higher JGB yields make repatriating capital increasingly attractive, particularly once currency-hedging expenses are taken into account.

Japan does not need to aggressively sell its Treasury holdings for this to matter. Foreign demand simply needs to become less enthusiastic at the margin.

We discussed the mechanics of this shift in greater detail in Japan and the End of Easy Money. The key point is straightforward: one of America’s most reliable sources of foreign capital now has stronger reasons to keep more money within Japan.

Bessent Faces the Bond Market

US federal debt has now exceeded $40 trillion, while annual interest expenses are approximately $1.2 trillion. Long-term Treasury yields have also moved toward levels last seen before the global financial crisis.

Bessent is attempting to counter this pressure.

The Treasury Department has increased bond buybacks, purchasing longer-dated securities while considering greater reliance on short-term Treasury bills. Buying longer-term bonds supports their prices and, mechanically, puts downward pressure on yields.

The strategy initially appeared to work.

Then yields began moving higher again.

The United States is using access to its currency as a foreign-policy tool while simultaneously depending on international investors to purchase historically large amounts of government debt.

Washington is threatening governments and financial institutions with exclusion from the dollar network while relying on that same network to channel global savings into US Treasuries.

Japan, traditionally one of America’s most dependable creditors, now has greater incentives to retain capital domestically.

China has clear strategic reasons to reduce its exposure.

Oil-producing countries have seen how dollar reserves can become instruments of geopolitical pressure.

Countries conducting business with sanctioned governments are being reminded that participation in the dollar system comes with conditions.

And throughout all of this, Washington continues issuing debt.

The Bond Market Has the Final Say

The long end of the Treasury curve may provide a better indication of this transition than another debate about the dollar’s reserve-currency status.

Bond investors do not need to predict the end of American financial dominance. They only need to demand greater compensation for holding US government promises over several decades.

Recent market pricing suggests that this compensation is already increasing.

Thirty-year Treasury yields have recently reached approximately 5.3%. Long-term UK government bond yields are approaching 6%, while Japanese yields have climbed toward levels not seen since the 1990s.

Across developed markets, investors are demanding greater compensation for duration risk, inflation, fiscal uncertainty and heavy government borrowing.

Bessent can conduct Treasury buybacks. The Treasury can change the maturity profile of new debt issuance. The Federal Reserve can adjust short-term interest rates. Washington can impose sanctions, freeze financial assets and threaten institutions with exclusion from the dollar-clearing system.

But it cannot force an investor to lend the United States money for 30 years at a 4% yield.

That price is ultimately determined by the market.

Gold Has No Counterparty Risk

Under normal circumstances, rising bond yields should create headwinds for gold.

An asset that pays no interest should theoretically become less attractive when supposedly risk-free government bonds offer yields of 5%. Yet gold has remained remarkably resilient even as sovereign yields have moved higher.

A 5% Treasury yield means one thing when investors believe they are being well compensated for owning an unquestionably safe asset.

It means something very different when lenders demand higher returns because of concerns about inflation, deteriorating fiscal conditions, political intervention and uncertainty over the future purchasing power of the currency in which they will ultimately be repaid.

Gold exists outside that negotiation.

It has no finance ministry supporting it. No central bank needs to defend its value. No government can exclude another country from a global gold network because there is no centralized gold network to control. Gold carries no counterparty promise and cannot be created simply to finance another government’s fiscal deficit.

For reserve managers seeking to reduce their political dependence on another sovereign, those characteristics have become increasingly valuable.

Russia experienced this firsthand in 2022. Hundreds of billions of dollars in foreign reserves appeared to offer substantial financial protection until geopolitical events meant that much of those reserves could no longer be accessed.

The assets still existed on paper. Moscow’s ability to use them did not.

The United States currently possesses extraordinary financial influence precisely because so much of the global economy continues to operate through the dollar. The currency remains dominant, the Treasury market remains exceptionally deep and liquid, and predictions of an imminent collapse of dollar dominance should be treated cautiously.

But every time that financial power is used as a geopolitical weapon, foreign governments receive another reason to reconsider how much exposure they want to maintain.

For Bessent, the more immediate challenge is the bond market.

Bond investors do not respond to speeches or political symbolism. They simply determine the price they require to hold another 30 years of US government promises.

For now, that required return continues to rise.

And while Washington searches for ways to bring borrowing costs back down, central banks around the world have quietly continued accumulating the one reserve asset that cannot be frozen by another government, shut out of a payment network or created to finance another trillion-dollar deficit.

Gold.

• The US Dollar Index (DXY) continues to strengthen as markets now see an 87% chance of a 25-basis-point Fed rate hike, following stronger-than-expected inflation data.
• US consumer prices increased 0.4% month-over-month in August, pushing the annual inflation rate to 3.4%.
• Core CPI advanced 0.3% month-over-month, exceeding the 0.2% forecast and providing additional support for the US Dollar.

US Dollar Index advances toward 99.50 as Fed rate hike expectations grow

The US Dollar Index (DXY), which tracks the US Dollar against a basket of six major currencies, extended its gains for a third consecutive session, trading near 99.30 during Asian trading hours on Monday.

The Greenback remains supported by growing expectations of a Federal Reserve rate hike at Wednesday’s policy meeting after the latest US inflation figures came in firm. According to the CME FedWatch Tool, markets are currently pricing in an approximately 87% probability of a 25-basis-point rate increase at the Fed’s September meeting, up significantly from 59% one week earlier.

