The US Dollar Index struggles to gain significant buying interest as falling Treasury yields limit its upside potential. However, rising expectations of a Federal Reserve rate hike and ongoing geopolitical tensions provide support for the safe-haven US dollar. Meanwhile, traders remain cautious about taking fresh positions ahead of next week’s FOMC meeting.
Fundamental Analysis
The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, remains largely subdued on Thursday, trading near 101.70 during the Asian session. However, the index continues to hold above Tuesday’s nearly three-week low as opposing market forces shape its performance.
The recent decline in US Treasury yields from multi-year highs, combined with growing expectations that the Federal Reserve (Fed) will leave interest rates unchanged at next week’s meeting, continues to weigh on the US Dollar. Nevertheless, markets are still pricing in approximately a 90% probability of a rate hike in December, driven by persistent inflation concerns linked to volatile oil prices. Ongoing geopolitical uncertainty also supports demand for the safe-haven currency, helping limit further losses in the DXY.
Developments in the Middle East remain a key source of market uncertainty. Iranian Foreign Minister Abbas Araghchi stated that Tehran is willing to resume diplomatic efforts if Washington demonstrates a genuine commitment to reaching a resolution. Meanwhile, The New York Times reported that the US and Israel have prepared plans for potential new strikes against Iran following the US midterm elections. These developments warrant caution among bearish traders and could prevent the DXY from extending its recent retreat from an 18-month high.
Investors may remain on the sidelines ahead of next week’s key monetary policy decision, following the two-day Federal Open Market Committee (FOMC) meeting scheduled to conclude on October 28. Market participants will also closely monitor the US Personal Consumption Expenditures (PCE) Price Index and preliminary third-quarter GDP figures, both due next Thursday, for further clues about the Fed’s policy outlook. These releases could provide fresh momentum for the DXY and help determine its next directional move.
The short-term outlook for the US Dollar Index remains mildly bullish, as the DXY continues to trade above the 200-period Simple Moving Average (SMA) on the four-hour chart. However, resistance at the 23.6% Fibonacci retracement level of 101.92 may limit the ongoing recovery. A decisive break above this barrier would strengthen the bullish outlook and potentially pave the way for further gains toward higher Fibonacci retracement levels.
On the downside, initial support is located around the 38.2% Fibonacci retracement level at 101.28, followed by the 200-period SMA near 101.00, which serves as an additional support zone. A sustained break below this moving average would undermine the emerging bullish momentum and increase the risk of a deeper correction.
The U.S. dollar declined sharply against the Canadian dollar toward the end of the week, with the 1.4250 level continuing to act as a major resistance barrier. The latest pullback reinforces the importance of this price zone as traders assess the global interest rate outlook.
The greenback has lost some momentum as U.S. yields retreated. However, the current decline appears to be a corrective move rather than a confirmed trend reversal. USD/CAD could experience further weakness over the next week or two, although buying interest is likely to emerge at lower levels.
EUR/USD
EUR/USD initially moved lower before reversing course and recovering, forming a hammer-like candlestick pattern. Despite the rebound, the broader outlook for the euro remains bearish, particularly as the interest rate differential continues to favor the U.S. dollar. Concerns surrounding France’s fiscal position and its bond market also weigh on the single currency.
Although a short-term recovery remains possible, the pair faces considerable resistance overhead. The 1.1350 level is a key area to monitor, as historical price behavior suggests that sellers could re-enter the market around this zone.
Gold
Gold prices declined during the week before recovering some ground, suggesting that buyers are beginning to return. The $4,200 level marks the upper boundary of an important support and demand zone that extends toward $4,000.
A decisive break below $4,000 could expose gold to additional selling pressure, particularly if U.S. Treasury yields strengthen. However, yields have recently turned lower, creating conditions that could support a near-term rebound in the precious metal.
USD/MXN
The U.S. dollar gained against the Mexican peso during the week but continued to encounter resistance around the 18.50 level, a price zone that has played an important role in previous market movements. The pair is also trading near its 200-week exponential moving average (EMA), adding to the significance of this technical area.
The next move will depend on whether USD/MXN can break decisively above resistance or reverse lower. With U.S. yields declining, further downside in the pair could present a potential short-selling opportunity if bearish momentum develops.
Bitcoin
Bitcoin moved lower during the week as the cryptocurrency market continued to undergo a correction. Price action remains volatile, with the 50-week EMA emerging as an important technical level to watch for potential support.
Following its recent move above $81,000, Bitcoin is now testing the strength of demand around that region. A decline below $80,000 could signal a more concerning bearish development, potentially triggering additional selling pressure. Conversely, a sustained breakout above $90,000 could attract renewed buying interest and open the door to further gains.
GBP/USD
GBP/USD spent the week recovering from the lower boundary of its broader consolidation range near 1.3150. This level has attracted buying interest since April, making it an important support area for the pair.
If the recovery continues, the next significant upside target could be around 1.3650. However, a more aggressive bullish outlook remains premature, as U.S. interest rates are still relatively elevated despite their recent decline. The pair may need stronger bullish momentum before confirming a sustained upward trend.
NASDAQ 100
The NASDAQ 100 experienced a difficult week as semiconductor stocks faced renewed selling pressure. Concerns that tighter financing conditions could affect the artificial intelligence sector appear to be weighing on investor sentiment.
The 28,000 level is a crucial support zone to monitor, as holding above this threshold could help stabilize the index. A breakdown below support would increase downside risks. On the upside, a sustained move above 30,250 could signal renewed bullish momentum and create room for further gains.
Silver
Silver prices declined during the week, testing the important $55 support level. This area has historically acted as both support and resistance, making it a key reference point for traders. Despite the recent decline in yields, silver has struggled to gain meaningful upside momentum, suggesting that buying interest remains relatively subdued.
The broader support zone extends toward $55, and a decisive break below this level could expose silver to a further decline of approximately $10. On the other hand, a sustained move above $60 would improve the technical outlook and potentially signal a stronger bullish recovery.
AUD/JPY maintains its upward momentum after China’s September CPI inflation climbed 0.9% year-on-year, while the PPI jumped to 5.0%, exceeding market forecasts.
The Japanese Yen remains under pressure as Bank of Japan officials appear reluctant to pursue another consecutive interest rate hike.
Market participants remain cautious amid growing speculation that Japanese authorities could step in to support the weakening Yen.
AUD/JPY extends its advance for a second consecutive session, trading near 110.70 during Asian trading on Wednesday. The currency pair maintains its upward momentum as the Australian Dollar (AUD) strengthens following the release of China’s September inflation data, given the country’s importance as one of Australia’s key trading partners.
China’s National Bureau of Statistics reported that annual Consumer Price Index (CPI) inflation increased to 0.9% in September from 0.8% in August, slightly below market expectations of 1.0%. On a monthly basis, CPI rose 0.2%, slowing from the previous month’s 0.4% increase and missing forecasts for a 0.3% gain. Meanwhile, the Producer Price Index (PPI) climbed 5.0% year-over-year, accelerating from August’s 3.8% rise and exceeding expectations of 4.5%.
Analysts at Commerzbank note that the Reserve Bank of Australia’s (RBA) latest communication conveyed an important signal to foreign exchange markets. The central bank expressed concern that a weaker Australian Dollar could intensify inflationary pressures by making imported goods more expensive, highlighting the currency’s influence on the domestic inflation outlook. Commerzbank also observed that the RBA believes a rise in the global neutral interest rate could weaken the AUD if Australia’s neutral rate did not increase by a comparable amount. However, the central bank appeared to assume that Australia’s neutral rate had risen accordingly, suggesting domestic monetary conditions have kept pace with global developments.
The AUD/JPY cross also benefits from continued weakness in the Japanese Yen (JPY), following reports that Bank of Japan (BoJ) officials are reluctant to deliver another consecutive interest rate increase, an uncommon move for the central bank.
Nevertheless, the BoJ is still broadly expected to continue normalizing monetary policy over the longer term. Meanwhile, traders remain alert to the possibility of further Japanese government intervention to support the struggling Yen.
Analysts at MUFG/BTMU point out that Prime Minister Takaichi recently reiterated in parliament that the US and Japanese finance ministers remain in close communication regarding foreign exchange developments. She also indicated that currency issues were discussed in general terms during the latest US-Japan summit. Her acknowledgment that a weaker Yen presents both advantages and disadvantages highlights the policy challenges confronting Japanese authorities.
MUFG/BTMU further note that the Yen has maintained relatively stronger levels since the joint US-Japan intervention in late July. In their assessment, the intervention has helped curb additional Yen depreciation in recent months, although the prospect of renewed official action remains a key consideration for currency traders.
Copper prices maintained a bullish bias throughout the week, although trading was marked by considerable volatility and repeated price swings.
Market participants continue to look for opportunities to buy copper at lower prices. The longer-term outlook remains supported by growing electrification demand and the expansion of AI data centers, both of which are expected to increase copper consumption.
However, rising interest rates could weigh on prices and create short-term headwinds. The $6.50 level remains a key area of support, where buying interest has consistently emerged.
USD/JPY
The US dollar made modest gains against the Japanese yen over the past week. Price action suggests that the yen carry trade may gradually be regaining momentum, although the recovery remains relatively measured.
This development comes as traders continue to test the Bank of Japan’s willingness to intervene in the currency market. The central bank has recently adopted a less aggressive stance toward potential market intervention.
Meanwhile, rising US Treasury yields and expectations that the Federal Reserve could raise interest rates before the end of the year are providing additional support for USD/JPY. The main risk to the pair’s upside remains the possibility of direct intervention by Japanese authorities, which could trigger temporary pullbacks.
EUR/USD
The euro extended its decline against the US dollar as concerns over European fiscal conditions, particularly France’s debt situation, continued to weigh on sentiment across the European Union.
EUR/USD has fallen below both the 200-week exponential moving average (EMA) and the 1.12 psychological threshold. If selling pressure persists, the pair could face further downside.
The combination of higher US interest rates and rising borrowing costs across Europe is adding to the euro’s difficulties. Fiscal concerns in France, with potential spillover effects on Italy and Greece, are creating additional pressure on the single currency.
USD/CAD
The US dollar initially weakened slightly against the Canadian dollar during the week. However, disappointing Canadian employment data released on Friday shifted the outlook in favor of USD/CAD.
The pair is holding above the 1.4250 level, an important price area that has played a significant role in previous trading sessions.
Market participants will be watching closely to determine whether the pair can maintain its upward momentum. For now, the technical picture suggests that USD/CAD may be attempting to establish a path toward higher levels.
Gold
Gold prices declined for much of the week before staging a partial recovery. Recent price action suggests that buyers may be attempting to regain control, although the sustainability of any rebound will largely depend on developments in US interest rates.
The $4,000–$4,200 zone remains an important demand area, where buyers could step in to support prices.
Higher interest rates generally create headwinds for gold by increasing the opportunity cost of holding a non-yielding asset. Conversely, any easing in rate expectations could improve market sentiment and attract renewed buying interest around current support levels.
AUD/USD
The Australian dollar recorded a modest weekly gain against the US dollar, outperforming several other currencies in the Asia-Pacific region. One contributing factor is the Reserve Bank of Australia’s relatively hawkish monetary policy stance compared with some of its regional counterparts.
From a technical perspective, AUD/USD appears to be testing support near the 50-week EMA. If this level holds, the pair could attract additional buying interest.
The 0.6850 level remains an important support area, while 0.7250 represents a major resistance zone that could limit further gains.
GBP/USD
GBP/USD is trading near the lower boundary of its recent range, with the 1.3200 level emerging as a critical area of support. This psychologically important threshold is attracting attention as the 200-week EMA also approaches the same region.
Relatively similar interest-rate conditions in the UK and the US have contributed to a broadly neutral outlook for the pair.
Given its position near the bottom of the trading range, GBP/USD could present a buying opportunity if the US dollar begins to weaken. However, traders will need to monitor whether support around 1.3200 holds before expecting a sustained recovery.
USD/CHF
The US dollar posted a slight gain against the Swiss franc during the week, with USD/CHF continuing to fluctuate around the 0.8300 level. This price zone has previously acted as an important area of market activity and remains a key level to watch.
Interest-rate differentials between the United States and Switzerland are likely to play a significant role in determining the pair’s next direction. At the same time, ongoing geopolitical and economic uncertainties may sustain demand for the Swiss franc as a safe-haven currency.
The Swiss National Bank’s preference for avoiding excessive franc strength could also influence market expectations. Overall, short-term declines in USD/CHF may attract buyers, particularly if the interest-rate advantage continues to favor the US dollar.
USD/JPY comes under renewed selling pressure after an intraday rebound triggered by weaker-than-expected Japanese economic data.
Expectations of a Bank of Japan rate hike and the risk of currency intervention lend support to the Japanese Yen, limiting upside potential for the pair.
A weaker US Dollar adds further pressure on USD/JPY, although the pair’s downside appears to remain constrained.
USD/JPY Remains Below 158.00 as Mixed Fundamentals Limit Directional Momentum
The USD/JPY pair struggles to extend its modest gains from the Asian session on Friday, trading near the lower end of its daily range and below the 158.00 level amid broad weakness in the US Dollar (USD). Nevertheless, the pair continues to fluctuate within a familiar range established over the past week as conflicting fundamental factors keep traders cautious.
The Japanese Yen (JPY) came under slight pressure after data released earlier in the day revealed that Japan’s household spending declined for the ninth consecutive month in August. However, the contraction was smaller than anticipated, while real wages increased for an eighth straight month. These developments reinforce expectations that the Bank of Japan (BoJ) could continue tightening monetary policy. Additionally, speculation that Japanese authorities may intervene to support the Yen keeps traders on alert. Combined with the softer US Dollar, these factors limit the USD/JPY pair’s upside potential.
BoJ’s Gradual Rate Hikes Continue to Reduce the Yen’s Carry Trade Appeal
Rabobank’s foreign exchange strategists observed that although the BoJ delivered an expected interest rate increase at its September policy meeting, its forward guidance fell short of the market’s more hawkish expectations. Nevertheless, they emphasized that the central bank’s gradual tightening strategy continues to diminish the Yen’s attractiveness as a funding currency. As Japanese interest rates rise, the traditional appeal of borrowing Yen to finance higher-yielding investments elsewhere gradually weakens.
US President Donald Trump stated on Thursday that Washington would not resume military strikes against Iran before the November 3 midterm congressional elections. The announcement helped contain crude oil prices and eased concerns about further inflationary pressures. Meanwhile, strong demand at a US 30-year Treasury bond auction prompted a pullback in government bond yields, pushing the US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, lower from its 18-month peak. These developments further restrict the potential for a sustained advance in USD/JPY.
However, market participants continue to assign a probability of more than 80% to a Federal Reserve (Fed) interest rate hike in December. Persistent geopolitical tensions surrounding the US-Iran confrontation over Tehran’s nuclear program could also underpin demand for the safe-haven US Dollar. Iran’s Atomic Energy Organization chief, Mohammad Eslami, reportedly reiterated that the country would neither halt uranium enrichment nor surrender its uranium stockpile. This stance keeps geopolitical risks elevated and could provide additional support for the Greenback.
Despite these competing influences, uncertainty surrounding the broader fundamental outlook has discouraged traders from establishing aggressive directional positions, leaving USD/JPY confined to a relatively narrow trading range. Attention now turns to the preliminary University of Michigan Consumer Sentiment Index and inflation expectations data from the United States. Speeches by influential Federal Open Market Committee (FOMC) officials, alongside developments in the geopolitical landscape, could also influence demand for the US Dollar and create short-term trading opportunities ahead of the weekend.
The USD/JPY pair retains a bullish near-term outlook as prices remain above the 100-period Simple Moving Average (SMA) on the four-hour chart. The ongoing consolidation could represent a pause within the broader upward trend rather than a reversal, suggesting that the bullish structure remains intact despite the absence of strong buying momentum.
On the downside, initial support is located around 157.59, near the 100-period SMA. This moving average could provide a cushion against further declines as long as the pair remains above it. On the upside, the 158.50 region marks a key resistance area near the upper boundary of the current trading range. A sustained break above this level would strengthen the bullish outlook and potentially pave the way for further gains.
GBP/USD remains stuck in a familiar trading range, struggling to build sustained upward momentum.
Expectations for a hawkish Bank of England stance lend support to the Pound, but a stronger US Dollar limits the pair’s gains.
Heightened geopolitical tensions and elevated US Treasury yields continue to bolster demand for the safe-haven Greenback.
Fundamental Analysis
The GBP/USD pair continues to trade within a consolidation phase during Tuesday’s Asian session, holding above the 1.3200 level and remaining confined to the familiar range established over the past couple of weeks.
Expectations for tighter monetary policy from the Bank of England (BoE), driven by persistent inflation linked to elevated energy prices, continue to provide support for the British Pound. Meanwhile, the US Dollar pauses after its recent rally to its highest level since April 2025, offering some relief to GBP/USD and helping limit further downside.
However, ongoing geopolitical uncertainty and elevated US Treasury yields continue to underpin demand for the safe-haven US Dollar. In the latest Middle East developments, Yemen’s Houthi group claimed on Monday that it had conducted three military operations involving ballistic and cruise missiles and drones targeting airports, an oil facility, and military sites in Saudi Arabia.
Meanwhile, reports indicate that Israel may be preparing a potential strike against Iran, either independently or in coordination with the United States. At the same time, worsening fiscal concerns in France have triggered renewed selling across bond markets, keeping US Treasury yields near multi-year highs. This environment continues to support the Greenback and limits the upside potential for GBP/USD.
On the US data front, figures released last week showed signs of easing inflationary pressures. Combined with a weaker-than-expected US Nonfarm Payrolls (NFP) report, the data reduced expectations for a Federal Reserve rate hike in October. Nevertheless, markets continue to price in more than an 80% probability of at least one Fed rate increase by year-end, maintaining a constructive outlook for the US Dollar.
Investors appear reluctant to establish fresh directional positions and are instead awaiting clearer signals regarding the Fed’s future policy trajectory. Attention will therefore turn to Wednesday’s release of the FOMC Minutes. Speeches from key Fed policymakers, along with developments on the geopolitical front, could also influence USD demand and provide fresh momentum for GBP/USD.
The recent sideways price action can be viewed as a bearish consolidation pattern following the pair’s decline from its August swing high. Furthermore, GBP/USD remains below the 100-period Simple Moving Average (SMA) on the 4-hour chart, indicating that any recovery attempt could face resistance.
The 100-period SMA around 1.3319 represents an important resistance level. A sustained break above this barrier could ease the bearish pressure and pave the way for further recovery. Conversely, a decisive move below 1.3180 would reinforce the negative bias and increase the risk of additional declines.
The US Dollar maintains its strength against major currencies, supported by firm US Treasury yields.
Selling pressure on US bonds remains strong as concerns over persistent inflation continue to weigh on sentiment.
Investors are turning their attention to the FOMC minutes from the September meeting, due to be released on Wednesday.
The US Dollar (USD) remains broadly supported against its major currency counterparts as US Treasury yields stay elevated amid ongoing concerns over persistent inflation.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback against six major currencies, is trading around 0.1% higher near 102.20. The index remains close to Monday’s yearly peak of 102.54. Meanwhile, the 10-year US Treasury yield has climbed 0.24% to approximately 5.32%, approaching its fresh two-decade high of 5.35% reached on Monday.
US Dollar Price Today
The US Dollar continues to outperform most of its major counterparts, with the British Pound showing the weakest performance against the Greenback.
Selling pressure in US Treasury bonds remains elevated despite softer-than-expected September Nonfarm Payrolls (NFP), which has prompted traders to reduce expectations for an aggressive Federal Reserve (Fed) tightening cycle. Markets are increasingly focusing on the inflation outlook when assessing the Fed’s future interest-rate decisions, with price pressures remaining a key concern.
Societe Generale’s Kenneth Broux noted that the weaker payrolls report has further reduced expectations for near-term Fed tightening. However, the data has not fundamentally changed the central bank’s hawkish stance, as inflation remains a major concern. The latest employment figures instead support a more cautious approach to the timing and scale of potential future policy adjustments.
Investors will look to the Federal Open Market Committee (FOMC) minutes from the September meeting, due for release on Wednesday, for additional clues about the Fed’s monetary policy direction.
Meanwhile, the latest US economic data offered little support, with the September ISM Services Purchasing Managers’ Index (PMI) coming in at 54.9, below the 55.0 market forecast and down from the previous reading of 55.4.
US Dollar Index Technical Analysis
On the daily chart, the Dollar Index is trading around 102.14. The short-term outlook remains bullish, with the index holding firmly above the 20-day Exponential Moving Average (EMA) at 100.96. This reinforces the ongoing upward trend following the recovery above the 100.00 level.
The 14-day Relative Strength Index (RSI) stands at 76.10, firmly within overbought territory. This indicates strong bullish momentum but also suggests that the recent advance may be becoming stretched.
On the downside, the June 24 high at 101.80 represents the first key support level, followed by the 20-day EMA near 100.96. To the upside, the yearly high of 102.54 remains the main resistance level to watch.
The gold market has moved lower this week, as continued pressure from U.S. interest rates weighs on the precious metal. With borrowing costs remaining elevated, it has been difficult for gold to regain strong upward momentum.
Gold is currently trading around a major rising trendline and above an important demand zone. The key question now is whether buyers will step back into the market. Much will depend on the direction of interest rates, but the current technical setup represents a significant confluence of support. A further decline in rates could provide a catalyst for renewed long positions in gold.
GBP/USD
The much weaker-than-expected U.S. jobs report has implications not only for gold but also for the British pound. GBP/USD is now trading near the lower boundary of the range that has contained the pair since February.
The 1.3150 area, together with the 200-week EMA, offers significant support, while major resistance remains near 1.37. With the pair sitting at the bottom of its broader range and forming a neutral candlestick, there is potential for a reversal. Falling U.S. interest rates could provide the additional support needed for GBP/USD to turn higher.
EUR/USD
The euro has weakened this week, with EUR/USD testing its 200-week EMA. However, the situation differs somewhat from GBP/USD, particularly because concerns surrounding French government debt are adding pressure to the euro.
That does not rule out a potential rebound, but it does suggest that EUR/USD faces greater fundamental headwinds than the British pound. As a result, traders may prefer looking at EUR/GBP shorts rather than taking a position directly in EUR/USD. Any short-term recovery in EUR/USD could also encounter resistance around the 1.14 level.
Copper
Copper has declined for most of the week but continues to find buyers around the $6.50 level. This remains an important area of support and is likely to continue attracting attention.
From a fundamental perspective, the supply-and-demand outlook remains supportive of higher copper prices. The ongoing electrification of the global economy, combined with growing demand from AI-related data centers, continues to strengthen the long-term case for copper. For that reason, buying the metal during meaningful pullbacks remains the preferred strategy.
Silver
Silver has experienced a particularly volatile and difficult week, although the metal is beginning to find support around the $60 level, an area that has previously acted as an important floor.
It remains too early to determine whether this support will hold, but the unexpectedly weak U.S. jobs report could be positive for silver if lower interest rates continue to support precious metals. The key question is whether this momentum can persist through the weekend, particularly as developments in the Middle East could trigger another sharp move in oil prices and broader market volatility.
Crude Oil (WTI)
WTI crude oil is currently testing a rising trendline, placing the market at a technically important area where buyers could emerge. Recent price action has been heavily influenced by developments in the Middle East, making the outlook particularly difficult to assess.
Headlines from the region remain highly volatile and unpredictable, creating significant uncertainty for oil traders. While this makes the market challenging to navigate, the potential for geopolitical developments to trigger another sharp move higher remains substantial.
USD/MXN
The U.S. dollar strengthened considerably against the Mexican peso during the week. However, USD/MXN has since pulled back from the 18.41 area, where the 200-week EMA is located, as U.S. interest rates moved somewhat lower.
Although the interest-rate differential still favors Mexico, that advantage is gradually narrowing. This makes USD/MXN a pair worth watching closely. A short position could become attractive if U.S. interest rates continue to decline. However, a move above 18.50 would signal a meaningful change in the broader trend. Even in that scenario, buying the pair would not be particularly appealing because of the negative swap costs involved.
NASDAQ 100
The NASDAQ 100 initially moved lower this week, but the index has since broken higher again. Buyers continue to show strong interest as U.S. rates potentially move lower, the artificial intelligence theme remains powerful, and broader market momentum continues to favor the upside.
Based on the current price action, short-term pullbacks continue to look like potential buying opportunities. There is little reason to consider shorting the NASDAQ 100 while the broader bullish trend remains intact. From a longer-term perspective, continued participation from buyers suggests that the upside trend could remain in place.
Australian exports rebounded 3.7% in August, supporting the Australian Dollar despite a narrower overall trade surplus.
Japan’s Q3 Tankan manufacturing index climbed to 24 but fell short of market expectations, putting pressure on the Yen.
The Bank of Japan’s policy summary pointed to the possibility of further rate hikes after its September increase lifted rates to a 31-year high.
AUD/JPY snapped a seven-session losing streak, trading near 109.80 during Thursday’s Asian session. The cross maintained its upward momentum as the Australian Dollar (AUD) benefited from the latest domestic Trade Balance figures.
Data from the Australian Bureau of Statistics showed that Australia’s trade surplus narrowed to A$495 million in August from a revised A$1.351 billion in July. The decline reflected a 5.8% month-on-month increase in imports, reversing the 2.4% contraction recorded in July. Meanwhile, exports recovered 3.7% MoM after falling 3.6% in the previous month.
On the Japanese side, the Bank of Japan’s (BoJ) Q3 Tankan survey indicated a modest improvement in business sentiment, although the figures came in below market expectations. The Large Manufacturing Index increased from 22 to 24, missing the forecast of 25, while the Non-Manufacturing Index slipped to 35 versus the consensus estimate of 36.
The BoJ’s Summary of Opinions from its September policy meeting also showed that some policymakers believe interest-rate increases may need to be accelerated or that policy should move closer to its target in the near term. Most policymakers supported additional rate hikes after the September increase to 1.25%, the highest level in 31 years.
Societe Generale strategists noted that the Japanese Yen has been the standout performer among G10 currencies this month. Kit Juckes said the Yen’s strength reflects the market’s reluctance to risk being caught off guard by potential Japanese intervention. According to the strategist, heightened expectations of further USD/JPY intervention are discouraging investors from rebuilding short-Yen positions, while also prompting greater caution across Yen-related currency pairs.
The US Dollar Index moves closer to its yearly high of 101.80, supported by hawkish signals from the Federal Reserve.
Fed’s Kashkari signals the possibility of one additional rate hike this year and another in 2027.
Markets now turn their attention to the US ISM Manufacturing PMI and September’s Nonfarm Payrolls (NFP) report.
The US Dollar (USD) outperforms its major currency peers on Thursday. During the Asian session, the US Dollar Index (DXY), which tracks the Greenback against six major currencies, rises 0.13% to around 101.60. The index remains close to its yearly high of 101.80.
Fundamental Analysis
What Is Driving the US Dollar Higher?
The Dollar’s latest strength appears to be supported by hawkish comments from Minneapolis Federal Reserve President Neel Kashkari during a Q&A session at the Council on Foreign Relations on Wednesday. His remarks helped reinforce expectations that US monetary policy could remain restrictive for longer.
Kashkari expressed concern that inflation remains elevated near 3% and suggested that resilient economic growth could indicate that monetary policy is not as restrictive as previously assumed. His comments about a potentially higher neutral interest rate, together with guidance for another rate hike this year and an additional increase in 2027, have strengthened the case for a prolonged period of restrictive policy.
The FXS Speechtracker gave Kashkari’s remarks a score of 7.1, above its historical average of 6.2. Meanwhile, the FXS Fed Sentiment Index edged down 0.42 points to 143.28. Despite the modest decline, the index remains well above its neutral level of 100, indicating that market expectations continue to reflect a relatively hawkish Fed stance.
What’s Next for the US Dollar?
Markets will turn their attention to the US ISM Manufacturing Purchasing Managers’ Index (PMI) for September, due at 14:00 GMT. The Manufacturing PMI is expected to rise to 55.0 from 54.6 in August.
The preliminary S&P Global PMI data for September came in stronger than expected, pointing to continued resilience in US private-sector activity and supporting expectations for a relatively restrictive Fed policy stance.
The main market focus later this week will be the September Nonfarm Payrolls (NFP) report, scheduled for Friday. Ahead of the report, the ADP Employment Change data provided a positive signal for the US labor market. ADP reported that private-sector employment increased by 90,000 jobs in September, above the 70,000 consensus estimate and August’s 36,000 increase.
On the daily chart, the Dollar Index Spot trades around 101.58. The short-term technical bias remains bullish, with the index holding above its 20-day Exponential Moving Average (EMA) at 100.53. The move back above the 101.00 level has further strengthened the recent upside structure.
However, the 14-day Relative Strength Index (RSI) stands at 73.32, indicating overbought conditions. This suggests that the recent rally has become stretched, although the indicator alone does not confirm an imminent reversal.
On the downside, the 20-day EMA around 100.53 represents the first major support level. A sustained break below this area could weaken the current bullish structure. Meanwhile, the 101.00–100.50 region may become an important area to monitor if the index enters a pullback.
The US dollar continues to maintain a firm tone. Technical momentum remains notably overbought, potentially reflecting the market’s aggressive expectations for the future path of Federal Reserve policy. Fed funds futures are even assigning some probability to an October rate hike, which would come just six days before the US midterm elections. There is some historical precedent for rate moves shortly before national elections, including in 2008, 2018, and 2022.
Markets are currently pricing in nearly 100 basis points of additional Fed tightening over the next 12 months. With expectations already elevated, the dollar’s recent strength could be vulnerable if upcoming economic data disappoints.
Six Fed officials are scheduled to speak during today’s North American session. Most have commented recently, and the latest communications, together with the dot plot, suggest that several policymakers remain open to another rate increase this year. The key question is the timing. At the same time, the latest dot plot, released less than two weeks ago, showed the median projection calling for no rate hikes next year. Under new leadership, however, it remains possible that the Summary of Economic Projections could be discontinued next year.
Euro: The euro fell below $1.1355 yesterday, matching its late-July low, and remained under pressure today after breaking below $1.1335. The year’s low was recorded in late June near $1.1325. A sustained move below $1.1300 could open the door to another decline of roughly two cents.
Japanese Yen: Additional verbal intervention from Japanese officials aimed at supporting the yen pushed the dollar down from around JPY157.50 to JPY156.50 yesterday. The dollar subsequently recovered toward JPY157.60 near the end of the European session before spending most of the North American afternoon moving between JPY157.00 and JPY157.50. Today, trading has been relatively subdued between approximately JPY157.20 and JPY157.70. Options worth nearly $500 million at JPY157.50 expire today.
British Pound: Sterling performed relatively well yesterday. Its low near $1.3220 remained above the lows recorded during the previous two sessions. The pound reached a three-day high around $1.3280 around midday in New York, although it finished below last Friday’s high near $1.3265. Today, sterling is trading with a softer bias within yesterday’s range. A break below $1.3200 would bring the late-June lows around $1.3140 into focus.
Canadian Dollar: The Canadian dollar remains under pressure, declining for a sixth consecutive session yesterday and in 13 of the past 14 sessions. It is slightly weaker again today. Meanwhile, the US two-year yield premium over Canada has continued to expand, marking its tenth consecutive increase. At roughly 154 basis points, the spread is at its widest since February 2025, when it approached 160 basis points.
The US dollar climbed to nearly CAD1.4180 yesterday and closed above last week’s highs. It is testing the CAD1.4200 area late in the European morning. The year’s high was established in late June near CAD1.4250.
Australian Dollar: The Australian dollar remained within Friday’s $0.7005-$0.7045 range yesterday. Although the Reserve Bank of Australia raised rates, its accompanying communication was interpreted as less hawkish than expected. The Aussie subsequently came under renewed selling pressure today, slipping slightly below $0.6980. The next notable technical area is around $0.6950.
Emerging Markets
Mexican Peso: After losing more than 4% over the past two weeks, the Mexican peso remained under pressure yesterday as higher US interest rates and broad dollar strength weighed on the currency. The dollar moved above MXN18.00 for the first time since the end of March.
It also closed above its upper Bollinger Band for a fourth consecutive session, with that band around MXN17.9350 today. The dollar briefly moved above MXN18.02 today. The MXN18.04 region represents the 61.8% retracement of the dollar’s decline from last November’s peak near MXN18.77 to the two-year low around MXN16.8575 recorded earlier this month. Above MXN18.04, the next significant resistance area is around the late-March and early-April highs near MXN18.1650.
The unwinding of the yen carry trade may initially have been less disruptive because some positions shifted toward dollar-funded trades. However, the sharp increase in US rates and renewed dollar strength now appear to be generating a broader unwind. The JP Morgan Emerging Market Currency Index has fallen roughly 1.5% over the past month and more than 1.8% so far this year.
Chinese Yuan: The dollar produced a potential key reversal against the offshore yuan yesterday. It initially pushed above recent highs to almost CNH6.7265 before reversing and closing slightly below the pre-weekend low near CNH6.7135. Today, the dollar declined to around CNH6.7045, its lowest level in four sessions. The recent cyclical low was established on September 21 near CNH6.6910.
After previously appearing to caution markets against viewing the yuan as a one-way trade, the People’s Bank of China unexpectedly lowered its dollar fixing yesterday by the largest amount since April. Today’s fixing was set at CNY6.7411, compared with CNY6.7399 yesterday.
Indian Rupee: The Indian rupee fell to a two-month low today despite reports that the Reserve Bank of India intervened by selling dollars in the domestic market. The dollar climbed to almost INR96.1540 before retreating to just below INR96.00.
Other Markets
Equities: US equity markets opened lower yesterday and extended their decline. However, stocks stabilized as bond yields pulled back, although the major US indices still ended below their opening levels. US equity futures are currently mixed but within a relatively narrow range. Most Asia-Pacific markets were weaker today, with China and Australia among the notable exceptions. The Stoxx 600 was little changed yesterday but is up approximately 0.45% today.
Bonds: Benchmark 10-year yields have stabilized today following yesterday’s sharp increase in the US and Europe. The 10-year Japanese government bond yield edged lower, while most European benchmark yields are around one basis point lower.
The US 10-year yield reached 5.27% yesterday before ending near 5.23% and is slightly higher today. The two-year yield climbed to 4.95% and finished around 4.92%; it is now close to 4.94%.
Considering the Atlanta Fed’s GDPNow estimate of around 5% growth, US CPI at 3.4%, Fed funds futures implying an overnight rate near 4.80% at the end of 2027, and the lack of meaningful progress in reducing the fiscal deficit and associated Treasury supply, a 5.25% 10-year yield does not appear particularly extreme in this environment.
Gold and Silver: Gold ended yesterday almost 3.8% below its pre-weekend level, marking its largest one-day decline since June 10. After trading near $4,510 earlier this month, gold fell to around $4,111 yesterday. It closed well below its lower Bollinger Band and has yet to reclaim that level, which stands near $4,157 today, although the metal is showing a somewhat firmer tone.
Silver was also hit by the sell-off, falling to around $60.75 yesterday. It too finished below its lower Bollinger Band near $61 and is struggling to move back above it. A break below $60 would bring the year’s low near $54.80 into focus.
Oil: Conflicting developments surrounding the war outlook, US-Iran negotiations, and the degree to which oil flows are recovering from the Middle East caused the November WTI contract to trade within Thursday’s broad range of approximately $91.25-$96.80. Crude is little changed during the European morning and remains within yesterday’s trading range.
Economic Data
With the US PCE deflator due tomorrow and employment data scheduled for Friday, July house prices and the Conference Board consumer confidence report are unlikely to generate a major market reaction today. Although consumer confidence remains weak, household spending continues to demonstrate resilience. The August JOLTS report is expected to indicate that labor-market conditions remain broadly stable.
Canada is expected to report unchanged GDP for July following June’s 0.3% expansion. Statistics Canada is also due to publish an advance estimate for August GDP. The Canadian economy expanded at an annualized 3.3% pace during Q2 and is expected to have slowed to roughly half that rate in Q3. Even so, swaps markets continue to assign slightly better than a 50% probability to a Bank of Canada rate increase at next month’s meeting.
The European Commission released its September confidence surveys today. Results were mixed, although the market reaction was limited. Spain separately reported stronger September inflation. Its harmonized inflation measure increased 0.6%, lifting the annual rate to 5.0% from 4.6% in August. Spain also reported that retail sales fell 1.1% year over year in August, compared with a 0.3% decline in July.
Germany will release September CPI data tomorrow. The EU-harmonized measure is expected to rise by around 0.5%, which would push the annual inflation rate to 3.2% from 2.9%. Meanwhile, French civil servants are staging strikes ahead of the government’s budget bill later this week.
The UK reported August consumer credit data. Consumer borrowing was somewhat stronger than expected and increased 9.6% year over year, compared with 9.3% in July. Mortgage approvals eased slightly, although net mortgage lending increased.
The Reserve Bank of Australia raised its cash rate target for the fourth time this year, taking the benchmark rate to 4.60%. This remains the highest policy rate among G10 central banks and is the highest Australian rate in roughly 15 years.
Australia also reported flat household spending in August, contrary to expectations for modest growth. August CPI is due tomorrow. Bloomberg’s median forecast points to a 0.5% monthly increase, which would lift annual inflation to 4.1% from 3.5%.
Before the RBA decision, futures markets had priced in nearly a 65% probability of another rate increase before year-end. Following Governor Bullock’s less hawkish remarks, that probability has fallen to just under 60%.
China slightly revised down its Q2 current-account surplus estimate to $193.7 billion from $195.1 billion. That followed a $184.3 billion surplus in Q1, while the Q2 2025 surplus stood at $128.7 billion.
China’s overall trade surplus is larger, but the country recorded a $37.6 billion primary-income deficit. This category includes interest earned on bonds and loans, dividends from equities, profits from overseas businesses, and compensation earned by workers who live in one country while working for employers based in another.
Separately, Beijing indicated that it intends to move “with greater urgency” to support economic activity and promised additional “practical and effective” policy measures. In its latest statement, the State Council acknowledged that emerging economic problems require stronger counter-cyclical adjustments. China’s September PMI figures are scheduled for release tomorrow morning.
USD/JPY slips toward 157.00 during early Asian trading on Wednesday.
Renewed verbal interventions from Japanese authorities provide support for the Yen.
Hawkish comments from Federal Reserve officials could limit further declines in the pair.
Fundamental Analysis
The USD/JPY pair trades near 157.00 in early Asian trading on Wednesday, as the Japanese Yen strengthens amid renewed concerns over possible currency intervention. The move follows comments from US Treasury Secretary Scott Bessent and Japan’s Finance Minister Satsuki Katayama, who reiterated plans to deepen cooperation over Yen weakness and maintain orderly foreign exchange markets.
Katayama said Tuesday that she considers the Yen’s current valuation problematic and confirmed that Japan will remain in close contact with the US Treasury. Japanese officials have recently stepped up their warnings about excessive currency depreciation, with top FX diplomat Atsushi Mimura urging markets to take Tokyo and Washington’s concerns seriously.
The Yen advanced despite weak Japanese economic data. Industrial production declined 2.2% year-on-year in August, compared with a 4.0% increase previously.
Meanwhile, hawkish signals from Federal Reserve officials could limit USD/JPY’s downside. Fed Governor Michael Barr warned that additional rate increases may be necessary to contain inflation, while Cleveland Fed President Beth Hammack previously said inflation risks remain elevated and monetary policy should stay restrictive.
Markets are now awaiting the US ADP employment report and Personal Consumption Expenditures (PCE) Price Index later Wednesday. According to the CME FedWatch Tool, markets currently price a 47.1% probability of a Fed rate hike in October and a 92.5% probability of another increase in December.
Yen Strengthens as Japanese Officials Renew FX Warnings
Scotiabank analysts identified the Japanese Yen as a notable exception to broader defensive trading across G10 currencies. They attributed the Yen’s recent strength partly to renewed comments from Atsushi Mimura, who reiterated warnings previously issued by Prime Minister Sanae Takaichi and Finance Minister Satsuki Katayama. The comments have provided additional support for the Yen and helped it outperform several other major currencies.
Hawkish Fed Signals Provide Support for the Dollar
Fed official Goolsbee also adopted a hawkish tone, highlighting the potential risks of an economic overheating driven by expectations of future AI-related productivity gains. He also pointed to large fiscal deficits and emphasized the importance of seeing clear evidence that inflation is moving sustainably lower.
These comments suggest that policymakers remain focused on inflation risks and may have limited tolerance for easing monetary policy too quickly. The FXS Fed Sentiment Index increased by 1.01 points to 145.30, remaining firmly above the neutral 100 level and indicating a relatively hawkish interpretation of recent Fed commentary.
Technical Analysis: USD/JPY Maintains a Bearish Bias Below the 100-Day SMA
On the daily chart, USD/JPY maintains a mildly bearish near-term tone while trading below both the 100-day simple moving average (SMA) and the upper Bollinger Band. The 14-day Relative Strength Index (RSI) stands around 48.8, indicating relatively neutral momentum following the recent decline.
On the upside, resistance is located around the upper Bollinger Band at 159.20, followed by the 100-day SMA near 159.55. On the downside, initial support lies around the Bollinger middle band at 156.10, while stronger support is found near the lower Bollinger Band at 152.95.
The NASDAQ 100 posted solid gains for most of the week, showing signs of recovering from recent volatility and regaining upward momentum. While elevated interest rates continue to create some caution among investors, the broader trend remains constructive, suggesting the index could move higher over time.
Recent price action indicates that buyers remain eager to step in during pullbacks. Market participants continue to view dips as buying opportunities, helping the index maintain its resilience despite the challenging interest-rate environment.
EUR/USD
The euro weakened throughout much of the week, falling toward the 1.14 level before finding support and recovering some ground near the end of the trading period. Whether this rebound can be sustained remains uncertain.
If U.S. interest rates continue to rise, the dollar may retain its advantage, potentially placing additional pressure on the euro in the near term.
Gold
Gold moved lower during the week as rising bond yields and higher interest-rate expectations weighed on investor sentiment. The precious metal may continue to face headwinds in the short term.
However, the longer-term outlook remains more balanced. While volatility and uncertainty are likely to persist, any significant pullback could eventually attract buyers looking for value.
Copper
Copper experienced significant volatility, including a sharp rally that struggled to maintain momentum. The market remains caught between strong long-term fundamentals and short-term uncertainty.
Resistance near the $7 level continues to limit advances. Nevertheless, concerns about constrained mine supply, combined with growing demand from electrification projects and AI-related infrastructure, remain supportive factors for the metal over the longer term.
USD/CAD
The U.S. dollar surged against the Canadian dollar for most of the week and appears to be targeting the key 1.42 level.
Interest-rate differences and overall market risk sentiment remain major drivers of the pair. Ongoing trade-related tensions between the two economies also continue to influence price action. The 1.42 area may act as a significant resistance zone.
Silver
Silver declined during the week but continues to trade within its established range. Traders remain focused on whether demand from electrification projects and AI-related industries will provide additional support.
With interest rates remaining elevated, silver faces conflicting forces that could keep price action volatile. Resistance near the $70 level may prove difficult to overcome in the near term.
GBP/USD
The British pound weakened against the U.S. dollar and tested a key support area around 1.3250. Buyers emerged at that level, helping to stabilize the pair.
For now, the market appears to be consolidating within a broader range. Since interest-rate policies in the United Kingdom and the United States are relatively similar, yield differentials are playing a smaller role in driving the exchange rate.
USD/MXN
The U.S. dollar strengthened sharply against the Mexican peso as rising U.S. interest rates boosted demand for the greenback. Given Mexico’s close economic ties to the United States, shifts in U.S. monetary conditions can have a significant impact on this currency pair.
Even so, resistance may emerge as prices approach the 18.00 peso level. While higher U.S. rates have narrowed the interest-rate advantage traditionally enjoyed by the peso, carry-trade considerations could still influence market behavior over the longer term.
USD/JPY climbs for a fifth consecutive session, approaching the 159.00 level as Tokyo refrains from intervention.
The BoJ policy rate stands at 1.25%, its highest level in 31 years, compared with the Fed’s 3.75%-4.00% range.
Japan’s Tankan survey is due on September 30, followed by Tokyo CPI data on October 1.