US inflation accelerated in August, strengthening expectations that the Federal Reserve could raise interest rates. Data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) increased 0.4% month-over-month in August, bringing the annual rate to 3.4%. Both figures matched market expectations. Meanwhile, core CPI, which excludes food and energy, rose 0.3% from the previous month, above the 0.2% increase recorded previously and in line with the forecast.

Technical Analysis

On the daily chart, the Dollar Index is trading around 99.30 and continues to show a mildly bearish near-term structure. The index remains below its longer-term 50-day Exponential Moving Average (EMA), although it is holding slightly above the shorter-term nine-day EMA at 99.12. This setup indicates that the broader trend remains under pressure, with recent gains facing resistance from overhead supply.

The 14-day Relative Strength Index (RSI) stands at 48.04, just below the neutral 50 threshold, suggesting limited momentum rather than a decisive directional move.

On the upside, the 50-day EMA at 99.63 represents the first significant resistance level. A sustained move above this area would help weaken the current bearish outlook. On the downside, initial support is positioned around the nine-day EMA at 99.12. A daily close below this level could strengthen the bearish bias and expose the Dollar Index to additional downside pressure.

Fundamental Analysis

EUR/USD is trading around 1.1627 on Tuesday after US employment data significantly exceeded expectations. The stronger-than-expected jobs figures provided fresh support for the US dollar and boosted expectations of a more restrictive Federal Reserve stance. Markets are now turning their attention to the European Central Bank’s meeting on September 10. While a rate hike is already fully priced in, the ECB’s forward guidance will likely determine the euro’s next direction.

US Jobs Report Gives the Dollar Fresh Momentum

The US labour market recorded its strongest performance since March. Nonfarm payrolls increased by 162,000 in August, well above the market consensus of approximately 56,000. The unemployment rate remained at 4.1%, while annual wage growth stood at 3.1%. In addition, June and July payroll figures were revised upward by a combined 55,000, with July’s previously reported decline being revised into an increase.

Nonfarm payrolls track the number of paid jobs added to the US economy each month, excluding agricultural employment. The indicator is closely watched because it provides an important signal of labour-market strength and helps shape the Federal Reserve’s interest-rate decisions.

The resilience of the labour market reduces the need for the Fed to stimulate economic growth, leaving inflation as the primary policy concern. Following the report, financial markets increased the probability of a September rate hike to around 58%, compared with roughly 52% beforehand. Expectations for higher US interest rates made dollar-denominated assets more attractive, helping the greenback strengthen while keeping EUR/USD within a relatively tight range.

ECB Guidance Could Be More Important Than the Rate Decision

The ECB’s September decision is unlikely to come as a surprise. All 65 economists surveyed by Reuters expect the deposit rate to rise by 25 basis points to 2.50%. Financial markets are also assigning almost full probability to this outcome and currently anticipate the deposit rate could climb to approximately 3.00% by June 2027, implying two additional hikes after this week’s meeting.

Because the rate increase is already largely reflected in market pricing, the decision itself may have limited impact on the euro. Instead, traders are likely to focus on Christine Lagarde’s comments and the ECB’s assessment of future monetary policy.

Eurozone inflation accelerated to 3.3% in August, largely because of higher energy prices. Lagarde has previously highlighted the energy shock as an upside risk to inflation, making the ECB’s future policy stance particularly important.

If Lagarde signals that additional tightening remains possible, the euro could receive renewed support against the dollar, potentially pushing EUR/USD towards 1.1655, the upper boundary of its current range. Conversely, if the ECB delivers the expected hike but avoids committing to further increases, the relative interest-rate outlook could remain more favourable for the US dollar, opening the way for a decline towards 1.1525.

German Factory Orders Provide Additional Support

German manufacturing orders increased 2.5% in July following an upwardly revised 3.7% rise in June. The result significantly exceeded expectations of a 0.3% increase and marked the third consecutive monthly gain.

However, the underlying details were less impressive. Excluding major contracts, new orders declined 1.4% from the previous month. Domestic demand surged 9.1%, while foreign orders dropped 2.1%. Orders from outside the euro area fell 10.1%, whereas demand from within the eurozone increased 12.1%.

Much of the headline improvement was driven by large contracts in sectors such as shipbuilding, rail and aircraft manufacturing. This suggests that Germany’s industrial recovery is continuing, although it remains heavily dependent on a limited number of major projects and stronger European demand. Nevertheless, the improvement provides some evidence that the eurozone economy may be capable of absorbing higher interest rates.

EUR/USD Technical Outlook

On the four-hour chart, EUR/USD is consolidating around the 1.1620 level. As long as the pair remains above this support, another advance towards 1.1655 remains possible. A sustained break higher could strengthen the near-term bullish outlook, while failure to hold the range could expose the pair to a deeper decline towards 1.1525.

The MACD indicator also favours the upside. Its signal line remains above zero and is pointing higher, suggesting that bullish momentum is still developing and that EUR/USD may have room for another upward move in the short term.

On the hourly chart, EUR/USD has completed a downward move towards 1.1620 and is now consolidating above this level. The current setup continues to favour a potential recovery towards 1.1655.

The Stochastic oscillator supports this scenario, with its signal line positioned above 20 and moving towards 80. This indicates that upward momentum has not yet reached an extreme level and could continue to strengthen.

Conclusion

EUR/USD begins the ECB week with a cautiously bullish technical setup, with 1.1655 representing the key near-term upside target. Fundamentally, however, the outlook remains balanced as both the ECB and Federal Reserve are moving towards tighter monetary policy.

With the ECB’s expected rate increase to 2.50% already priced into the market, the euro’s next major move will likely depend on the central bank’s forward guidance. While EUR/USD holds above 1.1620, the bullish scenario remains favoured, with 1.1525 serving as an important downside level if the upward move fails.