Finance Minister Katayama said on Thursday that the principles underlying the joint US-Japan currency intervention on July 31 remain in place. The comments came as USD/JPY briefly reached 159.00, its highest level since early September. The pair is now trading just below that mark and is heading for a fifth consecutive daily gain. Despite a series of developments over the past week—including the Bank of Japan (BoJ) raising interest rates, Japanese officials checking rates with dealers, and Katayama reiterating her warning—the Yen has continued to weaken, with USD/JPY now above its level before those measures were taken.
Katayama refrained from commenting on specific exchange-rate levels. Japanese officials reportedly checked rates with dealers in overseas markets on Friday, September 18, according to sources familiar with the matter. Such checks are often viewed as a potential precursor to currency intervention. Tokyo was closed from Monday through Wednesday for national holidays, making Thursday the first Japanese trading session since the September 18 rate check. Japan last intervened by purchasing Yen jointly with the US on July 31 after USD/JPY moved beyond 163.00. Authorities were also reported to have intervened on April 30 following a move above 160.50.
BoJ rate remains 2.5 percentage points below the Fed’s lower bound
The BoJ increased its policy rate to 1.25% on September 18, the highest level since 1995, but the Yen weakened following the decision. Governor Ueda indicated that financial conditions would remain accommodative, while two board members voted against the rate hike, suggesting that another increase may not be imminent.
Meanwhile, the Federal Reserve raised its target range to 3.75%-4.00% two days earlier, with no policymakers dissenting. Futures markets are currently leaning toward another 25-basis-point rate increase on October 28. Despite the BoJ’s rate reaching its highest level in three decades, the interest-rate differential between Japan and the US remains unchanged.
Tokyo inflation remains below the BoJ’s 2% target
The BoJ is scheduled to release minutes from its July 30-31 meeting on Sunday at 23:50 GMT. The minutes showed that board member Takata was the only policymaker who supported the 1.25% rate that was eventually adopted seven weeks later. August retail sales data will follow on Tuesday at 23:50 GMT.
Japan’s quarterly Tankan survey of large manufacturers is due on Wednesday, September 30 at 23:50 GMT. The previous reading was 22, while the outlook is expected at 17. A summary of opinions from the BoJ’s September meeting will also be released.
Tokyo’s September Consumer Price Index (CPI) is scheduled for Thursday, October 1 at 23:30 GMT. Headline inflation stood at 1.9% year-over-year in August, while CPI excluding fresh food rose 1.8%. A weaker-than-expected reading could further reduce expectations for another BoJ rate hike this year.
In the US, the August Personal Consumption Expenditures (PCE) inflation data is due on September 30. The Nonfarm Payrolls (NFP) report follows on October 2 and will include average hourly earnings, which increased 3.1% year-over-year in August.
USD/JPY technical levels
Resistance: USD/JPY briefly moved above 159.00 on Thursday, extending its five-session advance. A sustained move above this level could bring 160.00 into focus, although that area is also closely associated with Japan’s previous currency warnings and intervention activity.
Support: The 50-day Exponential Moving Average (EMA), slightly above 158.00, represents the first support level. USD/JPY moved back above this average on Wednesday for the first time since early September. Below it, the 157.50 area and then 157.00 could provide additional support.
Bias: The pair remains supported above 158.00, with 159.50 and 160.00 as potential upside levels. However, 160.00 may represent a significant intervention-risk zone rather than simply another technical milestone. The daily Stochastic Relative Strength Index (Stoch RSI) is around 50 and continues to rise after recovering from below 25 in mid-September. A daily close below 157.50 would weaken the current bullish setup.
The US Dollar Index (DXY) has finally broken through a level that traders had been watching closely for weeks. After several unsuccessful attempts, DXY moved above the psychologically significant 100 mark last week and remained above that threshold into Tuesday, trading around 100.5–100.7 — its strongest range since late July. The move came after the Federal Reserve’s 16 September decision to lift the federal funds target by 25 basis points to 3.75–4.00%, marking its first rate increase since July 2023. The decision was unanimous, with all 12 voting members supporting the move under Chair Kevin Warsh.
While markets had already anticipated the rate hike, the Fed’s accompanying message was less fully priced in. The latest statement removed previous wording that partly attributed persistent inflation to “supply shocks.” Meanwhile, the updated Summary of Economic Projections showed that 16 of 18 officials expected at least one additional 25bp increase before the end of the year, while the median forecast placed the policy rate at 4.00–4.25%. Inflation remained elevated, with August CPI at 3.4%, while the Fed raised its 2026 PCE inflation projection to 3.7%. Growth forecasts were revised modestly higher, while unemployment remained at 4.1%.
In simple terms, the Fed appears increasingly concerned that inflation pressures could prove persistent rather than temporary.
That combination of an actual rate hike and the possibility of another increase has helped keep the dollar above 100 instead of triggering a “sell the news” reaction.
Dollar: How the Bond Market Responded
The conventional reaction to a hawkish Fed would be rising Treasury yields and a stronger US Dollar. However, the actual market response has been more measured. The 10-year Treasury yield was already close to 5% ahead of the meeting. On the decision day, yields did not surge, and some parts of the curve actually moved lower once the expected 25bp hike was confirmed. Since then, the 10-year yield has remained within a relatively narrow 4.93–5.00% range, staying close to recent highs. Meanwhile, the 2-year yield has remained around 4.73–4.77%.
This is not a collapse in long-term yields. Instead, markets appear to be accepting a higher policy-rate path for 2026 without triggering a major bond-market selloff.
The real-rate picture is particularly important for the dollar. With policy rates around 4% and inflation still comfortably above the Fed’s 2% objective, short-term real interest rates are no longer strongly accommodative. For international investors, dollar cash and short-duration Treasuries now offer a yield advantage over assets denominated in euros, yen and sterling.
DXY is ultimately a relative-value measure. As long as the Fed is tightening while most other major central banks remain less aggressive, the dollar retains a carry advantage.
The yield curve provides another source of support. A modestly positive 2s10s spread, combined with the 10-year yield near 5%, suggests investors continue to see risks from persistent inflation even as expectations for future growth moderate. That combination of sticky inflation and expectations for rates to remain elevated can remain supportive for the dollar until financial or economic conditions begin to deteriorate materially.
Banks Under Pressure: XLF’s Weak Session
There are already signs of pressure elsewhere in financial markets. The Financial Select Sector SPDR (XLF) declined roughly 1.8–1.9% from Monday’s close near $55.90, falling toward the mid-$54 area on heavy trading volume. This does not indicate a systemic banking crisis. Instead, it highlights the mixed consequences of another tightening cycle for financial companies.
Higher interest rates can improve banks’ net interest margins when deposit costs remain relatively low. However, deposit expenses have often risen alongside rates during this cycle. At the same time, higher borrowing costs can weaken demand for mortgages, commercial loans and leveraged financing. Banks also face greater duration risk when the 10-year Treasury yield approaches 5%.
Financial stocks are therefore having to reassess the possibility that the October FOMC meeting could produce another 25bp increase if economic data remain strong. The next meeting is scheduled for 27–28 October, with the policy decision due on 28 October.
A stronger dollar and higher short-term yields can tighten financial conditions even before another official rate increase takes place. If weakness in XLF develops into a broader widening in credit spreads, it could eventually limit the dollar’s upside because the Fed would be tightening while financial stress becomes increasingly visible.
That situation has not emerged yet. The recent weakness in banks looks more like a repricing of interest-rate expectations than a funding problem. Nevertheless, it is an important development to monitor alongside DXY’s move above 100.
Technical Outlook: 100 Becomes Support While 101.5 Comes Into Focus
From a technical perspective, the dollar’s recent move is relatively clear. DXY spent the first half of September recovering from the upper-98 area before closing above 100 on 16 September. The index has remained above that level since then.
The 20-day moving average has turned higher through the mid-99s, while the 50-day average is positioned just below 100. Daily RSI has strengthened but does not yet appear excessively stretched. Meanwhile, the 52-week high sits around 101.6–101.8, close to the late-July peak near 101.5 that remains an important reference point for traders.
In the near term, a move back toward the July highs would represent the clearest continuation scenario. A measured move from the September breakout around 100 toward 101.5 would not require an extreme surge in demand for dollars. It could occur if the Fed maintains the possibility of another October increase while European and Japanese central banks refrain from unexpectedly hawkish shifts.
The 101.2–101.8 region could provide stronger resistance. Conversely, a daily close back below 100 would weaken the breakout argument and suggest that the move above the level was temporary. In that case, attention could return to 99.50 and the 50-day moving average.
Volatility has remained relatively contained despite the recent Fed decision. Such periods can sometimes precede a more decisive directional move. Positioning will also become increasingly important toward month-end. If speculative traders are already heavily long USD against the euro and yen, further gains toward 101.5 could become more volatile.
Dollar Strength Versus Commodities
A stronger dollar generally creates a headwind for commodities priced in USD. Gold, crude oil, copper and many agricultural products are traded internationally in dollars. When DXY rises, these commodities become more expensive for buyers using other currencies, potentially reducing demand at the margin and encouraging some financial investors to reduce long positions.
Gold has been caught between these opposing forces. Spot and futures prices have moved within a broad $4,300–$4,400 range, finding support when Treasury yields decline but facing pressure whenever Fed officials signal comfort with another rate increase.
Gold has not collapsed because geopolitical uncertainty and demand for inflation protection continue to provide support. However, if the dollar advances toward 101.5, sustaining further record highs in bullion could become more difficult. Silver is experiencing a similar dynamic, although its price movements are typically more pronounced.
Oil presents a more complicated picture because geopolitical developments can overwhelm the influence of the dollar. Brent has moved around the $100 area, while WTI has traded in the mid-$90s as markets weigh developments surrounding Iran, shipping risks and the stronger greenback.
A stronger DXY does not automatically push crude lower on any particular day. Over a longer period, however, a 2–3% appreciation in the dollar can put downward pressure on oil prices unless supply disruptions provide a counterforce.
Industrial metals illustrate why the dollar-commodity relationship is a guideline rather than an absolute rule. Copper has remained relatively firm, supported by supply concerns and resilient manufacturing activity, even with DXY above 100. When physical-market fundamentals are sufficiently strong, commodities can outperform despite a stronger dollar.
If DXY moves decisively above 101.5 while Chinese demand indicators weaken, copper’s resilience could face a stronger test.
For commodity-linked currencies such as the Australian and Canadian dollars, a stronger USD can create a double challenge through weaker commodity conditions and less attractive relative yields. Sterling can also be affected through broader shifts in risk appetite. These currency movements feed back into DXY because the index is heavily weighted toward the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc.
What Comes Next?
Three factors will determine whether 100 develops into durable support or becomes a ceiling.
The first is Federal Reserve communication. With the blackout period over, policymakers can again comment publicly on the outlook. If Fed officials continue emphasizing the need to return inflation to 2% in a timely manner, markets may continue pricing the possibility of another rate increase, potentially allowing DXY to challenge 101.5.
However, if policymakers begin emphasizing tighter financial conditions or concerns about weakness in the banking sector following XLF’s decline, the dollar’s advance could become more gradual.
The second factor is economic data. Another strong inflation reading or a labor market that remains resilient would reinforce expectations for further tightening. By contrast, a sharp deterioration in employment or convincing evidence that core services inflation is cooling would weaken the case for additional hikes.
The recent dollar rally is primarily driven by expectations surrounding the Fed’s policy path rather than a broad growth scare.
The third factor is developments overseas. Any intervention-related signals from Japan, changes in ECB communication or major geopolitical developments could generate significant two-way volatility. These events would not necessarily eliminate the interest-rate differential supporting the dollar, but they could influence how quickly DXY approaches the next technical resistance.
The Current Market Picture
The dollar’s move above 100 appears to be supported by several factors: an actual Fed rate increase, projections that leave room for another hike, and a Treasury market that has so far tolerated 10-year yields close to 5% without forcing a major policy reversal.
In the near term, DXY could continue to focus on the July highs around 101.5. Weakness in financial stocks alone does not necessarily invalidate this setup as long as broader credit stress remains contained.
The impact on commodities is likely to remain uneven. Gold and several bulk commodities could face additional pressure if the dollar continues to appreciate, while oil will remain heavily influenced by geopolitical developments. Copper could maintain its resilience as long as supply constraints and global manufacturing demand remain supportive.
A move beyond 102 would not necessarily be one-way. If DXY fails near 101.5 and subsequently closes back below 100, that would indicate that markets may be reassessing the sustainability of the latest dollar advance.
For now, however, the greenback has moved beyond the level that repeatedly capped it earlier this year. After reclaiming 100, the market is now watching whether the dollar can extend its momentum toward the next major technical area.
EUR/USD trades modestly higher near 1.1470 during early Asian trading on Tuesday.
Political uncertainty in Germany has intensified after two more weak state election results.
Fed’s Musalem indicated that additional interest-rate hikes may be necessary to keep inflation under control.
Fundamental Analysis
EUR/USD trades slightly higher around 1.1470 during early Asian hours on Tuesday. Hopes for progress in Middle East diplomacy are supporting risk-sensitive assets, including the Euro, against the US Dollar. Market participants are now waiting for further comments from Federal Reserve officials later on Tuesday for fresh trading signals.
Iranian President Masoud Pezeshkian is scheduled to head an Iranian delegation to the United Nations General Assembly in New York on Tuesday, as expectations for a diplomatic resolution to the Middle East conflict resurface, according to CNBC. Investors will closely follow developments related to potential US-Iran negotiations.
US President Donald Trump also indicated that he would “probably” consider meeting his Iranian counterpart on the sidelines of the UN General Assembly.
Meanwhile, growing political uncertainty in Germany could put pressure on the Euro. The far-right Alternative for Germany (AfD) came first in state elections in northeastern Germany on Sunday, while Chancellor Friedrich Merz’s conservative party recorded its weakest regional election result in postwar history, adding to pressure on his government.
Hawkish signals from Fed policymakers could provide additional support for the US Dollar and limit gains in EUR/USD. Chicago Fed President Austan Goolsbee said Monday that US inflation may no longer be driven mainly by tariff and energy-price shocks, but also by strong demand, which could require the Fed to raise interest rates at a faster pace.
St. Louis Fed President Alberto Musalem similarly said that further rate increases may be necessary to bring inflation down, citing strong demand and a broader commodity-price shock that has extended beyond oil.
Euro sentiment weakens as German political risks increase
MUFG analysts cautioned that recent political and fiscal developments in Europe could undermine confidence in the Euro in the near term. They pointed to a greater risk of political instability in Germany following two disappointing state election results for the governing parties over the weekend, which could further weigh on investor sentiment toward the single currency.
Technical Analysis: EUR/USD remains bearish below the 100-day SMA
On the daily chart, EUR/USD maintains a bearish short-term bias as the pair remains below both the 100-day Simple Moving Average (SMA) and the middle Bollinger Band. The price is hovering just above the lower Bollinger Band, indicating that the pair is testing the lower boundary of its recent trading range. Meanwhile, the Relative Strength Index (RSI) near 34.5 remains above oversold territory, pointing to continued downside pressure without yet signaling extreme conditions.
On the upside, the first resistance level is located at the 100-day SMA around 1.1545, followed by the Bollinger Band midpoint near 1.1575. A stronger resistance zone is seen around 1.1705, where the upper Bollinger Band is positioned. On the downside, the lower Bollinger Band near 1.1445 provides immediate support. A sustained break below this level could signal further downside for EUR/USD.
The NASDAQ 100 attracted buyers on pullbacks throughout the week, reinforcing the view that the index remains in a broad trading range.
With major central bank events—including policy decisions from the Federal Reserve, Bank of Japan, and Bank of England—now behind the market, investors appear more confident. Overall, bullish sentiment remains intact, although the 30,000 level continues to act as a significant resistance zone.
EUR/USD
The euro weakened against the US dollar during the week after the Federal Reserve raised interest rates and signaled the possibility of additional tightening ahead.
The move caught some traders off guard, as many had expected the Fed to conclude its rate-hiking cycle. Meanwhile, ongoing concerns surrounding Europe’s energy supply continue to weigh on sentiment toward the single currency.
Gold
Gold experienced notable volatility as global central banks remained active in shaping monetary policy expectations. The precious metal found support around its 50-week EMA, attracting bargain hunters.
While the broader trend appears largely sideways, underlying bullish pressure remains visible. The $4,500 level stands out as a key upside target and potential resistance area. Traders will continue to monitor global interest-rate developments, particularly in the United States, as rising yields could limit gold’s upside potential.
GBP/JPY
GBP/JPY advanced during the week despite a rate increase from the Bank of Japan and a policy hold from the Bank of England.
Market participants interpreted comments from Japanese policymakers as a sign that future tightening may be gradual, prompting renewed weakness in the yen. The rally appears to be driven more by yen depreciation than by significant strength in the British pound, which has shown mixed performance against other major currencies.
USD/CAD
The US dollar strengthened against the Canadian dollar as markets responded to a more hawkish-than-expected tone from Kevin Warsh.
In addition, ongoing tariff-related tensions between the United States and Canada contributed to market uncertainty. Interest-rate differentials continue to favor the US dollar, suggesting the pair may maintain its upward bias.
USD/JPY
The US dollar gained ground against the Japanese yen after the Federal Reserve adopted a more hawkish stance than the Bank of Japan, despite both central banks raising rates.
The move has revived carry-trade interest, supporting demand for the dollar. While the 50-week EMA remains an important technical hurdle, a sustained break above it could pave the way for further gains.
Bitcoin
Bitcoin moved higher during the week and finished Friday testing the key resistance zone near $83,000. This level has repeatedly capped advances and continues to represent a significant supply area.
A decisive breakout could trigger stronger bullish momentum, while failure to clear resistance may keep the cryptocurrency confined to the range that has dominated trading over the past month. The market is still searching for direction following its earlier surge.
GBP/USD
The British pound declined against the US dollar as investors focused on the contrasting policy outlooks of the Federal Reserve and the Bank of England.
Despite the weakness, the pair remains trapped within a long-standing trading range, with support near 1.3250 and resistance around 1.3700. Although the interest-rate gap between the two economies remains relatively small, changing monetary-policy expectations could influence future price action.
After several sessions of waiting, some markets are finally beginning to reveal their next direction.
The U.S. Dollar has delivered the bullish breakout we had been watching for, while precious metals are attempting to hold important support levels and regain momentum. Meanwhile, several soft commodities remain locked in consolidation, meaning patience continues to be essential. Today’s approach is straightforward: follow confirmed breakouts, respect invalidation levels, and avoid forcing trades while the market remains undecided.
U.S. Dollar (DX.F)
Let’s begin today’s Lab Note by returning to our recent observation:
“(…) only a daily close outside either side of this structure – above 99.15 or below 98.72 – would bring something genuinely new to the table and help determine the next larger move. (…)”
This time, however, the market has finally chosen a direction.
From today’s standpoint, price action unfolded in line with our bullish scenario. Buyers succeeded in closing above both the major bearish gap at 98.80-99.15 and the upper boundary of the black rising channel.
They then immediately turned their attention toward the psychological 100 level.
During the advance, bulls also challenged another significant resistance zone formed by the highs from the first half of August and the 50% Fibonacci retracement of the previous decline.
The move also left behind two bullish gaps: 99.10-99.22 from September 15 and 99.34-99.40 from September 16.
What comes next?
Today’s session brought a pullback, with price testing yesterday’s breakout above the upper boundary of the rising channel.
This is important because the bullish setup remains intact as long as that breakout holds, particularly while the buy signals remain active. The next clear bullish trigger would be a daily close above 100, which could pave the way toward 100.37.
Should buyers overcome that resistance as well, attention would then shift toward the bearish gap at 100.67-100.72 from July 30.
What would invalidate the bullish setup? A daily close below the black support line, currently near 99.92.
Such a move would invalidate yesterday’s breakout and return control to the bears. Their initial target would be the 99.59-99.69 support zone. If that area fails, the next focus would be the first bullish gap below.
Dollar Takeaway
Key range: 99.92-100.00. Daily close above 100 → bullish continuation toward 100.37, followed potentially by 100.67-100.72. Daily close below 99.92 → breakout invalidated; attention shifts to 99.59-99.69 and the bullish gap below.
Palladium (PA.F)
There has been little technical change in Palladium.
The metal continues to trade below the broken lower boundary of the green rising channel, so our previous assessment remains relevant:
“(…) price remains below the formation. From a technical perspective, that means today’s upswing is still only testing yesterday’s breakdown unless bulls manage to close the day back above the lower boundary of the channel.
Given the size of yesterday’s black candle, however, we believe the bullish picture would improve more convincingly only after a close above yesterday’s bearish gap at 1370-1381.
There’s another thing worth keeping on the radar.
If bulls fail to invalidate yesterday’s breakdown, two bearish scenarios remain on the table. The first is based on the orange consolidation, with a downside target around 1266 – the 61.8% Fibo. The second comes from the green rising channel, pointing toward another downside target around 1226. (…)”
Palladium Takeaway
Keep an eye on the broken lower boundary of the green rising channel.
Reclaiming this level → first indication that the breakdown may be losing validity. Daily close above 1370-1381 → stronger improvement in the bullish setup. Breakdown remains intact → bearish targets remain at 1266, followed potentially by 1226.
Copper (HG.F)
Important Note on Copper
Before looking at today’s Copper setup, there is an important data issue to highlight.
The historical daily data for HG.F has changed since our Friday analysis. The September 10 candle currently shown on the chart is materially different from the candle displayed when Friday’s Lab was prepared.
Therefore, this is not a price movement that was missed in Friday’s analysis. Instead, the historical D1 data itself has subsequently changed.
It remains unclear whether the discrepancy comes from a data-feed correction, the way the continuous futures contract is constructed, or another historical-data adjustment, so we will not speculate about its cause.
For now, this discrepancy should be kept in mind when comparing today’s Copper chart with Friday’s Lab. Today’s analysis is based on the data currently available, with the roadmap adjusted accordingly.
So, what is the current chart showing?
Copper has reached an important support area defined by two technical factors: the 631.15-634.95 bullish gap from July 30 and the previously broken upper boundary of the red declining channel.
Buyers responded at this zone.
The result was several days of consolidation between 635.15 and 655.25, while today’s session shows an attempt to break above the upper boundary of that range.
If bulls can close the day above 655.25, the next objective will be the broken green line, which has now turned into the nearest resistance.
A successful reclaim of that level would bring the bullish scenario based on the consolidation pattern back into focus, potentially opening a path toward at least 676.54 over the coming days.
What would invalidate the bullish scenario? A daily close below 631.15.
Copper Takeaway
Watch 655.25. Daily close above 655.25 → next test of the broken green resistance line. Break above that resistance → consolidation target around 676.54 becomes relevant. Daily close below 631.15 → bullish scenario invalidated.
Cotton #2 – ICE (CT.F)
Let’s pick up from where we stopped:
“(…) Cotton remains trapped in a narrow range between the 38.2% Fibo and the bearish gap at 88.55-89.33 from the beginning of the month – essentially an orange consolidation.
What does that tell us?
We still need a daily close outside this range before something genuinely new enters the technical picture.
Bearish scenario: a daily close below 86.10 would open the road toward 82.90.
Until one of those levels breaks, the range remains the story. (…)”
The market has now finally broken out of that range.
Monday saw Cotton break below 86.10, activating the bearish scenario. Today, sellers pushed the price down to 82.83, effectively reaching the 82.90 target.
What comes next?
Today’s decline also pushed price below the 50% Fibonacci retracement of the entire previous advance.
That development suggests the downside move could continue. The 81.85 area is now likely to become the next important battleground and could help determine the market’s next direction.
If bulls manage to defend this support, the first recovery target would be the broken lower boundary of the orange consolidation.
However, if buyers lose 81.85, sellers could gain another opportunity to push lower, with the important support area around 80 becoming the next focus.
Cotton Takeaway
Bearish target 82.90 reached — today’s low was 82.83. Now focus on 81.85. Hold 81.85 → potential rebound toward the broken consolidation. Break below 81.85 → opens the way toward the key support area around 80.
ATL Cheat Sheet – September 17
Dollar (DX.F): Watch 99.92-100.00. A break above 100 targets 100.37, followed potentially by 100.67-100.72. A break below 99.92 shifts attention to 99.59-99.69.
Palladium (PA.F): Monitor the broken lower boundary of the green rising channel. Reclaiming it would provide the first bullish improvement. A break above 1370-1381 would offer stronger confirmation. If the breakdown remains valid, targets stay at 1266, followed potentially by 1226.
Copper (HG.F): Watch 655.25. A break above this level would bring the broken green resistance line into focus. Reclaiming that line would put 676.54 back on the radar. A break below 631.15 would invalidate the bullish scenario.
Cotton #2 (CT.F): The bearish 82.90 target has been reached. Now watch 81.85. Holding this level could support a rebound toward the broken consolidation, while a break below it would expose the next important support around 80.
Bottom line: Several markets have finally begun to move, but confirmation remains essential. When a breakout has already occurred, the focus is on following the move until the market invalidates it. When price remains trapped inside a range, patience is the better approach. No confirmed breakout, no confirmed breakdown — no reason to force a trade.
Stay focused, remain patient, and avoid forcing positions while market direction remains unclear.
The US Dollar (USD) is trading lower on Thursday, with the US Dollar Index (DXY) holding slightly above the 100.00 level after reaching a seven-week peak earlier this week. The Dollar has moved mostly sideways following the Federal Reserve’s decision on Wednesday to raise interest rates for the first time since 2023. Although the rate increase initially supported the Greenback, those gains faded as energy prices retreated from their highs and President Donald Trump again called for significantly lower interest rates.
The Fed maintained a hawkish tone, with Chair Kevin Warsh indicating that another rate hike could still be delivered later this year. This outlook is likely to provide some support for the Dollar. Meanwhile, a strong rally in Gold and more stable equity markets suggest improving risk sentiment as traders shift their attention to Friday’s key Bank of Japan (BoJ) policy decision.
US Dollar Price Today
The US Dollar is showing mixed performance against major currencies. The Greenback is gaining against the British Pound, while posting losses against the Australian Dollar, New Zealand Dollar, Japanese Yen, Euro, and Swiss Franc.
EUR/USD is holding modest gains around the upper 1.1400s, supported by the weaker Dollar.
GBP/USD remains under pressure in the mid-1.3300s after failing to recover from the Bank of England’s cautious policy decision.
USD/JPY is edging lower toward 156.00 as markets position for a widely anticipated BoJ rate hike.
AUD/USD has continued its recovery toward the low 0.7100s, making it the strongest-performing major currency of the session as risk sentiment improves.
Gold has climbed sharply above $4,350 per troy ounce, extending its recent strong rally.
WTI crude oil remains above $100.00, stabilizing after its recent decline.
The Bank of Japan is widely expected to lift its policy rate to 1.25%, marking the highest level in more than three decades.
Elevated inflation, robust economic growth, and external pressure from the United States are encouraging the BoJ to accelerate its monetary tightening cycle.
The US Dollar has recovered part of its recent losses, supported by the Federal Reserve’s hawkish stance and expectations of further policy tightening.
The Bank of Japan’s policy meeting concludes on Friday, capping a week dominated by major central bank decisions. Investors are focused on whether the BoJ will reinforce expectations of a more hawkish policy path, which has already helped drive a strong rebound in the Japanese Yen throughout September.
Financial markets have almost fully priced in a 25-basis-point rate increase, which would raise the benchmark rate to 1.25%, the highest level in roughly 31 years. The move is supported by persistent inflation, rising wages, and calls from US Treasury Secretary Scott Bessent for stronger action.
The BoJ is expected to join other major central banks, including the Federal Reserve and the European Central Bank, in maintaining a tighter monetary policy stance as geopolitical tensions in the Middle East continue to fuel global inflation concerns. Ongoing disruptions around the Strait of Hormuz and threats to Red Sea shipping routes have pushed Brent crude prices above $100 per barrel, increasing fears of supply shortages.
What markets expect from the BoJ
A rate hike from 1.0% to 1.25% is considered the most likely outcome, bringing Japanese interest rates closer to levels viewed as neutral for the economy. Most members of the Policy Board are expected to support the move, although policymaker Toichiro Asada may once again oppose it, as he did in June.
Inflation pressures have prompted the central bank to speed up its tightening efforts. While the BoJ has generally raised rates every six months, a September increase would follow a previous hike in June. Some market participants have discussed the possibility of a larger 50-basis-point move, but such an aggressive step appears unlikely given the BoJ’s traditionally cautious approach.
Japan’s inflation data has strengthened the case for higher rates. Consumer prices rose at their fastest pace in seven months during July, while wage growth has remained solid, suggesting inflationary pressures could persist. These trends increase the risk of the BoJ falling behind the curve if it maintains a gradual pace of tightening.
Economic conditions also remain supportive. Japan’s economy expanded by an annualized 1.4% in the second quarter, exceeding forecasts and providing policymakers with greater flexibility to normalize monetary policy.
Investors will therefore be looking for guidance that signals a firmer commitment to policy normalization. However, analysts at ING caution that markets may be expecting too much from the BoJ. They argue that Japan’s pro-growth policy agenda could limit the pace of future tightening, making a 50-basis-point increase or consecutive monthly hikes less likely.
Impact on USD/JPY
USD/JPY has fallen about 2.5% so far in September as expectations of further BoJ tightening have strengthened demand for the Yen. Speculative traders have also shifted to net-long Yen positions for the first time since February, contributing to the currency’s recovery.
Meanwhile, the US Dollar has regained some momentum after the Federal Reserve raised interest rates and indicated that additional tightening remains possible. Even so, the broader outlook for the Greenback remains relatively weak in the near term.
From a technical perspective, USD/JPY has moved back above the neckline of a bearish Head-and-Shoulders pattern after the Fed-driven rally. However, resistance near 156.75 continues to cap gains, while technical indicators such as the RSI and MACD still point to a bearish bias.
A sustained move above 156.76 could open the door toward the 158.00–158.40 region. On the downside, a break below 155.20 would reinforce the bearish pattern and could increase pressure toward the 152.00 area, with a longer-term target near 146.60.
RBA Governor Michele Bullock signaled that stubborn inflation pressures could necessitate another interest rate increase later this month.
UBS expects the RBA to deliver two more rate hikes, lifting the cash rate to a peak of 4.85%.
Market participants now see a 53.1% chance of a Federal Reserve rate hike in October.
Australian Dollar gains momentum after hawkish RBA signals
AUD/USD advances for a second consecutive session, trading near 0.7120 during Friday’s Asian trading hours. The pair is supported by renewed strength in the Australian Dollar after Reserve Bank of Australia Governor Michele Bullock delivered a firm message on inflation.
During a parliamentary appearance, Bullock noted that inflation risks have evolved largely as anticipated and warned that persistent price pressures may require further policy tightening. Her comments strengthened expectations that the RBA could implement a fourth rate increase this year at its late-September meeting. Deputy Governor Andrew Hauser reiterated the central bank’s unwavering commitment to returning inflation to target. Meanwhile, UBS analysts now anticipate two additional rate hikes, projecting a terminal cash rate of 4.85%.
Despite the recent rebound, UOB Group remains cautious on the Australian Dollar over the medium term. The bank noted that it adopted a bearish stance on the currency last week when AUD/USD was trading around 0.7160 and initially targeted a decline toward 0.7120. After the pair fell below that level and touched 0.7109, UOB warned that further downside remained possible, although short-term conditions appeared oversold. With AUD/USD subsequently closing below 0.7100 at 0.7087, the bank now sees scope for a move toward 0.7050. According to UOB, only a sustained break above 0.7140 would suggest the currency is beginning to stabilize.
On the US side, the Federal Reserve increased interest rates by 25 basis points on Wednesday, marking its first tightening move since 2023. Fed Chair Kevin Warsh emphasized that inflation remains uncomfortably high and argued that recent data have not shown sufficient progress in reducing underlying price pressures. As a result, expectations for additional tightening have risen, with CME FedWatch data showing markets now assign a 53.1% probability of another Fed rate hike in October, compared with 44% the previous day.
The US Dollar Index gained after the Fed raised interest rates by 25 basis points to a target range of 3.75%-4.00%.
Fed Chair Warsh pointed to elevated inflation, while markets are pricing in a 49.8% chance of another rate hike in October.
DXY remains above the key nine- and 50-day EMAs, indicating a bullish short-term bias and supporting the potential for further recovery.
The US Dollar Index (DXY), which tracks the US Dollar (USD) against six major currencies, is extending its advance for a sixth consecutive session, trading near 100.30 during Asian trading hours on Thursday. Investors are awaiting the release of US Initial Jobless Claims data later in the day.
The Greenback remains supported after the US Federal Reserve (Fed) raised interest rates and indicated that additional tightening could be possible before year-end. The central bank increased the federal funds rate by 25 basis points to a target range of 3.75%-4.00%, in line with market expectations. It marked the Fed’s first rate increase in three years.
In his post-meeting remarks, Fed Chair Kevin Warsh said inflation remains “too high” and has persisted “for too long,” describing the rate increase as a “sober” and “responsible decision.” He also left the door open to further rate hikes as policymakers seek to contain ongoing price pressures. Following the announcement, money markets priced in approximately a 49.8% chance of another rate increase at the October meeting, according to the CME FedWatch Tool.
Fed’s Warsh maintains focus on inflation as economic strength supports tighter policy
Warsh struck a notably hawkish tone during his press conference, with the 7.4/10 FXS Speechtracker score slightly above its historical average of 7/10. His comments pointed to a stronger commitment to monetary tightening, particularly as inflation remains elevated.
Warsh highlighted the underlying strength of the economy, arguing that this gives policymakers room to prioritize price stability. He also emphasized full employment and financial conditions that remain non-restrictive, reinforcing the Fed’s focus on containing inflation. Such a policy stance generally provides support for the US Dollar while creating a less favorable backdrop for risk-sensitive currencies.
The FXS Fed Sentiment Index climbed 26.07 points to 151.79, firmly above the neutral 100 level and indicating a more hawkish policy signal. The sharp increase suggests that markets are interpreting both the rate decision and the Fed’s communication as a shift toward tighter monetary policy, supporting the Dollar relative to lower-yielding currencies.
On the daily chart, the Dollar Index Spot is trading around 100.30. The short-term outlook remains bullish, with the index holding above both the 50-day and nine-day Exponential Moving Averages (EMAs), pointing to a continued recovery following its recent decline.
The 14-day Relative Strength Index (RSI) stands at 63.58, moving closer to overbought territory. This indicates that buyers remain in control, although the upward move could face some exhaustion if the index rises too quickly. Meanwhile, the elevated FXS Fed Sentiment Index of 151.79 continues to provide a supportive fundamental backdrop for the Dollar.
On the downside, initial support is located around the 50-day EMA at 99.69, followed by the nine-day EMA at 99.64. Together, these levels form a narrow support zone that would need to break to indicate a deeper correction.
As long as the Dollar Index remains above these moving averages, the technical setup continues to favor further gains. In the current bullish structure, the psychological 100.00 level is increasingly functioning as a support area rather than a resistance barrier.
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.
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.
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.
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.
The NASDAQ 100 experienced volatile trading over the past week but remained largely rangebound despite hotter-than-expected CPI data. The index continues to consolidate between support around 28,500 and resistance near 30,000, reflecting a broadly neutral market outlook.
Bitcoin
Bitcoin moved lower during the week as it continued trading within a narrow consolidation range around the 50-week EMA.
Market participants remain uncertain whether the cryptocurrency can break higher or stay trapped between approximately $65,000 and $84,000. While buyers still hold a slight advantage, momentum has weakened amid concerns about interest rates and the broader adoption of real-world use cases.
Silver
Silver remained volatile throughout the week while holding above both the 50-week EMA and the key $65 level.
Resistance near $70 continues to cap upside attempts, leaving traders cautious. Elevated interest rates remain a challenge for silver, while a stronger U.S. dollar and rising Treasury yields could further limit bullish momentum.
Gold
Gold continued attracting buyers on pullbacks, although prices have largely remained unchanged for several weeks.
The 50-week EMA is providing underlying support, but higher interest rates continue to create headwinds. Traders are likely to remain cautious ahead of the upcoming Federal Reserve policy decision, which could drive increased volatility and continued rangebound trading.
USD/MXN
The U.S. dollar posted modest gains against the Mexican peso during the week, though broader downside pressure remains intact.
The 17.00 level continues to be a significant area of interest, with traders watching the interest-rate differential that favors Mexico. The carry trade remains attractive, particularly when the U.S. economy performs well due to the close economic ties between the two countries.
EUR/USD
EUR/USD traded in a choppy fashion following the European Central Bank’s 25-basis-point rate increase.
With the Federal Reserve also expected to raise rates, the pair appears comfortable near the 1.16 level. As a result, short-term range trading remains the dominant strategy while markets await fresh catalysts.
AUD/USD
The Australian dollar remained volatile as traders assessed support near the 0.7150 area. Investors continue monitoring the Reserve Bank of Australia’s policy stance, particularly as inflation risks remain elevated. Ongoing tensions in the Middle East and their impact on energy prices and global supply chains are also influencing sentiment.
S&P 500
The S&P 500 continued to find buying interest on dips, reinforcing the significance of the 7,600 level as a key support zone.
Former resistance appears to have turned into support, highlighting the role of market memory. Although higher interest rates remain a concern, investors appear comfortable with the prospect of further rate hikes, limiting their impact on broader market sentiment.
EUR/GBP slips below 0.8590 after reaching intraday highs near the 0.8600 mark.
Better-than-expected UK GDP and Industrial Production figures have strengthened support for the Pound.
The Euro posted modest gains on Thursday after the European Central Bank raised interest rates.
The British Pound gained support on Friday after stronger-than-expected economic data from the UK. Gross Domestic Product (GDP) expanded by 0.4% in July, surpassing forecasts for no growth and improving on June’s 0.3% increase. Industrial Production also returned to growth, rising 0.2% after declining by the same amount in June. Meanwhile, Manufacturing Production climbed 0.9%, marking its strongest performance in four months and significantly exceeding expectations for a 0.2% increase following June’s 0.5% contraction.
Additional data reinforced the positive outlook for the UK economy. The Index of Services increased by 0.6% in the three months to July, outperforming forecasts of 0.5%. At the same time, the UK’s Goods Trade Balance deficit narrowed to GBP 20.96 billion from GBP 23.00 billion in June, beating expectations for a deficit of GBP 22.3 billion.
ECB Raises Rates and Signals More Tightening Ahead
In the Eurozone, the European Central Bank (ECB) delivered a widely expected 25-basis-point interest rate increase on Thursday, lifting its Deposit Facility Rate to 2.5% for the second consecutive meeting. The move comes as policymakers continue to respond to inflationary pressures driven largely by elevated energy costs.
ECB President Christine Lagarde also indicated that the energy-related inflation shock linked to the Middle East conflict could persist through 2027. She noted that inflation is not expected to return to the ECB’s 2% target until the end of next year. Her remarks reinforced expectations that at least one additional rate hike may be required over the coming year, helping to underpin demand for the Euro.
By contrast, the Bank of England is widely expected to leave interest rates unchanged at its policy meeting next week. Analysts at Rabobank noted that while the voting outcome of the July 30 meeting appeared more hawkish than anticipated, there remains a significant hurdle for policymakers favoring tighter monetary policy. As a result, the bank believes the majority of the committee remains cautious about supporting further rate increases in the near term.
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.
Stock markets around the world continue to advance, but a series of central bank meetings in the coming weeks will put investors’ confidence to the test. At the same time, government bond yields are climbing across major economies. The key question is whether these higher yields are signaling stronger-than-expected economic growth, renewed inflation pressures, or growing concerns over fiscal debt.
Equity markets are clearly pricing in continued economic expansion—and we share that view. Here’s why:
Global Stock Markets
The ratio between US equities and developed-market equities outside the US has moved sideways since early 2025, following a 15-year period of sustained gains. Over that period, both markets have delivered comparable returns.
The US-to-emerging-market MSCI ratio has started moving higher again in recent weeks, although both remain below their 2024 peaks. Emerging markets were the main driver of global equity gains during the first half of the year before surrendering some of those advances in July. The recent shift suggests the performance gap may once again be narrowing.
September is still in its early stages, but Brazil currently leads the country ETF rankings, gaining 5.1% month-to-date in US dollar terms. South Korea follows with a 4.4% gain, while Taiwan is up 3.8%. The US ranks near the bottom, with an increase of just 0.4%. The latest week therefore provided another boost for the global-investment theme.
The ACWX and PBUS ETFs have moved closely together since Liberation Day last year. The fact that the global bull market has remained relatively balanced between US and international equities for more than a year is particularly notable.
Performance across major international equity ETFs has been mixed since early 2025, when global markets began outperforming—or at least keeping pace with—the US. Japan and emerging markets have gained ground relative to US equities, while the Eurozone has lost momentum and the UK continues to underperform.
Earnings and Valuations
US equities currently trade at a forward P/E ratio of around 19.8, compared with 13.1 for the All Country World ex-US index. Both valuations have declined this year because corporate earnings have grown faster than share prices.
Forward earnings expectations for the All Country World ex-US index continue to rise, with analysts increasing their estimates for 2025, 2026, and 2027. The projected jump from 2026 to 2027 is particularly strong, while forward earnings remain on an upward trajectory and continue to reach new highs.
Developed markets outside the US are showing a similar earnings trend.
Emerging markets have posted the strongest earnings outlook among the three major groups. South Korea and Taiwan are responsible for much of this momentum. Consensus estimates for 2026 earnings growth have climbed to 333.9% for South Korea and 56.9% for Taiwan.
Global Bonds
Bond yields are moving higher across most major economies. The UK’s 10-year government bond yield stands at 5.14%, while the US 10-year yield is 4.78%. France is at 4.19%, Germany at 3.34%, and Japan at 2.91%.
China remains the notable exception. Its 10-year government bond yield is only 1.68% and continues to trend lower.
For much of the period following the 2008 Global Financial Crisis, government bond yields remained significantly below nominal GDP growth. That environment has now changed. Bond yields have moved closer to nominal GDP growth across major economies and have already surpassed it in countries such as France and the UK.
Currencies
The US dollar continues to hold relatively firm. The DXY is around 99.2 and remains within the long-term upward channel that has contained the index since 2011. Concerns about de-dollarization tend to resurface whenever the dollar weakens, but so far, the DXY has provided little evidence of a structural shift away from the greenback.
The Japanese yen has strengthened significantly over the past week as traders have reassessed both the timing and potential pace of further monetary tightening in Japan.
The South Korean won has also reached its strongest level in more than a year. Korean exporters have been converting dollar revenues into won amid a substantial trade surplus, while proceeds from a major US listing have provided an additional source of foreign-currency inflows.
Commodities
Commodity markets are increasingly becoming a source of inflationary pressure. Rising grain prices could begin feeding into food inflation across economies around the world.
Diesel prices are another area to watch, given their importance to industrial activity and transportation. Spot diesel prices have risen sharply in recent weeks, potentially adding further cost pressures for businesses and consumers.
Forex markets have traded in a relatively subdued manner since the start of the week, with the US Dollar (USD) hovering around 99.00 on Tuesday, as reflected by the US Dollar Index (DXY). Ongoing geopolitical tensions in the Middle East, rising energy prices, and higher US Treasury yields have placed inflation firmly in focus, with traders looking ahead to Thursday and Friday’s US Producer Price Index (PPI) and Consumer Price Index (CPI) releases.
What to Know on Wednesday, September 9
The DXY, which measures the US Dollar against a basket of six major currencies, stands near 98.82, little changed from Tuesday’s opening level. The index has formed a doji candlestick, suggesting market indecision. Wednesday’s economic calendar includes the ADP Employment Change 4-week Average, while traders are already positioning ahead of Thursday’s PPI data.
EUR/USD has moved above the 1.1600 level, supported by broad-based US Dollar weakness. With little major data on Wednesday’s calendar, attention is turning to remarks from European Central Bank (ECB) President Christine Lagarde. The main event will be Thursday’s ECB monetary policy meeting, with money markets currently pricing in a 100% probability of a 25-basis-point rate hike.
GBP/USD climbed to 1.3561 before easing back toward 1.3539 following comments from Bank of England (BoE) policymakers. Governor Andrew Bailey noted that the US-Iran conflict is contributing to higher energy prices, while Megan Greene expressed concern over the prolonged elevation in oil prices. Alan Taylor favors keeping monetary policy “moderately restrictive,” whereas Dave Ramsden described the domestic inflation outlook as relatively benign. The UK calendar remains quiet until Friday, when GDP figures are due.