Attention will then shift to the US inflation data due next week, which could provide the next major catalyst for the dollar. Traders should therefore monitor the 1.1620–1.1655 range closely as the ECB decision approaches.

• GBP/USD gains modest traction as persistent USD weakness and a BoJ-driven surge in the Japanese Yen weigh on the Greenback.
• Expectations of a Fed rate hike and ongoing geopolitical tensions help cushion downside pressure on the safe-haven US Dollar.
• Market participants remain cautious ahead of key economic releases, including the UK’s monthly GDP report and US inflation data.

Fundamental Analysis

The GBP/USD pair maintains a modestly positive tone around the mid-1.3500s during Wednesday’s Asian trading session. However, the upside remains limited, with the pair still trading within the previous day’s wider range. At the same time, downside risks appear contained as traders await the latest monthly UK GDP data and key US inflation figures before making fresh directional bets.

Market attention is primarily focused on the US Producer Price Index (PPI) and Consumer Price Index (CPI), scheduled for release on Thursday and Friday, respectively. These reports will be closely watched for further clues about the Federal Reserve’s monetary policy outlook, particularly as expectations for a September rate hike continue to increase. The data could also have a significant impact on USD movements and, consequently, provide a fresh catalyst for GBP/USD.

US inflation data could determine the Fed’s next move

Scotiabank strategists highlight the importance of this week’s inflation figures for the Fed’s policy outlook. They argue that inflation must show clear signs of improvement in Thursday’s PPI and Friday’s CPI reports for the central bank to remain on hold. Meanwhile, market expectations continue to favour tighter policy, with swaps currently pricing in roughly a 60% probability of a 25-basis-point rate increase at next week’s meeting.

Meanwhile, the Japanese Yen’s recent strength, partly driven by expectations surrounding the Bank of Japan, has kept the US Dollar close to its lowest level in more than two weeks, reached on Tuesday. The British Pound, meanwhile, is benefiting from UK Finance Minister John Healey’s positive growth plans and commitment to maintaining fiscal discipline. These factors provide some support for GBP/USD, although the pair’s recovery lacks strong bullish momentum.

Persistent energy-price pressures continue to raise concerns about inflation, while the stronger-than-expected US Nonfarm Payrolls report has strengthened expectations for a September Fed rate hike. In addition, rising tensions between the US and Iran are maintaining geopolitical risk premiums and providing some support for the safe-haven US Dollar. These factors are discouraging traders from aggressively adding fresh bullish positions in GBP/USD.

Technical outlook

GBP/USD is currently trading just below the 38.2% Fibonacci retracement at 1.3553 while remaining above the 23.6% level at 1.3524. The pair is also holding above the 200-period Simple Moving Average (SMA) on the 4-hour chart, currently positioned at 1.3502. However, nearby Fibonacci resistance continues to limit the upside, leaving the short-term technical outlook broadly neutral.

A sustained break above the 38.2% Fibonacci level at 1.3553 could open the door toward the 50.0% retracement at 1.3576, followed by the 61.8% level at 1.3599. Further gains could expose resistance around 1.3632 and the swing-high area near 1.3675.

On the downside, initial support is located at the 23.6% Fibonacci retracement at 1.3524, followed by the 200-period SMA at 1.3502. If selling pressure intensifies, the next significant support area is around 1.3477.

The US dollar’s struggle is no longer simply about one economic reading or a single Federal Reserve official. The bigger issue is a persistent ceiling. On the daily chart, 100 on the US Dollar Index (DXY) has repeatedly been within reach, yet the greenback has failed to establish a sustained break above it. This week was no different. DXY slipped below the mid-99s and briefly fell into the upper-98s, with the index last trading near 98.99 after losing almost 0.6% during the session.

The broader 52-week range remains between 95.55 and 101.80, meaning the current move does not represent a collapse. Instead, it highlights repeated rejection at a key technical barrier. The dollar can remain below 100 for an extended period; what it has consistently failed to achieve is a daily close above that threshold. The key question now is whether Friday’s Nonfarm Payrolls (NFP) report can provide the catalyst. NFP is unlikely to create an entirely new dollar trend by itself, but it could determine whether the next challenge of 100 turns into a yield-driven breakout or another retreat toward the 98 area.

The Technical Barrier Markets Continue to Underestimate

Round numbers carry significant weight in foreign exchange markets because they influence options positioning, systematic trading strategies and investor psychology. The 100 level on DXY is not inherently special, but several factors converge around it: it represents a major psychological threshold, has capped recent recoveries and sits close to several important medium-term moving averages.

Recent technical readings show DXY struggling beneath its 20-day midpoint and 100-day moving average. Meanwhile, the upper volatility boundary remains positioned around the low-100 area, suggesting that a move beyond that region would represent a meaningful change in the current market structure. RSI is also not signaling an outright collapse. Instead, it reflects a market that has repeatedly struggled to maintain upward momentum. That makes the problem more persistent rather than necessarily more dramatic.

Remaining below 100 keeps the dollar in a range-bound role: a funding currency during calm markets, a safe-haven asset during periods of stress and, more broadly, a reflection of US interest-rate differentials.

A decisive daily close above 100, followed by additional gains, would bring the 101–102 region back into focus, an area associated with the June peak. Until that happens, rallies toward 100 remain vulnerable to selling unless Treasury yields provide the dollar with enough support to sustain the advance.