USD/JPY extended its decline following suspected intervention from Japanese authorities, briefly falling below 153.00 before recovering. Although US Treasury Secretary Scott Bessent has urged Japan to pursue tighter monetary policy, the pair could move back toward its pre-intervention levels in the near term. US inflation data and the pair’s strong correlation with the US 10-year Treasury yield will remain key drivers. Traders will also monitor Japan’s Machine Tool Orders.
AUD/USD advanced toward its daily high after RBA Deputy Governor Hauser indicated that policymakers would discuss the possibility of another rate increase at the next meeting. With no major Australian data scheduled, attention could turn to China’s inflation figures, which may influence the Australian Dollar, ahead of Australia’s September Consumer Inflation Expectations release.
Oil prices, particularly West Texas Intermediate (WTI), climbed to a six-week high as escalating Middle East tensions raised concerns over supply disruptions. Recent Houthi attacks targeting Saudi Arabia have added to market uncertainty, while investment banks are increasingly concerned that the conflict could extend into 2027.
Gold prices edged lower, falling below $4,400 per troy ounce as traders awaited the upcoming US inflation reports. Although gold is traditionally viewed as a hedge against inflation, expectations for higher interest rates can push bond yields higher, creating additional pressure on non-yielding bullion. As a result, gold may continue to trade within a familiar range ahead of Friday’s inflation data.
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.
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 DXY extends its decline for a second consecutive session, marking losses in four of the past five trading days.
USD bulls continue to scale back their long positions as the JPY strengthens and markets await crucial US inflation figures.
Increased expectations for Fed rate hikes, coupled with intensifying US-Iran tensions, could provide renewed support for the safe-haven US Dollar.
Fundamental Analysis
The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, remains under pressure for a second consecutive session, slipping to its lowest level in more than two weeks during Tuesday’s Asian trading hours. The index is hovering around 98.80, down roughly 0.10% on the day. Despite the decline, the DXY remains above the three-month low recorded in August as traders await this week’s key US inflation releases.
The US Producer Price Index (PPI) is due on Thursday, followed by the Consumer Price Index (CPI) on Friday. Both reports will be closely monitored for fresh signals on the Federal Reserve’s policy outlook and could play a decisive role in shaping the Dollar’s near-term direction. At the same time, the sharp appreciation in the Japanese Yen is adding further downward pressure to the DXY after its retreat from a nearly three-week peak reached last Wednesday.
The stronger-than-anticipated US Nonfarm Payrolls report released last Friday has boosted expectations for a potential Fed rate hike at the September 15–16 meeting, particularly as higher energy prices could intensify inflationary pressures. Meanwhile, crude oil prices are trading near their July 24 highs amid growing concerns over prolonged supply disruptions linked to escalating US-Iran tensions around the Strait of Hormuz. The heightened geopolitical uncertainty is keeping a risk premium in oil markets and may provide some support to the safe-haven US Dollar.
USD Outlook Hinges on Upcoming US CPI
OCBC analysts view the latest US jobs report as modestly supportive for the Dollar, but not strong enough by itself to trigger a sustained upside move. The resilient labor market could keep expectations of tighter Fed policy alive and limit further USD losses. However, with wage growth remaining relatively contained, investors may need stronger inflation data before becoming more confident about a September rate hike.
Attention therefore turns to this week’s CPI report. A hotter-than-expected inflation reading could spark renewed demand for the US Dollar, while a softer result would likely leave the Greenback trading in a more volatile, two-way market.
The DXY retains a bearish short-term bias while trading below the 200-day Exponential Moving Average (EMA) at 99.52 and the key Fibonacci resistance zone above 99.00. The break below the 61.8% Fibonacci retracement at 99.23 has left the index facing a substantial cluster of overhead resistance, suggesting that any recovery could encounter selling pressure as long as the DXY remains below these medium-term levels.
On the upside, initial resistance stands at 99.23, corresponding to the 61.8% Fibonacci retracement, followed by the 200-day EMA at 99.52 and the 50.0% retracement near 99.72. Further resistance levels are located around 100.20 and 100.80.
On the downside, initial support is positioned near 98.55 at the 78.6% Fibonacci retracement. A break below this level could expose the next major support area around 97.67, where buyers may attempt to halt the decline.
Silver experienced significant volatility this week, briefly dropping toward the 50-week EMA near $64 before staging a strong recovery. Despite stronger-than-expected U.S.
Non-Farm Payrolls data, which reinforced inflation concerns, silver managed to rebound sharply. The metal’s resilience in the face of hawkish economic data suggests that underlying buying demand remains strong.
Gold
Gold followed a similar path, initially declining before recovering toward the end of the week. While volatility remains elevated, the rebound indicates that bullish sentiment is still present.
The $4,500 level has emerged as a key pivot point, and a decisive break above this area could open the door for further gains. Investors appear increasingly focused on broader debt concerns rather than interest rate pressures alone.
EUR/USD
EUR/USD posted modest gains during the week amid expectations that both the European Central Bank and the Federal Reserve may raise interest rates by 25 basis points.
The pair remains on track to test the 1.17 area, a level that has repeatedly acted as an important resistance zone. Although the outlook remains cautiously bullish, confidence in a sustained euro rally is still limited.
GBP/USD
The British pound traded erratically as markets continued to reassess the outlook for U.S. monetary policy.
Support for the pound comes from the Bank of England’s relatively higher interest rates, although concerns over the UK’s energy outlook later in the year may create additional uncertainty.
NASDAQ 100
The NASDAQ 100 demonstrated impressive resilience, recovering from early-week losses and maintaining its broader upward trajectory.
Investor sentiment continues to favor buying pullbacks, supported by strong momentum and ongoing confidence in growth-oriented equities.
USD/MXN
The U.S. dollar weakened further against the Mexican peso, reinforcing the pair’s bearish trend. Market sentiment remains tilted toward additional downside, with the 16.50 level standing out as a major support zone to watch in the coming weeks.
AUD/USD
The Australian dollar ended the week higher, benefiting from expectations that the Reserve Bank of Australia will maintain a relatively hawkish stance.
At the same time, traders are increasingly pricing in the possibility of future Federal Reserve rate cuts, providing additional support for the Aussie. The currency may continue to perform well against lower-yielding alternatives such as the Swiss franc.
USD/JPY
USD/JPY recorded a sharp weekly decline, although some stabilization emerged near the lows. The 155 level remains a critical support area, and holding above it could encourage a recovery. While U.S. interest rates continue to favor the dollar, speculation surrounding potential policy normalization in Japan has increased pressure on the pair.
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.
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.
USD/JPY remains supported by a mix of domestic and external factors.
Japan’s growing fiscal challenges and the persistent interest rate gap with the US continue to weigh on the Japanese Yen.
Expectations of further Fed tightening, alongside geopolitical uncertainty, are boosting demand for the US Dollar.
The USD/JPY pair traded close to its strongest level since July 31 during Wednesday’s Asian session, hovering around the 160.25–160.30 area after recent gains.
Pressure on the Japanese Yen intensified after a global bond selloff pushed Japan’s 10-year government bond yield to 3% for the first time since 1996. Rising borrowing costs are increasing concerns over the sustainability of Japan’s substantial debt burden, particularly as Prime Minister Sanae Takaichi pursues ambitious investment initiatives. These fiscal worries have weakened sentiment toward the Yen and provided additional support for USD/JPY.
At the same time, US Treasury Secretary Scott Bessent reiterated his view that the Bank of Japan should take stronger monetary action to address Yen weakness, reinforcing market expectations of a BoJ rate increase later this month. Despite the prospect of tighter policy, Japanese interest rates remain well below those in other major economies, especially the United States, preserving the attractiveness of Yen-funded carry trades and limiting support for the currency.
BoJ Under Growing Pressure as Markets Await Policy Signals
According to Rabobank strategist Jane Foley, scrutiny of the Bank of Japan has increased significantly as US officials continue to comment on Japanese monetary policy. She noted that Bessent recently intensified pressure on the central bank by expressing confidence that it would “do the right thing” and signaling a strong possibility of a rate hike later this month. Such remarks highlight the heightened focus on the BoJ’s next policy move as bond yields rise and the Yen remains under strain.
Meanwhile, the US Dollar continues to benefit from safe-haven demand amid escalating tensions between the United States and Iran. Growing expectations that the Federal Reserve could raise interest rates again, fueled by concerns that higher oil prices may keep inflation elevated, have also strengthened the Greenback.
Despite the favorable backdrop for USD/JPY, traders appear reluctant to make aggressive new bullish bets ahead of Friday’s US Nonfarm Payrolls report, which could provide important clues about the Fed’s policy outlook and the next directional move for the currency pair.
Technical Analysis: USD/JPY
USD/JPY maintains a positive short-term bias and is attempting to extend its advance after breaking above the key 200-period Simple Moving Average (SMA) on the 4-hour chart at 160.20. Sustained trading above this level suggests improving bullish momentum and keeps the focus on higher resistance targets.
The first upside objective is the 61.8% Fibonacci retracement level at 160.64. A decisive break above this barrier could open the door toward the 78.6% retracement near 162.10, followed by the previous swing high around 163.96.
On the downside, immediate support is located at the 200-period SMA around 160.20. Further weakness could see the pair test the 50% Fibonacci retracement at 159.62. A move below this level may accelerate selling pressure toward the 38.2% retracement at 158.59, with the 23.6% Fibonacci level near 157.32 serving as the next significant support zone.
Overall, the technical outlook remains constructive while USD/JPY holds above the 160.20 region, though traders may remain cautious ahead of Friday’s US Nonfarm Payrolls report.
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.
The US Dollar has maintained a generally firmer tone this week amid relatively subdued market conditions. Higher US Treasury yields, combined with an oversold short-term technical backdrop, are providing support for the Greenback. The Dollar is also holding firm against the Japanese Yen, despite comments from a Bank of Japan Deputy Governor that appeared to reinforce expectations of a possible rate hike next month. So far, movements in US yields appear to have a stronger influence on USD/JPY than changes in Japanese rates.
Meanwhile, Russia and China have formally rejected participation in the US-led economic pressure campaign against Iran. Without their involvement in “Operation Economic Outcast,” Washington’s policy toward the conflict may provide a pathway for reducing its direct involvement. At the same time, the US appears to be increasing pressure on Canada, with Trade Representative Greer warning that some Canadian imports could face restrictions. Despite the escalating tensions, the Canadian Dollar has remained relatively resilient, falling around 0.25% this week and ranking around the middle of the G10 performance table.
Prices
G10
EUR/USD: The Euro slipped to a five-day low near 1.1640 on Wednesday, roughly the midpoint of its rally following the US Treasury’s announcement that it would double its bond buybacks. The pair has remained below 1.1660 today and has edged slightly beneath Wednesday’s low during the European session. Technical support is seen around 1.1635 at the 200-day moving average, followed by the 1.1625 area near the 61.8% Fibonacci retracement.
USD/JPY: The Dollar remained below Tuesday’s high around 159.50 against the Yen but still recorded its strongest close in six sessions near 159.30. The pair has marginally surpassed Wednesday’s high in European trading. The five-day moving average has crossed above the 20-day moving average for the first time since the July intervention. The market continues to appear willing to test the BOJ and US Treasury, despite growing expectations that the BOJ could raise rates twice before year-end. Higher oil prices and US yields may provide additional support. The August 18 high, just below 159.80, remains the key level above.
GBP/USD: Sterling declined roughly 0.4% on Wednesday, marking one of its sharpest daily losses in a month. The pair fell to just below 1.3585, almost reaching the 61.8% retracement of its rally following the US Treasury’s bond-buyback announcement. Losses have continued today, with GBP/USD approaching 1.3570. Further technical support is seen around 1.3335–1.3360. Options worth GBP840 million at 1.3550 expire today.
USD/CAD: The Canadian Dollar remains under pressure following the sharp deterioration in US-Canada trade relations. Consistent with historical correlations, CAD weakness has coincided with a widening Canada-US two-year yield spread, which reached 128 basis points on Wednesday, its widest level in nearly three weeks. USD/CAD climbed toward 1.3895 before holding below that level today. Initial resistance is located near last week’s high around 1.3910, followed by the 20-day moving average near 1.3920 and the 1.3950–1.3960 zone. Trade Representative Greer’s threat to restrict certain Canadian imports remains an additional source of pressure.
AUD/USD: The Australian Dollar approached 0.7190 on Wednesday, its strongest level since June 1, before profit-taking pushed it back toward 0.7165. The five-day moving average is also located around this level, and the Aussie has remained above it for roughly two weeks. Stronger-than-expected Australian inflation data and robust household spending have reinforced expectations that the RBA could deliver another rate hike.
Emerging Markets
USD/MXN: The Dollar traded on both sides of Tuesday’s range against the Mexican Peso but settled within it, leaving the near-term bias tilted slightly higher. Momentum indicators remain technically oversold after five consecutive weeks of declines. Rising US-Canada trade tensions may also increase concerns about the future of USMCA. USD/MXN has edged slightly above 16.99 today. A move above 17.00 would expose last week’s high just below 17.08, followed by the 20-day moving average near 17.10 and the 17.1365 area, corresponding to the 38.2% retracement of the Dollar’s decline from late July.
USD/CNH: After closing below 6.72 on Tuesday for the first time in roughly three and a half years, the Dollar recovered and settled around 6.7225 against the offshore Yuan. The pair is consolidating near 6.72 today. The firmer Dollar appears to have encouraged the PBOC to set a slightly weaker reference rate, with the CNY fixing raised to 6.7840 from 6.7829.
USD/INR: The Indian Rupee weakened as markets reopened following Wednesday’s holiday. Higher oil prices and a broadly stronger US Dollar weighed on the currency. The Rupee had gained around 0.35% on Tuesday, its strongest advance in nearly a month. USD/INR has rebounded toward 95.56 after reaching around 95.39 earlier in the week, with last week’s high slightly above 95.76.
Other Markets
US equities faced some pressure from higher yields and oil prices ahead of NVIDIA’s earnings, although the company’s results subsequently supported parts of the technology sector across Asia-Pacific markets. South Korea’s KOSPI gained around 1.5%, standing out among regional markets despite the central bank’s recent rate hikes. The benchmark rate now sits at 3%. In Europe, the technology-light Stoxx 600 was down around 0.4% during the morning session. Meanwhile, Nasdaq futures were up roughly 1%, while S&P 500 futures gained slightly less.
Benchmark 10-year government bond yields rose by around 3–5 basis points across the US and Europe on Wednesday. Yields remained broadly firmer today, with European rates rising 1–2 basis points and the US 10-year Treasury yield increasing around 2 basis points.
Gold ended a five-session winning streak with a sharp 1.3% decline on Wednesday, giving back more than two days of gains. The precious metal remained under pressure today, falling to a four-day low slightly below $4,579. If the recent rally was partly driven by the US Treasury’s bond-buyback announcement, the first corrective target could be around $4,555. Silver also appears vulnerable after encountering strong resistance near $70, although it remains within Tuesday’s trading range of roughly $67.45–$69.95.
October WTI crude recovered from a dip below $80, its first move under that level since August 14, before reaching an intraday high near $83.30 during New York trading. Oil remains above $80 today and is hovering around $82 ahead of the North American session. Last week’s high was close to $87.70.
Economic Data
The US economic calendar includes the preliminary goods trade deficit, retail and wholesale inventories, weekly Initial Jobless Claims, and the Kansas City Fed’s August manufacturing survey. The improvement in the US trade balance remains distorted by businesses bringing forward imports ahead of last year’s tariffs. Even so, the overall trade deficit narrowed to roughly $534.8 billion in the first half of 2026 from $716.6 billion in H1 2025 and $558 billion in H1 2024. Inventory figures typically have limited immediate market impact but feed into GDP estimates, alongside the real trade balance.
Weekly jobless claims continue to point to a relatively resilient labor market. The four-week moving average declined for five consecutive weeks through the end of July before edging higher to around 204,000 in mid-August.
Canada is scheduled to release its June establishment employment figures, although markets tend to react more strongly to the timelier household employment survey. Statistics Canada will also publish an estimate of the Q2 current account ahead of tomorrow’s preliminary GDP report. After remaining in deficit since Q2 2022, Canada’s current account is expected to have moved into surplus in Q2 2026. Following contractions in Q4 2025 and Q1 2026, the economy is expected to regain lost ground in Q2, with forecasts centered around 3.2%–3.4% annualized growth. However, the intensifying trade dispute with the US could weigh on growth later in the year.
Mexico will publish its July trade balance. The country’s external trade remains a relative bright spot, with the first-half trade surplus increasing to around $9.86 billion from $1.43 billion a year earlier. Exports rose 10.7% in H1, while imports increased 7.7%. The central bank recently raised its 2026 GDP growth forecast to 1.5% from 1.1% and slightly lowered its 2027 inflation projection.
Eurozone M3 money supply growth accelerated to 3.4% year over year in July from 3.3% in June, marking its fastest pace since June 2025. Household lending growth increased to 3.1%, while lending to non-financial corporations accelerated to 4.4%.
In Australia, stronger-than-expected CPI data was followed by evidence that higher interest rates have yet to significantly weaken household spending. Consumer spending jumped 1.1% in July, well above the 0.3% consensus forecast, while June growth was revised higher to 1.0%. Although private capital expenditure fell unexpectedly in Q2, the previous quarter’s increase was revised higher. Markets are now pricing in almost a 50% probability of an RBA rate hike next month, compared with just over 10% at the end of last week, while a hike before year-end is now fully priced in.
Japanese investors sold foreign bonds and equities last week after three consecutive weeks of buying. Foreign bond sales reached JPY1.98 trillion, the largest weekly outflow since early April, while foreign equity sales totaled nearly JPY870 billion, the biggest liquidation since early June.
China’s industrial profit growth slowed to 11.2% year over year in July from 15.1% in June, marking the third consecutive monthly slowdown. However, the headline figure masks a notable divergence, with the high-tech sector continuing to account for more than half of year-to-date profit growth.
EUR/USD holds modest gains around 1.1655 during Friday’s early Asian trading session.
Markets remain focused on Fed Chair Warsh’s speech at the Jackson Hole Symposium in Wyoming on Friday.
The ECB is widely expected to hike its key interest rates in September.
EUR/USD edges higher to around 1.1655 during Friday’s early Asian trading session. The pair could face increased volatility later in the day as Federal Reserve Chair Kevin Warsh prepares to deliver his closely watched keynote speech at the Jackson Hole Economic Policy Symposium.
The Euro continues to receive support from the European Central Bank’s hawkish policy outlook and resilient Eurozone economic data. ECB Executive Board member Isabel Schnabel said Wednesday that interest rates may need to rise further, citing inflationary risks stemming from the prolonged Middle East conflict and stronger-than-expected economic activity across the Eurozone.
Recent data also highlighted the resilience of the Eurozone economy, with business activity expanding at its fastest pace of the year. Markets are currently pricing in roughly a 96% probability that the ECB will lift its deposit rate to 2.50% at its September meeting.
Meanwhile, traders are closely awaiting Fed Chair Kevin Warsh’s speech in Jackson Hole, Wyoming, on Friday. His remarks could provide fresh insight into the outlook for the US economy and future monetary policy.
Bank of America’s US rates strategist Mark Cabana expects Warsh to indicate that further rate hikes remain possible if inflation fails to ease further. However, a speech focused mainly on longer-term structural issues such as productivity and demographics could be viewed by markets as relatively dovish.
ECB outlook continues to support the Euro
Scotiabank strategists point out that the Euro has recently lost some momentum as yield differentials have shifted, with German-US yield spreads providing slightly less fundamental support for the currency. Nevertheless, they believe the broader policy divergence between the ECB and Fed remains favorable for the Euro.
With markets increasingly anticipating ECB tightening in September while scaling back expectations for further Fed rate hikes, the relative monetary-policy outlook continues to offer a constructive medium-term backdrop for EUR/USD.
On the daily chart, EUR/USD retains a positive near-term outlook, with the pair trading above both the 100-day simple moving average (SMA) and the middle line of the 20-day Bollinger Bands. The pair is approaching resistance around the upper Bollinger Band, while the 14-day Relative Strength Index (RSI) near 65 indicates solid upward momentum without yet reaching overbought territory.
On the downside, initial support is located around 1.1585–1.1575, where the 100-day SMA and Bollinger middle band converge. A deeper correction could bring the pair toward stronger support near 1.1465, around the lower Bollinger Band.
On the upside, a decisive move above the upper Bollinger Band near 1.1710 could pave the way for additional gains. Conversely, another rejection at this level may trigger a pullback toward the 1.1585–1.1575 support zone.
DXY remains supported above the 99.00 level, though upside momentum is constrained by the 200-day EMA around 99.75.
Market-implied odds of a September Fed rate hike have fallen to 40.14%, down from roughly 50% on August 10.
The Dollar Index’s recent three-month low was driven by an expanded Treasury buyback program rather than a shift in Federal Reserve policy.
The US Dollar Index (DXY) trades slightly above 99.00, up around 0.25%, after climbing to just below 99.25 following stronger-than-expected US PCE inflation data. However, the move does not necessarily signal renewed expectations for a September Federal Reserve rate hike, as markets have actually reduced their rate expectations throughout August.
Fed Rate Expectations Shift Lower
Markets now price a 40.14% probability of a September 16 rate hike, versus 59.86% for a hold. Expectations for additional tightening have also weakened significantly, with the probability of rates reaching 4.00%-4.25% by December falling to 8.13% from 24.13% on August 10.
The 2027 outlook points in the same direction, with the probability of two rate increases by June falling to 74.50% from 86.71% two weeks earlier. This suggests traders are increasingly debating when the next hike could arrive rather than how far the Fed will ultimately raise rates.
Dollar Rebound Follows Fiscal Developments
The Dollar Index’s recent recovery began from around 98.50, its lowest level in more than three months. That decline followed the US Treasury’s expansion of its long-term debt buyback program, which was aimed at containing borrowing costs.
The fiscal backdrop remains a concern for the dollar. Treasury purchases of longer-dated bonds while issuing more debt at the short end effectively reduce the average maturity of government borrowing, a development that can weigh on the currency when investors interpret it as an attempt to suppress long-term yields.
Technically, DXY remains below the 200-day EMA near 99.75 and the 50-day moving average just below 100.00, leaving significant resistance overhead.