Friday’s NFP Is the Catalyst, Not the Underlying Story

The August Employment Situation report is scheduled for release at 08:30 ET on Friday, September 4. Expectations remain relatively subdued. The Wall Street Journal survey consensus calls for nonfarm payrolls to rise by around 53,000 following July’s 23,000 decline, while the unemployment rate is expected to remain at 4.1%. Average hourly earnings are projected to increase 0.3% month-over-month, or approximately 3.0% annually.

However, the potential range of outcomes is wide. Some analysts view July’s weakness as being distorted by seasonal and calendar-related factors and anticipate a rebound toward 65,000–80,000 jobs. Others remain concerned that any improvement could largely reflect education-sector or seasonal noise.

The latest ADP employment figures were weaker than expected, contributing to Thursday’s dollar decline, while weekly jobless claims have remained relatively contained. Overall, the labor market is showing neither a clear collapse nor a powerful acceleration. That uncertainty creates an unfavorable backdrop for a currency attempting to break through major resistance.

The dollar’s reaction function remains familiar, although the market is placing different emphasis on the data. A stronger-than-expected report — particularly payroll growth above 80,000, a lower unemployment rate and persistent wage growth — would likely push Treasury yields higher, beginning with the front end of the curve.

Two-year Treasury yields would probably react first. Expectations surrounding the September Federal Reserve meeting could shift further toward a tighter policy outcome, providing DXY with momentum toward 99.50–100.00.

But reaching 100 is not the same as breaking it. For a sustainable breakout, the rise in short-term yields would need confirmation from longer-dated Treasuries rather than being offset by weakness at the long end.

A broadly in-line report, with payroll growth around 40,000–70,000, unemployment at 4.1% and wages close to expectations, would likely leave the dollar trapped within its existing range. Traders could fade the initial move and turn their attention toward the following week’s inflation data.

The clearest threat to the 100 resistance level would come from a weak employment report. Another negative payroll reading or a noticeable rise in unemployment could remove the prospect of a near-term retest of 100 and push DXY deeper into the 98s.

Such an outcome would weaken the dollar’s interest-rate support. Two-year yields could decline, while risk assets and gold could benefit. DXY would then likely focus on the mid-98s and the lower part of the recent trading range.

Wages may ultimately prove just as important as the headline payroll figure. Payroll data can be volatile, whereas average hourly earnings provide the Federal Reserve with a clearer signal about whether labor-market conditions continue to generate inflationary pressure.

A 0.4% monthly wage increase alongside a strong employment report could create a significant bullish catalyst for the dollar. Conversely, 0.2% wage growth combined with weak payrolls would likely trigger a bond-market rally first, with the dollar reacting afterward.

Treasury Yields Remain the Dollar’s Most Important Counterpart

The dollar does not respond to NFP in isolation. Its reaction is heavily influenced by the Treasury market.

At the beginning of this week, the two-year Treasury yield was around 4.39%, the 10-year near 4.79% and the 30-year around 5.27%. These levels do not indicate a financial crisis, but they do suggest that markets are no longer expecting a simple return to the low-rate environment that dominated much of the post-2010 period.

Thursday’s dollar weakness coincided with declining Treasury yields, reinforcing one of the clearest short-term relationships in the market: lower nominal and real yields generally weigh on the greenback.

The opposite dynamic explains why DXY repeatedly approaches 100. Whenever the front end of the Treasury curve begins pricing tighter Federal Reserve policy, the dollar moves higher. But when longer-term yields fail to confirm that tightening — partly because term premium is already elevated — the dollar’s advance tends to stall.

That creates the central risk for the current setup. The dollar remains supported by US economic exceptionalism and the belief that American markets can continue absorbing enormous government borrowing. At the same time, it is increasingly exposed to the behavior of long-duration assets.

When Treasury bonds sell off because of stronger growth or inflation, the dollar generally benefits. But when yields rise because markets are struggling to absorb excessive government supply, the currency’s positive response becomes much less reliable.

Foreign investors holding dollar-denominated assets must consider factors such as cross-currency funding costs and whether 10-year and 30-year Treasury yields adequately compensate them for fiscal risks.

The 2s10s spread — the difference between the 10-year and two-year yields — and the 10s30s spread will therefore be important around the NFP release.

A bull-steepening move following weak employment data, where short-term yields decline more rapidly than long-term yields, would normally be negative for the dollar.

A bear-steepening move after strong employment data, in which long-term yields rise faster than short-term yields, would be more complicated. Higher long-term yields could attract capital toward US assets, but they could also tighten financial conditions and eventually weaken the same labor market that initially supported the dollar.

Underlying all of this is the enormous volume of Treasury issuance. The post-Labor Day calendar remains heavy, with additional coupon reopenings still needing to be absorbed. The official sector has also been experimenting with larger Treasury buybacks, with expanded operations expected from September 9.

Buybacks can reduce the amount of duration available to private investors, but they do not eliminate the government’s overall debt burden.

US Treasury debt outstanding has now moved beyond $40 trillion. Meanwhile, the composition of Treasury demand has shifted toward more price-sensitive investors, including funds, households and relative-value traders, while the traditional price-insensitive official-sector bid has become less dominant.

This is one reason term premium can become a structural issue rather than merely a cyclical one.

The Global Sovereign Debt Wave Is Bigger Than the US

The pressure is not limited to the United States, which helps explain why the dollar’s traditional safe-haven behavior has become less automatic than it was during earlier crises such as 2011 or 2020.

OECD governments issued record amounts of debt in 2025 and are expected to raise approximately $18 trillion gross during 2026. Refinancing requirements are estimated at around $14 trillion, while net borrowing could approach $4 trillion. Total outstanding OECD sovereign bond debt has already surpassed $60 trillion.

Japan is dealing with a 10-year government bond yield that has approached 3%. European governments still need to refinance debt accumulated during the pandemic era at significantly higher borrowing costs. Emerging-market governments are also competing for the same international pool of capital.

When Treasuries, German Bunds, UK Gilts and Japanese government bonds all require heavy refinancing during the same period, the marginal dollar of institutional demand becomes increasingly sensitive to relative yields.

That is the essence of the current sovereign “avalanche.” It is not necessarily a wave of defaults. Instead, it represents a persistent supply of government duration that must be absorbed by investors at a price that makes the risk worthwhile.

For the dollar, this creates a two-sided dynamic.

A genuine global crisis can still drive investors toward Treasuries and therefore support the dollar. But if the problem originates within sovereign bond markets themselves — too much government debt competing for insufficient savings — the dollar no longer automatically benefits.

The US currency wins only if American assets continue to look relatively attractive and if the Federal Reserve is not simultaneously easing policy while government issuance accelerates.

That is why the 100 level on DXY has increasingly become a test of whether US yields represent a global capital magnet or a warning signal about fiscal risk.

Commodities Offer Another Clue About Dollar Direction

The traditional inverse relationship between the dollar and commodities remains relevant.

A weaker DXY reduces the effective dollar cost of globally traded commodities. Gold typically benefits from such a move, while industrial metals can also gain if the weaker currency reflects easier monetary conditions rather than deteriorating economic growth.

Oil is more complicated. It is priced in dollars but is primarily driven by supply, demand, geopolitical developments and spare capacity. A supply shock can push oil higher even while the dollar appreciates.

The likely relationships around Friday’s payroll report are relatively straightforward.

A weak NFP reading could pressure the dollar, support gold and boost metals if falling real yields provide additional assistance.

A strong employment report could lift DXY toward 100 and temporarily weigh on gold as markets price a more restrictive Federal Reserve stance.

Oil, however, will probably focus more heavily on the growth implications of the employment report and developments in the Middle East than on the dollar alone.

Commodities can subsequently feed back into the currency through inflation expectations. A weaker dollar that simultaneously pushes oil and import prices higher while wage growth remains firm could strengthen expectations for another challenge of 100.

Conversely, if the dollar falls alongside declining real yields and stable oil prices, the move could reinforce the broader bearish pressure on DXY.

The wage component of Friday’s report therefore acts as the key link between these two scenarios.

The Dollar’s Current Risk Profile

DXY should be viewed as a hybrid asset rather than a straightforward risk-off trade.

It remains an important funding currency for global carry strategies. When volatility is low and the Federal Reserve is holding rates steady, investors can borrow or short the dollar to finance positions elsewhere.

That makes the 100 region particularly crowded for dollar bulls. Late buyers risk entering just as upside momentum is becoming exhausted, leaving the market vulnerable to a disappointing economic report.

The dollar is also a currency driven by policy divergence. If Friday’s data pushes the Federal Reserve toward tighter policy while Europe and Japan remain constrained by their own fiscal and bond-market pressures, the dollar could strengthen even against a backdrop of elevated US fiscal concerns.

Policy divergence remains one of the strongest bullish arguments for DXY below 100.

But the dollar is no longer viewed as an unquestioned fiscal safe haven. Markets increasingly distinguish between the unparalleled depth of US financial markets and the country’s unusually large fiscal deficit.

Market depth can keep the dollar strong during a sudden crisis. It does not necessarily prevent a gradual decline when government issuance becomes the dominant theme.

Positioning ahead of NFP should therefore account for this mixed character.

Buying a pre-release move toward 99.80 risks paying a premium for a level that has repeatedly rejected the dollar. At the same time, aggressively selling every rebound toward 99.50 without a clear strategy below 98.70 ignores the possibility that strong wage data could produce a rapid squeeze higher.

A more disciplined approach is to preserve optionality around the 100 level or wait for the initial 15-minute range following the 08:30 ET release to break before committing to the direction.

What Could Actually Change the Technical Picture?

Three developments would matter most.

First, NFP and wage growth would need to push two-year Treasury yields above their recent highs and keep them there into the following week’s inflation data. That would provide the strongest foundation for another attempt at 100.

Second, Treasury auctions would need to show signs of deteriorating demand, such as weaker indirect participation, while markets simultaneously price a more restrictive Federal Reserve. That combination could cause the dollar rally to fail at 100 because rising yields would be viewed as compensation for fiscal risk rather than evidence of stronger monetary support.

Third, a genuine global duration sell-off could emerge, with Japanese government bonds, UK Gilts and US Treasuries all falling together and overwhelming the traditional safe-haven demand for dollars.

That would represent the broader sovereign-debt “avalanche” scenario. It would not require a dramatic crisis headline. It could simply result from another quarter in which enormous government bond issuance meets a smaller pool of official-sector demand.

Until one of these catalysts materializes, the daily DXY chart remains clear.

100 is still the key barrier.

The recent 98.99 close reinforces the market’s refusal to accept higher levels. Friday’s NFP report is unlikely to permanently settle the issue, but it could determine whether the dollar’s next encounter with 100 finally produces a breakout — or another rejection.

• The US Dollar Index remains under pressure after Fed Governor Christopher Waller suggested a possible pause in interest rate increases, diverging from Kevin Warsh’s more hawkish stance.
• Following Waller’s comments, market-implied odds of a Federal Reserve rate hike in September dropped to 50.2%.
• Traders are now focused on the US August Nonfarm Payrolls report, which is forecast to show 56,000 new jobs and an unemployment rate holding steady at 4.1%.