Key Levels to Watch
Resistance: 99.25, 99.75, 100.00, then 101.75
Support: 99.00, 98.50, followed by levels below 98.00
Bias: Bearish while DXY remains below the 200-day EMA near 99.75
Bullish invalidation: A daily close above 99.75 could shift attention toward 100.00
Despite the latest inflation-driven bounce, the broader technical setup remains fragile. A sustained break above 99.75 would be needed to suggest that the Dollar Index is transitioning from a short-term rebound into a more durable recovery.
The US dollar is trading mixed against the G10 currencies, with most major pairs moving within narrow ranges of around ±0.1%. The Norwegian krone is the notable exception, falling nearly 0.3% as Brent crude extended its decline for a second straight session, dropping more than 2%. The Canadian dollar remains under pressure from concerns that the US trade war could persist for longer. Meanwhile, despite softer US Treasury yields and a modest rise in Japanese government bond yields, the dollar climbed to a four-day high against the yen near JPY159.50.
China has formally opposed the unilateral and secondary sanctions imposed by the US on Iran and entities doing business with Tehran. Following the UAE’s decision to sever economic ties with Iran earlier this month, China has become Iran’s largest trading partner. US Treasury Secretary Bessent has suggested that a major financial institution could face sanctions in the coming days. Speculation has focused on two major Chinese banks that reportedly received formal warnings from the US Treasury in April. Sanctioning either institution ahead of next month’s Trump-Xi meeting could create significant market disruption.
Prices
G10
Euro: EUR/USD slipped to around $1.1655 yesterday, marking a fresh three-day low. It briefly dipped to approximately $1.1650 during late Asian trading before rebounding in early European hours to near $1.1675. The previous day’s high was slightly above $1.1685. Last week, European buyers twice pushed the euro toward $1.1710 before North American traders sold into the strength.
Japanese yen: Despite a nearly five-basis-point decline in the US 10-year Treasury yield yesterday, the dollar remained resilient against the yen. With US yields softer today but Japanese 10-year JGB yields moving higher, USD/JPY reached roughly JPY159.50. The pair has remained range-bound between about JPY158.00 and JPY159.60–159.80 for the past two weeks. While many market participants question the effectiveness of the recent intervention, expectations for a BOJ rate hike next month have surged to around 80%, compared with below 30% before the intervention. The probability of another hike by year-end has also risen to about 60%, from below 10%.
Sterling: GBP/USD posted an inside day yesterday, remaining within the pre-weekend range of roughly $1.3620–$1.3675, and continues to trade within that band. Momentum indicators are stretched, but the pair could still test a marginal new high. A move below $1.3590–$1.3600 would provide an early indication that a broader consolidation or correction is underway.
Canadian dollar: The Canadian dollar was the weakest G10 currency yesterday, losing around 0.6%—its largest daily decline since the Federal Reserve delivered a hawkish hold at Warsh’s first meeting as Chair. USD/CAD climbed to around CAD1.3860 yesterday and moved slightly above CAD1.3865 today. The next technical objective is around CAD1.3900–1.3910. The main driver was the two-year interest-rate differential, with the US yield premium widening by nearly 10 basis points to almost 130 basis points.
Australian dollar: After reaching approximately $0.7180 before the weekend, AUD/USD retreated toward $0.7140 yesterday. It touched a marginal new low today before recovering toward $0.7160. Although momentum indicators remain stretched, the pair could attempt to revisit last week’s high.
Emerging Markets
Mexican peso: Risk aversion, weaker monthly IGAE data and a downward revision to Q2 GDP growth—from 1.5% to 1.4% quarter-over-quarter—pressured the peso. USD/MXN climbed to around MXN16.9735 before easing toward MXN16.93 as risk sentiment improved. Last week’s high was around MXN17.07–17.08. The peso declined approximately 0.3% yesterday, its largest one-day drop in a month, while the Colombian peso fell about 0.8% and the Brazilian real weakened roughly 0.25%.
Chinese yuan: After falling to a marginal new low since February 2023 near CNH6.7130 yesterday, USD/CNH recovered toward CNH6.7255 and moved slightly higher today. Both technical and fundamental factors point to a potential period of consolidation. The PBOC fixed the dollar slightly higher for a third consecutive session, at CNY6.7852 versus CNY6.7841 previously. Meanwhile, reports indicate the US may consider an additional 7.5% tariff on Chinese goods over concerns about excess manufacturing capacity ahead of the upcoming Xi-Trump meeting. China’s rejection of the new Iran sanctions adds another layer of tension.
Indian rupee: The rupee strengthened to a seven-day high, apparently supported by intervention. USD/INR fell to around INR95.39, giving the rupee a 0.35% gain—the strongest daily advance of the month. The dollar settled near INR95.4150, marking its first close below the 20-day moving average, currently around INR95.48, since last Monday.
Other Markets
Equities: Global equities were generally firmer. Most major Asia-Pacific markets advanced, although Hong Kong and China’s CSI 300 lagged. The regional MSCI index only partially recovered from yesterday’s 1.2% decline. Europe’s Stoxx 600 was flat yesterday but has gained nearly 0.5% today. US equity futures are also higher, with S&P 500 futures up around 0.55% after yesterday’s 0.3% decline. Nasdaq futures have risen about 1% following a roughly 0.75% drop in the index yesterday.
Bonds: Benchmark 10-year yields declined yesterday, partly reflecting lower oil prices. Reports suggested Treasury officials are considering using the Treasury General Account to support additional government bond purchases, which would inject reserves into the banking system. Such a move could complicate Warsh’s objective of shrinking the Federal Reserve’s balance sheet. With oil prices moving higher today, European yields have fallen roughly 2–4 basis points, while the US 10-year Treasury yield is near 4.67%, compared with just below 4.70% at yesterday’s close.
Gold and silver: Gold’s four-session rally stalled near $4,681 yesterday, its highest level in more than three months, although it still closed above the pre-weekend high around $4,632. The metal briefly moved above $4,696 today before retreating below $4,619 and is posting modest losses in early European trading. A break below $4,600 could open the way toward $4,540. Silver has struggled to break through $70 for two consecutive sessions. Another failed attempt today triggered some profit-taking, sending silver to a three-day low just below $67.60.
WTI crude: October WTI remained within the August 20 trading range of approximately $84.25–$87.70 over the previous two sessions before breaking lower today. Prices fell toward $82, reaching a six-day low and touching the 38.2% Fibonacci retracement of this month’s rally from roughly $73 on August 5. The 20-day moving average sits near $81.25, while the next retracement target is around $80.40.
Economic Data and Central Banks
US: Today’s US calendar features house prices, new home sales, building permits, several regional Federal Reserve surveys and the Conference Board’s August consumer confidence report. However, broader developments—including tougher sanctions on Iran, potential use of the Treasury General Account for bond buybacks and Fed Chair Warsh’s speech at Jackson Hole tomorrow—could overshadow the incoming economic data.
Mexico: Mexico is due to release Q2 current-account data. Despite maintaining a trade surplus, the country continues to run a modest current-account deficit, which was around 0.5% of GDP last year and is projected by the IMF to remain at a similar level this year. The quarterly figure typically has limited market impact.
Germany: Germany revised Q2 GDP growth upward to 0.3% from 0.2% and released additional details. Private consumption increased only 0.1% after falling 0.6% in Q1, while capital expenditure declined 0.2% following a 1.3% contraction in the previous quarter. Government spending rose 0.1%, compared with a 0.9% increase in Q1. Separately, the IFO survey showed improving sentiment, with the overall business climate index rising for a fourth consecutive month to 88.8, its highest level since last August.
Australia: Minutes from the Reserve Bank of Australia’s latest meeting reinforced the hawkish hold message delivered earlier this month. Several policymakers believe another rate increase could still be necessary, while inflation risks remain tilted to the upside. Although the RBA appears in no rush to raise rates again following three hikes earlier this year, markets now price slightly above a 60% probability of another increase before year-end, up from just below 60% last week. A softer July CPI report tomorrow may not materially alter expectations. Headline inflation is forecast to slow to 3.3% from 3.8%, while trimmed-mean inflation could prove stickier at 3.5%, compared with 3.6% previously.
Australian Dollar climbs after stronger-than-expected CPI, eyes multi-month peak ahead of US PCE
AUD/USD extends its gains for a second consecutive session, rising toward 0.7170 as supportive fundamentals bolster the pair.
Australia’s hotter-than-forecast July CPI keeps expectations of further RBA tightening alive, lending support to the Australian Dollar.
The US Dollar remains subdued as Treasury yields decline and hopes for US-Iran diplomacy grow, with traders awaiting the US PCE inflation report.
AUD/USD attracts fresh buying for a second straight day, advancing toward the 0.7170 region after Australia released its latest consumer inflation data during Wednesday’s Asian session. The pair remains close to its highest level since early June, reached last Friday, as market participants turn their attention to the upcoming US Personal Consumption Expenditures (PCE) Price Index for further direction.
Data from the Australian Bureau of Statistics showed that headline CPI inflation eased to 3.5% year-over-year in July from 3.8% in June. However, the figure exceeded the 3.2% market consensus, keeping the possibility of additional interest-rate tightening by the Reserve Bank of Australia (RBA) on the table and providing fresh support for the Aussie.
Meanwhile, the US Dollar continues to struggle for upward momentum as expectations for an immediate Federal Reserve rate hike fade. Lower US Treasury yields, declining oil prices and optimism surrounding potential US-Iran diplomatic progress are also weighing on the greenback. Investors are likely to remain cautious ahead of the US PCE inflation figures, which could offer additional clues about the Fed’s upcoming policy decisions.
Recent softer US inflation data has strengthened expectations that the Federal Reserve could maintain rates at its September 15–16 meeting. A CNBC report also indicated that the US Treasury could deploy nearly $1 trillion to support increased buybacks of longer-dated bonds announced last week. At the same time, weaker oil prices have helped ease inflation concerns, contributing to lower Treasury yields and further limiting demand for the US Dollar.
Overall, the current fundamental backdrop remains favorable for AUD/USD bulls, supporting expectations for further near-term gains. Any downside correction could attract fresh buying interest as long as the pair maintains its broader bullish structure.
AUD/USD continues to trade above the 100-period Simple Moving Average (SMA) on the 4-hour chart, currently around 0.7085, signaling a constructive short-term trend. The 0.7085 area serves as immediate support, with buyers likely to defend this level and preserve the broader recovery.
As long as AUD/USD remains above 0.7085, the bullish bias stays intact, keeping the pair positioned for a potential continuation toward its recent multi-month highs.
Canadian Dollar slips as oil prices fall, while USD/CAD eyes US PCE for fresh direction
USD/CAD attracts modest buying interest as weaker crude prices put pressure on the commodity-linked Canadian Dollar.
Escalating US-Canada trade tensions add to CAD headwinds, although softer US Dollar demand limits the pair’s upside.
Markets await the US PCE inflation report for signals on the Federal Reserve’s rate outlook and the next USD/CAD move.
USD/CAD edges higher during Wednesday’s Asian session, trading around the mid-1.3800 area while remaining within Tuesday’s range. Investors are now turning their attention to the US Personal Consumption Expenditures (PCE) Price Index, which could provide a fresh catalyst for the pair.
The upcoming US inflation figures are expected to offer further clues about the Federal Reserve’s monetary-policy outlook and influence demand for the US Dollar. However, fading expectations for an immediate Fed rate hike, declining US Treasury yields and improving hopes for US-Iran diplomatic negotiations continue to limit USD gains and keep a lid on USD/CAD.
Softer-than-expected US inflation data for July has reduced expectations for near-term Fed tightening, with markets increasingly anticipating that policymakers will leave interest rates unchanged at the September 15–16 meeting. Meanwhile, reports that the US Treasury could deploy nearly $1 trillion to help finance expanded buybacks of longer-term bonds have contributed to further declines in Treasury yields, weighing on the greenback.
The Canadian Dollar, meanwhile, remains vulnerable to pressure from falling crude oil prices. Growing optimism over a potential diplomatic breakthrough between the US and Iran has pushed oil prices to a two-week low after Washington reportedly offered sanctions relief and an end to its naval blockade in exchange for the reopening of the Strait of Hormuz and an end to attacks by regional proxies.
Additional pressure on the Loonie comes from escalating US-Canada trade tensions. Canada has announced new tariffs on US imports in retaliation for Washington’s 50% tariffs on approximately $20 billion worth of Canadian goods.
Despite these factors favoring USD/CAD upside, the mixed fundamental picture suggests caution before assuming that the pair can extend its recent recovery from the 1.3730 region, its lowest level in three months, reached last Friday.
USD/CAD maintains a bearish short-term bias while trading below the 100-period Simple Moving Average (SMA) on the 4-hour chart, currently near 1.3912. This level remains an important resistance zone, and sellers could continue to defend it unless the pair breaks and holds decisively above the moving average.
A sustained move above 1.3912 would weaken the current bearish structure and potentially signal the beginning of a broader recovery. Until then, the pair remains vulnerable to renewed downside pressure.
The US Dollar Index (DXY) closed the week almost unchanged near 98.80 after briefly dipping into the 98.50 area before recovering. The Greenback remains close to its lowest level since May, with weaker Treasury yields playing a key role. The US Treasury’s decision to at least double buybacks of longer-term debt has pushed yields lower, weighing on the Dollar despite stronger-than-expected US business activity data.
Gold climbed above $4,600 to reach a three-month high, while the Australian Dollar advanced to a multi-month peak. Crude Oil also remained elevated near a four-week high as geopolitical tensions in the Middle East continued.
US Dollar Forecast: Key Events Ahead
The upcoming week is heavily weighted toward the second half, with limited Dollar catalysts early on. The main highlights arrive on Wednesday with the July Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation measure, followed by Friday’s key events: new Fed Chair Kevin Warsh’s first Jackson Hole keynote and the preliminary annual benchmark revision to US Nonfarm Payrolls.
With the Dollar already trading near recent lows, a dovish tone from Warsh or a significant downward revision to employment data could put additional pressure on the Greenback.
EUR/USD Outlook
EUR/USD finished the week around 1.1680, remaining below the psychological 1.1700 level after another failed attempt to break higher. With few major Eurozone catalysts before Friday’s inflation data, the pair is likely to remain primarily driven by Dollar movements and developments at Jackson Hole. A stronger Eurozone HICP reading could reduce expectations for further ECB easing and provide support for the Euro heading into month-end.
GBP/USD Outlook
GBP/USD ended the week around the mid-1.3600s after retreating from its midweek highs. With little significant UK economic data scheduled, the pair is likely to take its cues mainly from the US Dollar and Warsh’s Jackson Hole speech. Trading could remain subdued before Friday before potentially seeing increased volatility.
USD/JPY Outlook
USD/JPY closed the week slightly above 159.00 as a softer Dollar was offset by continued Yen weakness caused by wide interest-rate differentials. Tokyo CPI data on Friday will be closely watched for clues about the Bank of Japan’s policy outlook. Stronger inflation could reinforce expectations for a September rate hike and put downward pressure on USD/JPY.
AUD/USD Outlook
AUD/USD climbed toward 0.7170, reaching its highest level in several months and outperforming other major currencies. The RBA minutes kick off the week, but Tuesday’s monthly inflation report will be the key event. Headline inflation is expected to ease toward 3.2% from 3.8%. A weaker-than-expected reading could reduce remaining expectations for RBA tightening and challenge the Australian Dollar’s recent rally.
WTI Oil Outlook
WTI Crude ended the week in the high-$80s, close to a four-week high. With no major oil-specific economic releases ahead, geopolitical developments remain the main driver. Washington’s shift toward economic sanctions against Iran instead of additional military strikes has reduced immediate concerns about a supply disruption, although stalled negotiations continue to support oil prices.
Gold Outlook
Gold closed above $4,600 at a three-month high, supported by a weaker US Dollar, declining real yields and renewed safe-haven demand amid Middle East tensions. The upcoming PCE inflation data and Warsh’s Jackson Hole speech will be crucial for the precious metal. A dovish signal from the new Fed Chair could extend Gold’s rally, while a more cautious stance on interest rates could trigger a deeper pullback.
The Nasdaq 100 ended the week lower, continuing to struggle to gain momentum above the psychologically important 30,000 level. Market participants remain cautious as uncertainty surrounding the economic outlook persists, while ongoing developments in the Middle East continue to influence investor sentiment.
Additional pressure came after reports that the U.S. Treasury plans to conduct significant buybacks of 30-year bonds next month, a move that appears to have unsettled markets in the short term. Despite the recent weakness, the broader picture remains largely unchanged. The Nasdaq 100 continues to trade within a long-term bullish trend, suggesting that the latest pullback has not yet altered the overall upward trajectory.
NZD/USD
The New Zealand dollar also posted gains during the week, but its advance is encountering strong resistance in the 0.60–0.61 zone, an area that could limit further upside in the near term.
Compared with several other Asia-Pacific currencies, the kiwi has benefited from expectations that the Reserve Bank of New Zealand (RBNZ) may maintain a relatively hawkish stance. However, the broader interest rate landscape continues to favor the United States, where yields remain comparatively attractive. As a result, the interest rate differential between the U.S. and New Zealand continues to provide underlying support for the U.S. dollar, potentially capping NZD/USD gains despite recent strength.
Gold
Gold prices rallied strongly during the week, breaking above the $4,500 level, a development that reinforces the metal’s underlying bullish momentum and highlights continued demand for safe-haven assets.
Despite the breakout, volatility is likely to remain elevated as investors navigate a complex mix of geopolitical tensions and evolving conditions in the U.S. Treasury market. These factors are expected to keep market sentiment fluid in the near term. Nevertheless, the broader outlook remains constructive, with gold continuing to trade within a well-established long-term uptrend, suggesting the recent advance may be part of a larger bullish continuation.
WTI Crude Oil
WTI crude oil remains highly volatile, with prices continuing to react sharply to developments in the Middle East. The unpredictable geopolitical situation means that any new headline could quickly trigger significant moves in the oil market.
The risk of further escalation remains a key concern, particularly given the possibility of disruptions to global oil supplies. While short-term price action is likely to remain choppy, the broader outlook for crude oil remains supported by geopolitical risk and the potential for supply constraints. Over the longer term, these factors could continue to provide upward pressure on oil prices.
DAX
The DAX remains under pressure, with investors closely monitoring concerns over Europe’s energy supply heading into the winter. Any deterioration in the energy situation could weigh on the German economy and create additional headwinds for the index.
Germany’s economy is heavily reliant on its industrial sector, making the DAX particularly sensitive to rising energy costs or potential supply disruptions. Against this backdrop, the 26,000 level remains a key area to watch, as traders assess whether the index can maintain its recent strength or face a deeper correction.
USD/JPY
The USD/JPY pair remained highly volatile, with the U.S. dollar moving sharply against the Japanese yen throughout Friday’s session and capping off another turbulent trading week.
The 160 yen level remains a significant resistance area, likely to attract considerable attention from traders. Market participants are also keeping a close eye on the possibility of Japanese authorities intervening to support the yen, although there has been relatively little discussion of intervention recently.
Meanwhile, the widening interest-rate differential between the U.S. and Japan continues to support the carry trade, potentially keeping demand for USD/JPY elevated as traders seek to benefit from the yield gap between the two currencies.
USD/MXN
The U.S. dollar continued to weaken against the Mexican peso, with the peso benefiting from its relatively attractive yield. The ongoing interest-rate differential between the two countries remains a key factor supporting demand for the Mexican currency.
However, this trend could reverse quickly if global financial conditions deteriorate or a broader financial crisis emerges, as investors may move away from higher-yielding emerging-market currencies toward traditional safe-haven assets.
For now, USD/MXN remains firmly entrenched in a strong downtrend, keeping the broader outlook bearish for the pair.
EUR/USD
The euro strengthened against the U.S. dollar this week, supported by broad-based weakness in the greenback. If the bullish momentum continues, the 1.19 level could become a longer-term target, although EUR/USD will first need to overcome resistance around 1.18.
In the event of a short-term correction, the 50-week EMA near 1.1550 remains an important potential support zone. Overall, the direction of the pair continues to be closely tied to interest-rate expectations and movements in the U.S. Treasury market, which remain key drivers of the dollar’s performance.
US Dollar Index Holds Near Three-Month Low Amid Fading Fed Rate-Hike Bets
The US Dollar Index (DXY), which measures the performance of the US Dollar against a basket of major currencies, remains under pressure during Friday’s Asian trading session. After a modest rebound the previous day, the index attracted fresh selling and hovered around the 98.80–98.75 area, remaining close to its lowest level since mid-May.
USD Remains Under Pressure as Fed Rate-Hike Expectations Fade
The US Dollar continues to face headwinds as markets scale back expectations for an immediate Federal Reserve interest rate hike. Softer-than-expected US inflation data released last week reinforced expectations that the Fed may maintain its current policy stance, weighing on demand for the Greenback.
The impact of the US Treasury’s decision to increase certain long-term debt buyback operations has also diminished. Meanwhile, renewed inflation concerns linked to higher energy prices could continue to support US Treasury yields, potentially limiting the downside for the Dollar.
Geopolitical Risks Provide Support for the Safe-Haven USD
Rising geopolitical tensions are another factor preventing a sharper decline in the US Dollar. Crude oil prices climbed to a three-week high after President Donald Trump announced tougher economic measures against Iran and warned of severe penalties for countries conducting business with Tehran or helping it circumvent sanctions.
Higher oil prices could fuel inflation concerns and keep US bond yields elevated. At the same time, escalating tensions may increase demand for the US Dollar as a traditional safe-haven asset.
Market pricing also remains relatively supportive of the USD. The CME FedWatch Tool shows that traders continue to assign roughly a 68% probability of at least one Federal Reserve rate hike by the end of the year. This outlook could help cushion the DXY against deeper losses.
DXY Technical Outlook
From a technical perspective, the US Dollar Index maintains a bearish near-term bias while trading below its 200-day Simple Moving Average (SMA) near 99.16.
The recent failure to sustain gains above the 78.6% Fibonacci retracement around 98.52 leaves the index vulnerable to additional selling pressure. On the upside, the 200-day SMA and the 61.8% Fibonacci retracement near 99.22 form a significant resistance zone that could limit any recovery.
Overall, the DXY remains vulnerable to further declines, although persistent inflation risks, elevated Treasury yields and geopolitical uncertainty could provide support for the US Dollar and slow its downward momentum.