The US Dollar Index (DXY), which tracks the US Dollar (USD) against six major currencies, remains under pressure for a third straight session, trading near 99.00 during Asian trading hours on Friday.

The Greenback weakened after Federal Reserve Governor Christopher Waller indicated that he would favor keeping interest rates unchanged at the September policy meeting, assuming upcoming inflation figures do not deliver any major surprises.

Waller’s relatively dovish stance contrasts with the more hawkish tone struck by Fed Chairman Kevin Warsh just one week earlier. Following Waller’s remarks, expectations for a September rate hike declined sharply, with the CME FedWatch Tool putting the probability at 50.2%, down from 63.2% a day earlier.

Market attention is now turning to the US August employment report, which could provide fresh clues about the Federal Reserve’s next policy steps. Economists expect Nonfarm Payrolls to rise by 56,000, while the Unemployment Rate is projected to hold at 4.1%.

Meanwhile, a stronger Japanese Yen is adding to the Dollar’s downside pressure. Traders are closely monitoring the possibility of Japanese authorities intervening in the currency market while also increasing bets on potentially tighter monetary policy from the Bank of Japan later this year.

Yen extends gains as intervention risks increase

Scotiabank strategists noted the Yen’s unusually strong performance, highlighting a 1.5% gain against the US Dollar that builds on Wednesday’s significant advance. The sharp appreciation has revived speculation that Japanese authorities could intervene to prevent excessive Yen strength or further volatility in the USD/JPY pair.

Technical Analysis: DXY remains under bearish pressure

On the daily chart, the US Dollar Index is trading around 98.98, maintaining a bearish short-term outlook below both the 9-period and 50-period Exponential Moving Averages (EMAs), which have shifted into resistance.

The 14-day Relative Strength Index (RSI) remains below the 50 level at around 40, indicating that selling pressure is still present despite the recent slowdown in the decline. At the same time, the weakening FXS Fed Sentiment Index points to reduced support for the US Dollar from expectations surrounding Fed policy.

Initial resistance is seen around 99.26, corresponding to the 9-period EMA, while the 50-period EMA near 99.79 creates a stronger resistance zone. A sustained daily close above these moving averages would help reduce the current bearish bias. Until then, the DXY remains exposed to further declines toward previous daily-chart lows.

• USD/JPY remains under pressure near its lowest level in a month.
• Softer expectations for additional Federal Reserve tightening and lower US Treasury yields continue to weigh on the US Dollar.
• Rising expectations of further Bank of Japan rate hikes, together with speculation of official intervention, are providing support for the Japanese Yen.

The USD/JPY pair traded in a narrow range during Friday’s Asian session, hovering around 155.75 after recent declines. Although little changed on the day, the pair remains close to its August low and is on track for a significant weekly loss as investors await the latest US Nonfarm Payrolls (NFP) report.

Market participants are closely monitoring the employment data for clues about the Federal Reserve’s next policy move. With expectations for a September rate increase having eased, the report could shape the outlook for US interest rates and influence near-term Dollar performance. Until then, traders may remain cautious about betting on a sustained recovery in USD/JPY.

The US Dollar weakened after Federal Reserve Governor Christopher Waller noted that inflation appears to be moderating, increasing the likelihood that policymakers could leave interest rates unchanged at the upcoming FOMC meeting. The comments pushed US bond yields lower and dragged the Dollar to its weakest level in more than a week.

Meanwhile, the Japanese Yen continues to benefit from growing expectations that the Bank of Japan will tighten policy further. Markets have largely priced in a 25-basis-point rate hike at the September 17–18 BoJ meeting, with another increase potentially following in December. Expectations strengthened after BoJ board member Hajime Takata suggested the central bank should take a more flexible approach to rate hikes rather than adhering to a fixed semi-annual schedule. Combined with speculation of currency market intervention, these factors continue to support the Yen and limit upside potential for USD/JPY.

USD/JPY Technical Outlook: Bears Remain in Control Below Key Resistance

4-Hour Chart Analysis

From a technical perspective, USD/JPY continues to trade with a bearish bias after failing to sustain a move above the 200-period Simple Moving Average (SMA) on the 4-hour chart earlier this week. The rejection from this key trend indicator suggests that sellers remain firmly in control of the market.

A decisive break below the August swing low in the 155.25–155.20 area could act as a fresh bearish signal, potentially attracting additional selling pressure. Such a move may push the pair below the psychological 155.00 level and extend the corrective decline from its recent multi-decade peak.

Key Support Levels

• 155.25–155.20 – August swing low
• 155.00 – Psychological support
• 154.50 – Next potential downside target
• 154.00 – Major support zone

Key Resistance Levels

• 200-period SMA (4H) – Immediate resistance
• 160.00 – Major psychological barrier

For bullish momentum to return, USD/JPY would need to reclaim and hold above the 200-period SMA. A sustained move beyond the 160.00 level would be required to significantly reduce the current downside pressure and signal a broader shift in market sentiment.

Overall, the technical structure continues to favor sellers, with downside risks remaining elevated as long as the pair trades below key resistance levels.

• GBP/USD bulls remain cautious as expectations for Fed policy help curb the dollar’s decline following weak US ADP employment data.
• Rising US-Iran tensions continue to support the safe-haven US dollar, keeping upward pressure on GBP/USD limited.
• Traders await the US ISM Services PMI for fresh direction ahead of Friday’s Nonfarm Payrolls (NFP) report.

The GBP/USD pair remains below the key 1.3500 level during Thursday’s Asian session, consolidating near a three-week low reached in the previous session.

The US Dollar (USD) steadies after retreating the day before, supported by expectations for tighter Federal Reserve (Fed) policy and ongoing geopolitical uncertainty. Markets have increased bets that the Fed could raise interest rates this month following hawkish comments from Fed Chair Kevin Warsh last Friday. Rising energy prices also add to inflation concerns, strengthening the case for tighter monetary policy and providing support for the USD, which weighs on GBP/USD.

At the same time, US-Iran tensions have intensified after fresh US strikes on Iranian targets were followed by retaliatory drone and missile attacks from Tehran across the Gulf. Persistent confrontations around the Strait of Hormuz are keeping geopolitical risks elevated and further boosting demand for the safe-haven US Dollar. However, weaker US Treasury yields are preventing USD buyers from making aggressive moves and helping limit downside pressure on GBP/USD.

Investors now await the US ISM Services PMI for fresh trading signals, while Friday’s closely watched Nonfarm Payrolls (NFP) report remains the main focus. Further developments in the Middle East could also drive volatility across financial markets, influencing USD movements and creating short-term trading opportunities in GBP/USD.

GBP/USD Technical Analysis

On the 4-hour chart, GBP/USD is trading near the 200-period Simple Moving Average (SMA) and remains above the 50.0% Fibonacci retracement of the July-August advance. A decisive break below this level could expose the pair to deeper Fibonacci support at 1.3425 and 1.3357, where buyers may attempt to defend the broader bullish structure.

On the upside, immediate resistance stands at the 38.2% Fibonacci retracement near 1.3521, followed by the 23.6% level at 1.3580. Further gains could bring the cycle-high resistance around 1.3676 into focus.

The US dollar has opened September under pressure, surrendering around half of the gains sparked by Federal Reserve Chair Kevin Warsh’s hawkish remarks on Friday. At first glance, this may suggest that investors are starting to scale back expectations for tighter Fed policy. However, the rates market is sending a somewhat different signal.

The front end of the US yield curve remains substantially repriced. Two-year SOFR rates are holding above 4.20%, more than 10 basis points above pre-Warsh levels, while markets are pricing in roughly 16 basis points of tightening for September and around 37 basis points through the end of the year. Put simply, the dollar has weakened even though expectations for Fed tightening have remained largely intact.

That disconnect is becoming the central theme for FX markets this week.

Dollar Weakens Despite Higher Rate Expectations

All G10 currencies strengthened against the dollar on Monday, despite continued hawkish pricing in the US front end.

Under normal circumstances, that setup would favor the greenback. Higher anticipated US interest rates increase the relative appeal of dollar-denominated assets and can encourage capital inflows into the currency.

Instead, investors appear increasingly focused on the longer end of the Treasury curve.

Long-term US yields have climbed, partly alongside renewed oil-price gains following another round of strikes between the US and Iran. Rather than interpreting higher yields simply as evidence of stronger returns on US assets, currency markets appear to be viewing the move through the lens of fiscal concerns.

That is important because investors are becoming increasingly alert to the possibility of Treasury measures aimed at containing borrowing costs.

Fiscal Risks Complicate the Dollar’s Bullish Case

The latest market reaction indicates that the so-called debasement trade remains relevant.

Treasury Secretary Scott Bessent’s earlier push toward larger Treasury buybacks appears to have continued influencing investor thinking. If markets believe that a sustained rise in long-term yields could eventually prompt stronger Treasury intervention, then higher yields may not automatically translate into dollar gains.

Instead, they could intensify concerns about fiscal sustainability, government debt management and the currency’s longer-term purchasing power.

This has created a notable split across the US yield curve.

The front end suggests the Fed could maintain a tighter stance, providing fundamental support for the dollar.

The long end is highlighting fiscal and Treasury-management risks, limiting that support.

For dollar bulls, this divergence is becoming increasingly important. The Fed’s hawkish repricing has so far failed to fully overcome the fiscal-risk premium weighing on the currency.

US Data Will Determine Whether the Dollar Pullback Deepens

Despite Monday’s decline, it may still be too early to aggressively bet against the dollar.

Following Warsh’s comments, investors would likely need a series of significantly weaker US economic reports before expectations surrounding the September 16 FOMC meeting are materially reversed.

The data sequence begins with ISM Manufacturing and JOLTS, followed by ADP employment, ISM Services, and ultimately Friday’s nonfarm payrolls report.

Current expectations point to a relatively resilient US economy.

ISM Manufacturing is projected to remain above 55, while services activity is expected to stabilise. ADP employment growth of roughly 40,000 would indicate softness but may not be sufficient to fundamentally alter the Fed outlook. Likewise, payroll growth around 65,000 would suggest a cooling labor market rather than an outright collapse.

That distinction is crucial.

A moderate slowdown alone is unlikely to erase Warsh’s hawkish message. For the dollar’s decline to evolve into a more durable trend, several economic indicators would likely need to weaken simultaneously and force markets to substantially reduce expectations for September tightening.

DXY: 100 Is Still the Critical Barrier

Technically, the US Dollar Index (DXY) is trading near 99.60, after recovering from August lows around 98.60 but failing so far to regain the psychologically significant 100.00 level.

The technical picture highlights the key battle. The 100.00–100.15 zone has emerged as important resistance following August’s breakdown. A decisive move above this area would indicate that the post-Warsh repricing is beginning to translate back into the FX market and would strengthen the argument for another advance in the dollar.

For now, DXY remains below that threshold.

The dollar therefore finds itself at an interesting crossroads: monetary-policy expectations remain supportive, but price action has yet to validate that bullish outlook.

Opening Bell View

The key question this week is not simply whether upcoming US data beats or misses expectations. Instead, investors need to determine whether the economic numbers are weak enough to reverse the hawkish repricing already reflected in short-term interest rates.