USD/JPY Steadies Near 159.00 as Japan Inflation Strengthens BoJ Rate-Hike Bets
The Japanese Yen (JPY) traded largely sideways against the US Dollar on Friday, with USD/JPY hovering around 159.05 during the early Asian session. Stronger-than-expected inflation data from Japan reinforced expectations that the Bank of Japan (BoJ) could raise interest rates at its upcoming September meeting, helping offset concerns over weaker domestic growth.
Japan Inflation Strengthens BoJ Rate-Hike Expectations
Japan’s headline Consumer Price Index (CPI) rose 2.0% year over year in July, accelerating from 1.6% in June. Meanwhile, core CPI, which excludes volatile fresh food prices but includes energy costs, increased 1.8% YoY, up from 1.6% previously.
The pickup in underlying inflation could strengthen the case for further monetary policy normalization by the BoJ. Market pricing currently reflects an approximately 80% probability of a rate hike at the next policy meeting, while expectations are building for the central bank to lift its policy rate from 1.0% to 1.25% in September.
Higher energy prices could further reinforce inflationary pressures. Renewed tensions in the Middle East have pushed oil prices higher, while the weaker Yen may also contribute to imported inflation in Japan.
Geopolitical Risks Could Limit Yen Gains
Despite stronger inflation data and rising BoJ rate-hike expectations, geopolitical developments could restrict the Yen’s upside. Japan remains heavily dependent on Middle Eastern energy supplies, meaning a prolonged escalation in the region could increase oil prices and weigh on Japan’s economic outlook.
At the same time, heightened geopolitical uncertainty may boost demand for the US Dollar as a safe-haven asset, providing additional support for USD/JPY.
However, the Yen’s medium-term outlook appears to be improving. Firmer BoJ policy, structural reforms and a resilient Japanese economy could gradually strengthen the JPY and provide a fundamental counterweight to the US Dollar.
USD/JPY Technical Outlook
From a technical perspective, USD/JPY retains a bearish near-term bias as the pair remains below both the 100-day Simple Moving Average (SMA) and the 20-period Bollinger middle band.
Initial resistance is located around 159.45, followed by the 100-day SMA near 160.00. A sustained break above this zone would be needed to weaken the current bearish structure, with the upper Bollinger Band around 163.30 representing a further upside barrier.
On the downside, the lower Bollinger Band near 155.50 provides the next major technical support. A decisive break below recent lows could expose this area and reinforce the broader bearish outlook.
Overall, USD/JPY remains vulnerable to further declines while capped below the 159.45–160.00 resistance zone, although geopolitical risks and safe-haven demand for the US Dollar could limit the Yen’s gains.
Australian Dollar Slips After Disappointing Labor Report
AUD/USD comes under renewed selling pressure as weaker-than-expected Australian employment data weighs on the Australian Dollar.
Australia’s unemployment rate climbed to 4.5% in July, exceeding the 4.4% market forecast.
Fed minutes indicated that policymakers could support near-term rate hikes if inflation remains elevated, while the benchmark rate was kept at 3.5%–3.75%.
AUD/USD retreats after gaining more than 0.5% in the previous session, trading near 0.7120 during Thursday’s Asian session. The pair is pressured by a weaker Australian Dollar following disappointing domestic employment figures.
Australia’s unemployment rate increased to 4.5% in July, above economists’ expectations of 4.4%. Employment also deteriorated sharply, with the economy losing 15.8K jobs compared with an 80.2K increase in June and falling well short of the forecast for a 15.0K rise.
AUD Faces Additional Headwinds From RBA and China Concerns
Rabobank strategists noted that expectations for additional Reserve Bank of Australia tightening remain limited, with markets pricing in only around 12 basis points of rate hikes over the next three months. They also pointed to weaker Chinese demand for Australian commodities and softer domestic economic conditions as growing risks for the Aussie.
Still, AUD/USD could find some support from a weaker US Dollar, which has been pressured by recent economic developments and shifting Federal Reserve expectations. Minutes from the Fed’s July meeting showed that several policymakers were open to raising interest rates in the near term if inflation failed to moderate, while the benchmark rate remained unchanged at 3.5%–3.75%.
Although inflation is still above the Fed’s 2% target, recent monthly readings suggest that price pressures are easing. This has reduced expectations for an immediate rate increase. The CME FedWatch Tool now shows a 32.7% probability of a rate hike at the next meeting, down from 47% one month earlier.
AUD/USD is trading near 0.7110 on the daily chart, remaining above both the nine-period and 50-day Exponential Moving Averages (EMAs). This positioning keeps the pair’s near-term outlook moderately bullish, particularly as prices continue to move beyond the recent consolidation range.
The 14-day Relative Strength Index (RSI) stands at 63.2, indicating positive momentum while remaining below overbought territory. This suggests that buyers still have room to push prices higher, although broader Federal Reserve sentiment remains relatively subdued compared with previous peaks.
The first key resistance level is the psychological 0.7200 mark. On the downside, initial support is located around the nine-period EMA at 0.7087. A break below this level could expose the next support zone near the 50-period EMA at 0.7034, where dip-buyers may attempt to regain control.
Canadian Dollar Strengthens as Oil Prices Rise and US Dollar Weakens
USD/CAD extends its decline as stronger crude oil prices support the commodity-sensitive Canadian Dollar.
Oil prices climb amid heightened Middle East tensions and stalled US-Iran negotiations, raising concerns over potential supply disruptions.
Fed minutes indicated that policymakers could favor near-term rate hikes if inflation remains elevated, while keeping the benchmark rate at 3.5%–3.75%.
USD/CAD falls for a second consecutive session, trading around 1.3800 during Thursday’s Asian session. The pair remains under pressure as the Canadian Dollar gains momentum from rising crude oil prices.
Oil prices have advanced sharply as tensions in the Middle East intensify and negotiations between the United States and Iran remain deadlocked. The situation has extended into the strategically important Strait of Hormuz. Although US President Donald Trump said oil shipments continue to pass through the waterway, he also indicated that further negotiations with Tehran remain possible.
Oil Rally Supports the Canadian Dollar
TD Securities highlighted the ongoing geopolitical risks as an important driver of crude prices, warning that the Iran conflict could escalate further. With the threat of supply disruptions still present, the bank expects Brent crude’s geopolitical risk premium to remain elevated as traders price in the possibility of additional instability across the region.
USD/CAD is also pressured by a softer US Dollar amid shifting expectations for Federal Reserve policy and recent economic data. Minutes from the Fed’s July meeting showed that officials were prepared to consider raising interest rates in the near term if inflation failed to ease, while the benchmark rate remained unchanged at 3.5%–3.75%.
Although inflation remains above the Fed’s 2% target, recent monthly figures indicate that price pressures are moderating. The signs of cooling inflation have reduced expectations for an immediate rate hike. Markets now see a 32.7% probability of a Fed rate increase at the next meeting, down from 47% one month earlier, according to the CME FedWatch Tool.
Gold and silver are trading within relatively tight ranges after their strong breakouts earlier this month, as traders await a fresh catalyst to determine whether the precious metals rally resumes or reverses.
The US Dollar Index (DXY) has remained resilient despite growing macroeconomic headwinds, while traditional relationships between precious metals and key economic indicators have become increasingly unclear. Against this backdrop, the release of the July FOMC meeting minutes later Wednesday could provide the catalyst needed to trigger the next major move.
Macro Signals Offer Little Direction
The recent consolidation in precious metals partly reflects conflicting signals from their traditional macro drivers.
The relationship between gold and silver remains strong, with their five-day correlation standing at around 0.96. However, correlations with other major indicators have become far less straightforward.
Over the past five days, gold has shown relatively strong correlations with US 2-year yields, 10-year Treasury yields and 10-year real yields, despite these relationships typically pointing in the opposite fundamental direction. Silver has displayed a similar pattern, with correlations of around 0.66, 0.70 and 0.71, respectively.
Meanwhile, gold and silver have shown almost no relationship with the US dollar over the same period, with five-day correlations near zero. Fed rate expectations have also provided limited guidance, while correlations with the Nasdaq 100 and VIX futures remain weak and inconsistent.
With gold and silver still closely linked but most traditional macro signals offering mixed messages, traders may need to rely more heavily on price action to determine the next direction.
US Dollar Remains Resilient
The lack of a clear relationship between precious metals and the US dollar becomes more understandable when looking at the recent performance of the DXY.
Although the dollar has faced several negative headwinds this month and broken below the uptrend established from its January lows, it has remained range-bound in recent weeks.
The DXY has attracted buying interest below 99.50, extending toward the 38.2% Fibonacci retracement of the January-to-June advance, while gains above 100.00 have faced resistance.
The dollar’s resilience is significant because its earlier decline was one of the factors supporting the strong breakout in gold and silver at the start of the month. With the 50-, 100- and 200-day moving averages beginning to flatten, continued sideways movement in the DXY may be limiting further upside momentum in precious metals.
Gold Price Outlook
Gold climbed as high as $4,450 per ounce after breaking above the bearish trendline from its January peak and the wedge formation that had contained price action since early June.
The metal has since entered a consolidation phase.
Gold has found buying interest below the $4,333 area, corresponding to the 23.6% Fibonacci retracement of the January-to-June decline, while this week’s low has reached around $4,312. With gains capped near $4,450, this zone currently defines the key trading range.
A decisive move above $4,450 would bring the 200-day moving average into focus. A clean break above that level could open the way toward $4,580, which aligns with the 38.2% Fibonacci retracement and an important historical support-resistance area.
On the downside, a break below $4,312 could expose gold to further losses toward $4,200, which represents the upper boundary of the earlier breakout zone. The 50-day moving average sits just below that level.
Momentum indicators are also becoming less supportive. The 14-day RSI is forming lower highs and lower lows while approaching the neutral 50 level. Meanwhile, the MACD remains positive but is converging toward its signal line.
Overall, the technical picture suggests a more cautious stance for gold bulls. The medium- and longer-term outlook remains constructive, but near-term price action is likely to play a greater role in determining the next directional move.
Silver Price Outlook
Silver is showing a similar technical structure after breaking above the bearish trendline extending from its January record high.
The metal has since consolidated between resistance near $67 and support around $63.29. Tuesday’s session produced a bearish engulfing candle, pushing silver closer to the lower end of its current range.
Momentum indicators are also losing strength. The 14-day RSI is making lower highs and approaching the neutral 50 level, while the MACD is turning lower and converging toward its signal line, although it remains in positive territory.
The series of upper wicks on recent daily candles also suggests that sellers are becoming more active at higher levels.
Near-term, the $61 area and 50-day simple moving average form an important support zone. A decisive break below this region could expose silver to the $55.63-$54.80 area, which includes a key support level and the mid-July low.
If $63.29 continues to hold, attention will return to resistance at $67. Above that level, the 100-day moving average, the 23.6% Fibonacci retracement of the January-to-July decline and the 200-day moving average create a more significant resistance zone.
A sustained breakout above this area would strengthen the case for a continuation of silver’s earlier bullish move and potentially bring $78 into focus.
FOMC Minutes Could Trigger the Next Breakout
With gold and silver consolidating, the US dollar holding firm and traditional macro relationships sending mixed signals, markets appear to be waiting for a clear catalyst.
The July FOMC minutes could provide that catalyst by offering fresh insight into Federal Reserve policymakers’ views on inflation, interest rates and the future path of monetary policy.
For now, $4,312-$4,450 for gold and $63.29-$67 for silver remain the key ranges to watch. A decisive breakout from either range could provide a clearer signal for the next major move in precious metals.
The GBP/USD pair edges lower to around 1.3535 during Wednesday’s early Asian session, with the British Pound coming under pressure after weaker-than-expected UK labor market figures. Market participants are now turning their attention to the UK’s Consumer Price Index (CPI) report, due later in the day, for fresh clues on the inflation outlook and the Bank of England’s policy path.
On the daily timeframe, GBP/USD continues to exhibit a constructive bullish outlook, trading above both the 100-day Simple Moving Average (SMA) and the Bollinger Bands’ 20-day midpoint, reinforcing the strength of the prevailing uptrend. The 14-day Relative Strength Index (RSI) stands at 60.8, remaining in positive territory without reaching overbought levels, indicating that upside momentum could persist in the near term.
From a technical perspective, the pair faces immediate resistance near the upper Bollinger Band at 1.3615, a level that may limit further advances. On the downside, initial support is located around the Bollinger middle band at 1.3450, followed by the 100-day SMA at 1.3420. Additional support is seen near the lower Bollinger Band at 1.3285. Holding above this key support cluster would keep the broader bullish structure intact and favor buying on pullbacks rather than signaling a trend reversal.
Fundamental Analysis
UK labour market data released by the Office for National Statistics showed that the unemployment rate held at 4.9% in the three months to June, slightly above the 4.8% market forecast. Meanwhile, average earnings including bonuses slowed to 4.1% from 4.4% previously, pointing to easing wage pressures and potentially reducing the likelihood of a Bank of England (BoE) rate hike later this year.
Markets currently price in one BoE rate increase by year-end, which would take the benchmark rate from 3.75% to 4.0%. ING economist James Smith noted that persistent weakness in private-sector hiring and wage growth means the threshold for a 2026 rate hike remains relatively high unless energy prices experience a severe and sustained surge.
Meanwhile, expectations for a September Federal Reserve rate hike have also declined, offering some support to GBP/USD by limiting further US Dollar gains. Markets now see around a 35% probability of a Fed rate hike in September, down from 47% a month earlier, according to the CME FedWatch Tool.
Scotiabank strategists noted that Sterling has weakened only modestly, broadly tracking declines among its major European peers. Although the latest UK employment figures were disappointing, the data has so far failed to create a significant downside divergence for the Pound.
EUR/USD Strengthens Above 1.1550 as Bullish Outlook Holds
The EUR/USD pair extends gains to trade near 1.1585 during early European hours on Wednesday. The Euro strengthens against the US Dollar after Germany’s ZEW Economic Sentiment survey exceeded market expectations. Investors now await a speech from European Central Bank (ECB) President Christine Lagarde later in the day for fresh clues on the ECB’s monetary policy outlook.
On the daily chart, EUR/USD maintains a bullish near-term outlook, with the pair trading above the 100-day moving average (MA) and the Bollinger middle band. This technical setup points to a positive underlying trend following the rebound from support near the lower Bollinger band at 1.1364. The 14-day Relative Strength Index (RSI) stands at 63.8, indicating that buyers remain in control while momentum is approaching overbought levels without reaching them decisively.
On the upside, the August 17 high at 1.1614 represents the first key resistance level. A sustained move above this area could expose the Bollinger upper band near 1.1650, where the pair may encounter stronger selling pressure.
On the downside, initial support lies at the 100-day MA around 1.1570, followed by the Bollinger middle band at 1.1505. If selling pressure intensifies, EUR/USD could retreat toward the lower Bollinger band near 1.1365, with this level remaining important for maintaining the broader bullish trend.
Fundamental Analysis
Data released Tuesday showed that Germany’s ZEW Economic Sentiment Index rose to 34.2 in August from 26.3 previously, beating market expectations of 30.0. The ZEW Current Situation Index also improved significantly to -61.1 from -77.6 in July, coming in above the forecast of -68.8 and providing additional support for the Euro.
Markets are increasingly pricing in further ECB rate hikes. According to the ECB Watch Tool, traders see a 90%–94% probability of a 25-basis-point rate increase to 2.50% at the ECB’s next policy meeting on September 9.
US Dollar remains supported despite weaker Fed hike expectations
MUFG analysts noted that the recent shift in US Dollar sentiment, following last week’s economic data that reduced expectations for further Fed rate hikes, has not resulted in significant unwinding of long-Dollar positions. The US Dollar Index (DXY) continues to hold above its 200-day moving average at 99.185, suggesting that the softer Fed policy outlook has yet to trigger a major Dollar sell-off.
Gold rebounds as softer USD and fading Fed hike bets lift XAU/USD
Gold recovers from a fresh weekly low as renewed US Dollar weakness provides support.
Softer US economic data and easing inflation reduce expectations for a September Fed rate hike.
XAU/USD remains capped by the 100-day SMA, with the $4,386–$4,455 zone acting as key resistance.
Gold (XAU/USD) rebounds on Friday after slipping to a fresh weekly low of $4,311 earlier in the session. The precious metal trades near $4,381 at the time of writing, supported by a weaker US Dollar and declining expectations of an imminent Federal Reserve interest rate hike. However, Gold remains below Thursday’s two-month peak of $4,449.
Fresh US economic data reinforced concerns that economic momentum is slowing. Retail Sales dropped 0.6% month-over-month in July, significantly below expectations for a 0.1% rise and reversing June’s 0.2% increase.
The disappointing spending data comes after this week’s CPI and PPI reports pointed to gradually easing inflationary pressures. However, preliminary University of Michigan figures showed that one-year inflation expectations rose slightly to 4.3% in August from 4.2%, while the five-year expectation remained unchanged at 3.3%.
The weaker economic data has pushed short-term Treasury yields lower and pressured the US Dollar as markets scale back expectations for a September Fed rate hike. The US Dollar Index (DXY) is trading around 99.50, down approximately 0.45% on the day.
According to the CME FedWatch Tool, markets are now assigning roughly a 71% probability that the Fed will leave interest rates unchanged next month.
This environment remains broadly supportive for non-yielding Gold in the near term, although the inflation outlook remains uncertain. Inflation is still above the Fed’s 2% target, while energy-related price pressures have yet to fully ease amid continued uncertainty surrounding the reopening of the Strait of Hormuz.
TD Securities noted that CTA net-long positioning in Gold is becoming increasingly established alongside renewed discretionary buying. The bank expects the precious metal to remain well supported at elevated levels if the Fed stays on hold amid weaker economic data, even with higher energy prices.
Technical analysis: XAU/USD faces resistance at the 100-day SMA
XAU/USD remains close to recent highs but has yet to achieve a convincing break above the 100-day Simple Moving Average (SMA) at $4,386. Gold continues to trade comfortably above the 20-day SMA, which coincides with the Bollinger middle band around $4,173.
The daily RSI is near 62, while the MACD remains in positive territory, indicating that bullish momentum is still intact and could support another attempt to break higher.
On the upside, the $4,386–$4,455 area represents a significant resistance zone, defined by the 100-day SMA and the upper Bollinger Band. A sustained move above this region could reinforce the bullish outlook and open the door to further gains.
On the downside, initial support lies around $4,173 at the Bollinger middle band, followed by the psychological $4,000 level. A deeper correction could expose the lower Bollinger Band near $3,891.
Forex Today
The US Dollar starts Tuesday under pressure, with the US Dollar Index (DXY) hovering near two-month lows and remaining below the 100.00 threshold. A string of weaker-than-expected US data covering employment, inflation and retail sales has reduced expectations for a Federal Reserve rate hike next month.
Meanwhile, geopolitical tensions in the Middle East are supporting commodities. A senior Iranian official said Tehran is adopting a “fully offensive” posture and warned that tensions around the Strait of Hormuz could escalate if diplomatic efforts fail. The comments pushed Crude Oil more than 2% higher and provided additional support for Gold.
US Dollar performance today
The US Dollar is broadly weaker against most major currencies, with the largest declines seen against the Australian Dollar, New Zealand Dollar and Swiss Franc. The Greenback is strongest against the Japanese Yen, while its performance against the Canadian Dollar remains broadly unchanged.
EUR/USD holds near 1.1580 after pulling back from a two-month high around 1.1614, with Dollar weakness continuing to underpin the pair.
GBP/USD remains firm around the mid-1.3500s, close to three-month highs as traders await Tuesday’s UK labor market data.
USD/JPY trades around 159.00 after markets largely looked past weaker-than-expected Japanese second-quarter GDP data.
AUD/USD remains near the lower 0.7100s and leads the major currencies despite softer Chinese Industrial Production and Retail Sales figures released over the weekend.
Gold extends its recovery above $4,400 as a weaker US Dollar and heightened Middle East tensions boost demand for the precious metal.
WTI Crude Oil climbs toward $84.00 per barrel as renewed Iranian threats increase the geopolitical risk premium in energy markets.
Key economic events ahead
Tuesday’s Asian session begins with Australia’s Westpac Consumer Confidence report. Attention then shifts to the UK labor market report, with the Bank of England particularly focused on Average Earnings and the ILO Unemployment Rate.
Later, Germany and the Eurozone will release ZEW economic sentiment data, while European Central Bank Executive Board member Philip Lane is scheduled to speak.
The US session features Building Permits, Housing Starts, Industrial Production and Pending Home Sales, providing further clues about the health of the US economy. New Zealand’s second-quarter Producer Price Index will round out the day’s major releases.
AUD Advances as Fading Fed Hike Bets Weigh on US Dollar
AUD/USD advances for a third straight session as weaker Fed rate-hike expectations continue to weigh on the US Dollar.
Rising US-Iran tensions, following Trump’s stance on the expiring agreement and the naval blockade, add to broader geopolitical uncertainty.
Traders turn their attention to Australia’s August consumer confidence and Q2 Wage Price Index data for fresh clues on the RBA’s policy path.
AUD/USD extends its upward momentum for a third consecutive day, trading near 0.7110 during Tuesday’s Asian session. The pair remains supported as the US Dollar struggles amid diminishing expectations for additional Federal Reserve rate hikes.
The unexpected drop in US Nonfarm Payrolls in July, together with relatively soft consumer inflation data released last week, has reduced expectations for a rate increase at the Fed’s next meeting. CME FedWatch Tool data now shows a 35% probability of a hike, down from 47% one month ago.
Geopolitical developments between the US and Iran are also influencing market sentiment. On Monday, US President Donald Trump said he was not interested in extending the expiring agreement with Iran, pointing to the naval blockade of Iranian ports as a sign of US leverage. Trump also reiterated his proposal to place the strategically important waterway under full US control.
Iranian Foreign Ministry spokesman Esmail Baghaei, meanwhile, said a deal remains out of reach because of security concerns and what he described as the “obstructionist behavior of destructive elements.” He called on Washington to remove the blockade before further negotiations could take place.
In Australia, attention is shifting toward upcoming economic indicators that could offer fresh insight into the domestic policy outlook. The August Westpac Consumer Confidence Index is due first, followed by the Q2 Wage Price Index. Australian wages are expected to increase 0.8% quarter-on-quarter, matching the pace recorded in the previous quarter.