If manufacturing, services and labor-market data remain broadly resilient, the front-end rates narrative should continue supporting the dollar, potentially allowing DXY to make another attempt at 100.00. Seasonal trends in September have also historically provided some support for the greenback.

Conversely, if the US economy delivers a series of significant downside surprises and markets begin removing expectations for September tightening, the current dollar pullback would gain a much stronger fundamental basis.

For now, the clearest interpretation is that the dollar’s correction has moved further than the shift in Fed expectations would suggest.

The next move therefore depends heavily on the US data. Until short-term rates begin moving lower alongside the dollar, the decline below 100 appears more like a test of the hawkish Fed narrative than a confirmed reversal of it.

Friday’s breakdown below the rising support line marked the first major warning for gold, while Monday’s close confirmed the second as prices settled below the $4,500 level.

Gold ended Monday at $4,481.50 and has since slipped toward $4,426, putting both bearish signals firmly in place. However, this weakness is viewed as temporary within the broader long-term bull market, with the next few months potentially resembling the consolidation seen in late 2012 and 2013 before the larger uptrend resumes.

Silver Confirms the Bearish Signal

Silver’s recent short-term strength proved short-lived. As expected, the metal has now fallen at roughly twice gold’s pace, resolving the earlier outperformance within a single session.

Silver remains near its declining resistance line, but a decisive close back below that level could trigger a much sharper decline. The bearish setup is reinforced by several technical signals:

• Silver has already broken below its rising support line.
• Friday’s high occurred precisely where two support/resistance lines intersected, once again highlighting the importance of these technical levels.

Dollar Breakout Adds Pressure

The US Dollar Index has now closed above its declining resistance line for three consecutive sessions, confirming the recent breakout. With the dollar continuing to advance, the August decline in the greenback increasingly appears to have run its course.

That development creates an unfavorable backdrop for precious metals. A stronger dollar, combined with rising oil prices and renewed inflation concerns, could keep downward pressure on gold and silver.

Gold Falls Despite Renewed Conflict

The most important signal from today’s session is how gold reacted when geopolitical tensions escalated again.

The US and Iran exchanged strikes after roughly a month without direct attacks. US forces reportedly targeted Iranian rocket launchers on Larak Island, while Iran responded with missile and drone attacks against US facilities in Jordan and the UAE. Reports also indicated that a tanker struck mines and a bulk carrier was seized near Bandar Abbas, while President Trump renewed threats involving Kharg Island, a major Iranian oil-export hub.

Brent crude climbed back above $90, yet gold fell by more than 1%.

That reaction is significant. A month earlier, similar headlines triggered massive rallies in gold. This time, renewed fighting and a surge in oil prices failed to attract a sustained safe-haven bid.

The market appears to be focusing instead on the inflationary impact of higher oil prices. Rising energy costs could keep inflation elevated, encouraging the Federal Reserve to maintain a hawkish stance. Combined with the confirmed dollar breakout, that pressure appears to be outweighing gold’s traditional geopolitical safe-haven appeal.

The Bigger Picture

Gold and silver are both showing increasingly bearish technical signals, while mining stocks are also moving lower. At the same time, the US dollar has confirmed its breakout and rising oil prices are reinforcing inflation concerns.

The clearest takeaway is simple: when a major geopolitical escalation occurs and gold falls instead of rising, the market is sending a powerful signal that traders should not ignore.

EUR/USD edged higher to around 1.1620 during Tuesday’s early Asian session, maintaining its position above the key 1.1600 level as markets await the release of the Eurozone’s preliminary August HICP inflation figures.

The Euro remains supported despite a firmer US Dollar, with traders closely watching the upcoming inflation data for clues about the European Central Bank’s next policy moves.

In Germany, consumer inflation accelerated to 2.9% year-on-year in August, up from 2.8% in July and marking the third straight monthly increase. However, monthly CPI growth slowed to 0.2%, below the 0.3% market forecast.

The ECB has already raised borrowing costs once, and markets are increasingly pricing in another rate hike at its September 10 meeting. Investors are also anticipating further monetary tightening into next year if inflation remains persistent.

Meanwhile, hawkish signals from the Federal Reserve could limit EUR/USD’s upside. Traders have increased expectations for a September Fed rate hike after Kevin Warsh indicated that policymakers may need to take further action if they lack confidence that underlying inflation is moving back toward the 2% target.

Warsh Provides Clearer Guidance on Fed Policy

Scotiabank strategists noted that Warsh’s Jackson Hole remarks helped clarify his policy stance following the uncertainty surrounding his comments after the July FOMC meeting. His latest comments provided markets with a clearer signal ahead of the September policy decision.

For EUR/USD, the focus now shifts to the Eurozone HICP inflation report, which could provide fresh direction for the pair and influence expectations for both ECB and Fed policy.

Technical Analysis: EUR/USD

On the daily chart, EUR/USD is trading around 1.1622, maintaining a mildly bullish structure. The pair has moved above the 20-period Bollinger Band midpoint at 1.1600 and the 100-day SMA near 1.1570, reinforcing the positive setup following its rebound from the mid-1.15 area.

Momentum also remains supportive, with the 14-day RSI near 57, indicating continued buying interest while still staying comfortably below overbought territory.

On the upside, the upper Bollinger Band around 1.1713 represents the next key resistance zone, where the pair could encounter some profit-taking. On the downside, 1.1600 serves as the first support level, followed by the 100-day SMA near 1.1570. A break below these levels could open the way toward the lower Bollinger Band around 1.1488, which represents a stronger potential demand zone.