Australia wage data unlikely to alter RBA expectations
Brown Brothers Harriman strategists expect the upcoming Australian labor-market figures to have a limited impact on expectations for Reserve Bank of Australia policy. BBH expects Q2 wage growth to remain at 0.8% q/q for a third consecutive quarter, while annual growth is forecast to ease to 3.2% from 3.3% in Q1.
This combination is unlikely to significantly change the current market view that the RBA will keep interest rates unchanged. As a result, the upcoming data present only limited potential for a meaningful repricing of RBA rate expectations.
RBA futures point to limited tightening
RBA cash-rate futures currently imply around a 60% probability of one final 25-basis-point rate increase by year-end, which would take the cash rate to 4.60%. However, BBH believes the risks are tilted toward the RBA maintaining its restrictive stance for longer rather than delivering another near-term hike.
With monetary policy already considered somewhat restrictive, markets may be pricing in a greater chance of additional tightening than is ultimately likely.
Technical Analysis: AUD/USD maintains a bullish bias above key EMAs
AUD/USD is trading around 0.7110 and retains a constructive technical outlook as the pair remains above both the nine-period and 50-period Exponential Moving Averages. The shorter-term EMA is positioned above the longer-term measure, reinforcing the pair’s positive near-term trend.
The 14-day Relative Strength Index stands at 65.84, approaching overbought territory. This indicates strong bullish momentum but also suggests that the recent advance may be becoming stretched.
Initial support is located around the nine-period EMA at 0.7074, followed by the 50-period EMA near 0.7028. Holding above these levels would keep the broader near-term bias tilted to the upside. However, with RSI elevated, further gains from current levels could increasingly give way to consolidation rather than a sustained straight-line rally.
EUR/USD pauses as oil-fueled inflation risks lend support to the US Dollar.
EUR/USD holds steady near 1.1580 after retreating slightly from a two-month high.
Higher oil prices revive inflation concerns and could strengthen expectations for another Fed rate hike, supporting the US Dollar.
Growing expectations of a final 25-basis-point ECB rate increase in September continue to underpin the Euro.
EUR/USD remains largely unchanged around the 1.1575–1.1580 area during Tuesday’s Asian session, stabilizing after Monday’s modest decline from a two-month peak. However, a slight recovery in the US Dollar suggests caution before assuming the pair will resume its recent advance from the 1.1350 region, the July monthly low.
Last week’s softer US inflation figures and weaker consumer spending data reduced expectations for an imminent Federal Reserve rate increase, pushing the US Dollar Index to its lowest level since June 16 on Monday. However, the recent rise in crude oil prices has brought inflation concerns back into focus and could encourage the Fed to maintain a more hawkish policy stance. Persistent geopolitical risks are also supporting safe-haven demand for the Greenback, potentially limiting EUR/USD gains.
Tensions surrounding the Middle East remain a key market driver. US President Donald Trump said Washington does not intend to extend its Memorandum of Understanding with Iran, which expired on Monday. Trump also reiterated his proposal to place the strategically important Strait of Hormuz under US control and issued further warnings regarding Oman. The ongoing US-Iran standoff has pushed crude oil prices to a two-week high, increasing inflation risks and reinforcing expectations for at least one additional Fed rate hike before year-end.
Markets will therefore focus closely on Wednesday’s FOMC Minutes for fresh clues about the Federal Reserve’s future policy direction. The minutes could influence near-term USD movements and provide the next major catalyst for EUR/USD.
Meanwhile, expectations that the European Central Bank could deliver one final 25-basis-point rate increase at its September meeting continue to offer support to the Euro. This outlook could help limit the downside risk for EUR/USD in the near term.
Technical Analysis: EUR/USD faces key resistance near 1.1600
EUR/USD is trading just below the 50.0% Fibonacci retracement of the April–June decline, making this level an important near-term resistance zone. A sustained break above this barrier could strengthen the bullish outlook and open the way toward the 200-day Simple Moving Average near 1.1630, followed by the 61.8% Fibonacci retracement around 1.1647.
On the downside, initial support is located at the 38.2% Fibonacci retracement near 1.1522. A break below this level could expose the 23.6% retracement at 1.1445, while the broader structural support remains around the 1.1320 cycle low.
Post-CPI summer trading conditions continue to suppress FX volatility, keeping EUR/USD largely range-bound. However, our models indicate that the pair is becoming somewhat undervalued in the short term, reinforcing our moderately bullish outlook for the weeks ahead. Meanwhile, developments in the Gulf remain a secondary driver for currencies, with their impact more evident in relative-value trades than in major USD pairs.
USD: Watching for a Shift in Fed Rhetoric
The post-CPI midsummer environment is naturally weighing on FX volatility, and this subdued backdrop could persist for at least the next couple of weeks. Despite this, we continue to favour some downside for the US dollar, as we believe markets remain overly confident about the prospect of further Federal Reserve tightening.
For now, Fed officials’ comments represent the clearest potential catalyst for a meaningful market move. There remains considerable uncertainty over the tone that could emerge from the Jackson Hole Symposium later this month, particularly after the latest CPI report pointed somewhat toward a dovish interpretation without providing a conclusive signal.
Recent comments have offered mixed signals. Beth Hammack, who supported a rate hike, continued to argue in favour of tighter policy, while Tom Barkin expressed some reservations about the need for additional increases, despite not being viewed as a dovish FOMC member. A further softening in rhetoric from more centrist policymakers could strengthen expectations for a less hawkish Fed.
Today’s US economic calendar features July retail sales, forecast to rise just 0.1% month-on-month, alongside the University of Michigan surveys. With both releases considered relatively secondary, they would likely need to significantly exceed or miss expectations to generate a substantial dollar move.
Meanwhile, market attention toward Middle East headlines appears to be fading. US-Iran talks remain stuck, while Brent crude prices declined yesterday, offering some support to global bond markets. The threshold for oil prices to re-establish a strong direct influence on the dollar remains relatively high. Instead, Gulf developments may continue to have a greater impact on G10 relative-value pairs such as NOK/SEK and AUD/NZD, which remain more closely linked to the energy narrative.
EUR: Increasingly Undervalued
Our models estimate EUR/USD’s short-term fair value at around 1.1600–1.1650, largely reflecting an approximately 10bp narrowing in two-year swap rate differentials. These rate spreads continue to have a considerably stronger influence on the pair than other underlying factors.
This supports our constructive view on EUR/USD, although we do not expect a sustained move above 1.1600 in the coming days unless Fed communication turns notably more dovish. For now, EUR/USD bulls may instead focus on the strengthening technical support around 1.1500.
In the eurozone, the second estimate of second-quarter GDP is due today. Markets are not expecting any meaningful revision to the preliminary 0.4% quarter-on-quarter growth figure.
JPY: BoJ Expectations Yet to Support the Yen
Despite significant moves in Japanese money markets this week, the yen has struggled to maintain upward momentum. The key development is the possibility that the Japanese government may become more accepting of a faster Bank of Japan tightening cycle.
Previously, markets assumed that a growth-focused government would limit the BoJ to roughly one rate hike every six months. The latest signals suggest Tokyo is placing greater emphasis on the exchange rate and wants to ensure that any potential joint intervention with the US to support the yen — the first such operation since 1998 — is effective.
Markets are now pricing roughly a 75% probability of a 25bp BoJ rate hike in September. As a result, two-year US-Japan swap differentials have narrowed by nearly 40bp since mid-July, a development that would normally put downward pressure on USD/JPY.
The pair’s resilience may instead reflect benign market conditions that continue to favour yen-funded carry trades. Nevertheless, the risks surrounding yen funding are clearly increasing. If the Fed leaves rates unchanged in September as expected, USD/JPY could potentially fall back below 158. In the meantime, traders seeking to express outright yen strength may increasingly turn to short CHF/JPY positions.
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.
Dollar steadies as traders await pivotal U.S. inflation reports
The U.S. dollar traded largely unchanged on Tuesday as investors avoided major currency bets ahead of closely watched inflation data that could influence expectations for Federal Reserve policy. Meanwhile, oil prices edged higher after an Iranian official stated that the Strait of Hormuz would remain closed until Washington met Tehran’s conditions.
By 16:31 ET (20:31 GMT), the U.S. Dollar Index, which measures the greenback against a basket of six major currencies, was holding near 99.82.
Focus shifts to CPI and PPI releases
Market attention is firmly centered on the July Consumer Price Index (CPI) and Producer Price Index (PPI) reports due on Wednesday and Thursday. The inflation readings follow a weaker-than-expected U.S. employment report released last Friday, which prompted investors to reassess the outlook for future Federal Reserve interest-rate moves.
Analysts expect both headline and core CPI to show monthly increases after June’s subdued readings, while annual inflation measures are forecast to ease slightly compared with the previous month.
According to José Torres, Senior Economist at Interactive Brokers, core inflation could fall to its lowest level in more than five years if it comes in below expectations at 2.4%, highlighting how broader disinflation trends are being overshadowed by geopolitical risks.
Torres also noted that headline inflation is projected to remain notably higher than core inflation due to elevated food and energy costs. He argued that a lasting resolution to tensions in the Middle East could further accelerate the decline in overall inflationary pressures.
Torres added that a resolution to the ongoing geopolitical conflict could swiftly eliminate concerns about additional interest-rate hikes. In his view, inflation would move much closer to the Federal Reserve’s 2% target by the end of the year, shifting policymakers’ attention toward protecting the labor market from further weakening rather than combating price pressures.
Oil jumps as Iran ties Hormuz reopening to U.S. concessions
In the Middle East, oil prices climbed nearly 2% on Tuesday after surging around 5% in the previous session, as uncertainty surrounding the Strait of Hormuz continued to support energy markets.
Investors have been closely monitoring developments since U.S. officials, including President Donald Trump, repeatedly suggested that discussions over reopening the strategic waterway were underway. Iran, however, has denied engaging in direct negotiations with Washington, stating that its talks have been conducted exclusively through Oman.
Conflicting statements from both sides have added to market uncertainty. While U.S. officials have maintained that the strait remains open to commercial shipping, Iranian authorities have argued that it is effectively closed. The absence of a clear breakthrough toward a peace agreement has contributed to recent gains in oil prices.
Iran and Oman are reportedly working on a framework for managing the strait, with Qatari officials indicating that negotiations have reached an advanced and sensitive stage. At the same time, reports have suggested that Washington and Tehran may be edging closer to a potential arrangement, with Oman and Pakistan continuing to play key mediating roles.
Tehran has insisted that any reopening of the Strait of Hormuz depends on Washington fulfilling commitments outlined in a previously negotiated interim peace framework, including lifting sanctions, ending naval restrictions, and providing compensation for war-related damage. The U.S. has responded with demands of its own, underscoring the ongoing deadlock.
Iranian officials reiterated that the waterway would remain closed until the country’s conditions are met, signaling that tensions remain far from resolved.
Shipping activity through the strait has also slowed markedly. Data from maritime analytics firm Kpler showed vessel crossings declining sharply over the weekend, highlighting the disruption to one of the world’s most important energy transit routes.
Yen retreats while Australian dollar gains after RBA decision
The Japanese yen weakened modestly against the U.S. dollar, surrendering additional gains made following last month’s major currency intervention. USD/JPY rose 0.1% to 159.31, moving closer to the psychologically important 160 threshold.
Meanwhile, the Australian dollar edged 0.1% higher to $0.7059 after the Reserve Bank of Australia left its benchmark interest rate unchanged at 4.35%, in line with market expectations.
The RBA noted that disruptions to global oil supplies are adding to inflationary pressures and that higher fuel costs appear to be filtering through to a broader range of goods and services. As a result, policymakers expect inflation to remain elevated for an extended period.
The central bank acknowledged that tighter financial conditions and slowing economic activity are helping to moderate demand. However, it emphasized that inflation remains well above target and is not expected to return to the midpoint of its target range until late 2027, with risks still skewed to the upside.
The US Dollar remains supported by strong safe-haven inflows as uncertainty persists over the reopening of the Strait of Hormuz.
A larger-than-expected decline of 23,000 jobs in July, coupled with downward revisions to previous payroll figures, points to a softening US labor market and reduces expectations for further Federal Reserve tightening.
According to the CME FedWatch Tool, the probability of a September Fed rate increase has fallen to 46%, compared with 67% previously.
The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, edged higher to around 99.70 during Monday’s Asian session, recovering after posting slight losses in the previous trading day.
Demand for the US Dollar remains supported by a cautious market mood as geopolitical risks stay elevated. The conflict between the United States and Iran has entered a sensitive diplomatic stage, while ongoing military activity and uncertainty surrounding the Strait of Hormuz continue to drive investors toward safe-haven assets. Although Iran indicated that Oman-mediated talks on managing the waterway are progressing, traders remain reluctant to abandon defensive positions, helping the Dollar retain its strength.
Meanwhile, softer US labor market data has reduced expectations for additional Federal Reserve tightening in the near term. July’s Nonfarm Payrolls report showed an unexpected decline of 23,000 jobs, while June’s payroll growth was revised down sharply to 20,000 from 57,000, reinforcing signs of a cooling employment environment.
Market expectations for a September rate hike have consequently weakened. Data from the CME FedWatch Tool shows traders now assign roughly a 46% chance of a 25-basis-point increase next month, compared with 67% a week ago. Attention is now shifting toward upcoming US inflation releases for further guidance on the Fed’s policy path.
Bond Market Reaction
Analysts at TD Securities noted that Treasury yields moved lower and the yield curve steepened following the disappointing payroll figures, even as the unemployment rate eased to 4.1%. The weaker employment data helped alleviate concerns that the labor market was reaccelerating, leading investors to scale back expectations for future rate increases. As a result, pricing for September tightening was reduced by around 3 basis points.
Barkin Signals Balanced but Cautious Outlook
Richmond Fed President Thomas Barkin struck a somewhat more cautious tone, emphasizing that current labor market conditions reflect a “low-hire, low-fire” environment. His remarks suggest employment remains weak but stable rather than deteriorating sharply, reducing the urgency for further policy tightening.
At the same time, Barkin highlighted the resilience of corporate earnings, noting that company profits remain strong and continue to grow. This could limit the scope for a more dovish Fed stance if labor market softness does not spread more broadly across the economy.
The FXS Fed Sentiment Index declined by 1.68 points to 137.01, indicating a moderation in perceived hawkishness. Nevertheless, the index remains well above the neutral 100 level, suggesting that overall Fed communication continues to lean toward maintaining a relatively restrictive monetary policy stance.
Yen struggles to hold intervention gains as dollar hovers near six-week lows
Currency markets traded cautiously on Thursday, with the Japanese yen giving up part of its recent intervention-driven rally and the U.S. dollar remaining close to a six-week low. Investor sentiment was restrained by uncertainty surrounding a proposed U.S.-Iran agreement and anticipation ahead of key U.S. payrolls data.
The yen was little changed at 157.71 per dollar in early trading after posting losses in the previous two sessions. Although it has retreated from Monday’s peak of 155.20, reached following suspected intervention, the currency remains well above last month’s multi-decade low near 164 per dollar.
Elsewhere, major currencies showed limited movement. The euro held steady at $1.1557, while sterling traded flat at $1.3469. The Australian and New Zealand dollars were also largely unchanged at $0.7056 and $0.5885, respectively.
The U.S. dollar index, which measures the greenback against a basket of six major currencies, was steady at 99.65, lingering near its weakest level in six weeks as traders awaited fresh catalysts.
Market participants continued to monitor developments in the Middle East after reports emerged of a proposed agreement involving Iran and Oman aimed at resolving the U.S.-Iran conflict. According to Reuters, the proposal could grant Tehran authority over inbound shipping traffic through the Strait of Hormuz.
Washington has yet to comment officially on the reported plan. While President Donald Trump recently suggested an agreement to reopen the strategic waterway was close, U.S. officials have consistently maintained that they would not support any arrangement giving Iran control over access to the critical energy shipping route.
Oil markets reacted modestly, with Brent crude futures slipping 0.5% to $79.08 per barrel, hovering near levels seen following the interim peace accord between the United States and Iran in June.
Markets adopt wait-and-see approach as central banks and payrolls take center stage
Investors remained cautious, with markets largely in a holding pattern as traders assessed geopolitical developments and awaited fresh economic signals. According to Ray Attrill, Head of FX Strategy at National Australia Bank, the recent calm in oil markets has removed one of the key drivers that had been influencing asset prices in recent weeks.
Attrill noted that market participants are closely watching whether a U.S.-Iran agreement materializes, with uncertainty over the outcome keeping trading activity subdued.
BOJ minutes strengthen case for further tightening
Attention also turned to Japan after minutes from the Bank of Japan’s June policy meeting revealed policymakers discussed rising inflation risks that could warrant additional interest-rate increases, even as they lifted borrowing costs to their highest level in 31 years.
The discussion underscores growing concern within the BOJ about broader price pressures and reinforces expectations that another rate hike could come as early as September.
Although the yen surged as much as 5% against the dollar following intervention efforts by Tokyo and coordinated measures with Washington, the currency has struggled to maintain those gains.
A recent Reuters survey highlighted skepticism over the effectiveness of intervention alone, with nearly 95% of respondents saying currency market operations would not provide a lasting solution to yen weakness. Most respondents argued that further BOJ rate hikes would be necessary to support the currency over the longer term.
U.S. payrolls report expected to shape Fed outlook
Investors are now focused on Friday’s U.S. nonfarm payrolls report for further guidance on the Federal Reserve’s policy trajectory.
Recent data showed the U.S. services sector remained resilient in July despite rising input costs, though employment growth within the sector slowed. Economists surveyed by Reuters expect the upcoming report to show payrolls increased by 80,000 jobs in July, following a gain of 57,000 in June, while the unemployment rate is projected to remain unchanged at 4.2%.
Adding to market uncertainty, Federal Reserve Governor Lisa Cook indicated on Wednesday that she remains open to the possibility of additional rate hikes if inflation proves persistently elevated, signaling that policymakers are not yet ruling out further tightening despite signs of moderating labor-market momentum.
The Japanese Yen retreats against the US Dollar as traders question the sustainability of the currency’s recent rally.
The Yen’s earlier gains were largely supported by coordinated intervention from Japanese and US authorities.
Market participants are now turning their attention to the US ADP Employment Change report and July’s Nonfarm Payrolls (NFP) data for fresh clues on the Federal Reserve’s policy outlook.
The Japanese Yen (JPY) surrenders its earlier gains and trades little changed near 157.70 against the US Dollar (USD) during Wednesday’s European session. The USD/JPY pair rebounds as confidence in the Yen’s recent rally begins to fade, prompting investors to question whether the currency can sustain its strength.
The Yen had outperformed in recent sessions after coordinated intervention by the United States (US) and Japan aimed at curbing what Japan’s Ministry of Finance (MoF) described as “excessive volatility and disorderly movements” in the currency market.
However, many analysts argue that the Yen’s recovery is likely to be temporary unless it is supported by stronger underlying economic fundamentals.
Analysts say intervention offers only temporary relief
Strategists at MUFG believe official intervention will remain relatively limited in scale, noting that while coordinated action between the US and Japan could provide near-term support for the Yen, it is unlikely to reverse the broader weakening trend on its own. They argue that lasting appreciation will require a meaningful shift in economic fundamentals, rather than relying solely on market intervention.
TD Securities shares a similar assessment, describing the latest intervention as an effort by Japanese authorities to buy time while fiscal policies work to boost demand for Yen-denominated assets. The firm suggests the strategy also depends on a weaker US Dollar, potentially driven by softer US economic data or another bearish catalyst. However, TD warns that unless the Bank of Japan (BoJ) accelerates its tightening cycle with a series of rate hikes toward 2%, the longer-term outlook still favors a renewed rise in USD/JPY. The brokerage highlights the wide interest rate gap, with Japan’s one-year, one-year overnight index swap (OIS) rate near 1.9% compared with 4.1% in the US.
Meanwhile, the US Dollar edges slightly lower as traders await the release of the US ADP Employment Change report for July at 12:15 GMT.
Economists at Deutsche Bank forecast private-sector payrolls to increase by 65,000, improving from June’s reading of 49,000.
The ADP report is expected to influence expectations for the Federal Reserve’s (Fed) policy path ahead of Friday’s closely watched US Nonfarm Payrolls (NFP) report for July, which could provide fresh guidance on the outlook for interest rates.
GBP/USD edged lower to around 1.3425 during the early Asian session on Tuesday as investors favored the safe-haven US Dollar amid ongoing uncertainty surrounding US-Iran relations.
US President Donald Trump maintained that discussions with Iran are currently taking place, while Iranian officials rejected the claim and stated that no negotiations are underway, adding to geopolitical uncertainty.
Meanwhile, the US Dollar received additional support after the ISM Manufacturing PMI rose to 55.6 in July, beating market expectations and signaling stronger-than-anticipated expansion in the manufacturing sector.
GBP/USD Slides Toward 1.3425 as Safe-Haven Dollar Gains on US-Iran Uncertainty
The GBP/USD pair weakened to around 1.3425 during Tuesday’s early Asian trading session, with the US Dollar attracting safe-haven demand amid persistent uncertainty surrounding potential US-Iran negotiations.
US President Donald Trump stated on Monday that discussions with Iran remain active, describing the situation as Tehran’s “last chance” to reach an agreement. He also indicated that negotiations could begin within the next few days with the aim of reopening the Strait of Hormuz and addressing US concerns over Iran’s nuclear activities.
However, Iranian officials rejected Trump’s claims. Foreign Ministry spokesperson Esmaeil Baghaei said that no talks with Washington are currently underway and emphasized that Iran is focused on negotiations with Oman regarding the Strait of Hormuz.
The Greenback also drew support from stronger-than-expected US economic data. The Institute for Supply Management (ISM) reported that the Manufacturing PMI climbed to 55.6 in July from 53.3 in June, surpassing market forecasts of 54.0 and signaling continued strength in the manufacturing sector.
Market participants are now turning their attention to the US July employment report due later this week, which could provide fresh clues about the outlook for the Federal Reserve and the US Dollar.
Meanwhile, sterling remains under pressure despite a relatively hawkish vote split at the Bank of England’s latest policy meeting. The BoE left interest rates unchanged at 3.75% in a 6-3 decision, with three policymakers favoring a rate increase. Nevertheless, Governor Andrew Bailey struck a cautious tone, arguing that the disinflation process remains on track and dampening expectations of an aggressive tightening cycle. Investors currently anticipate only one additional BoE rate hike before year-end.
Analysts at Rabobank noted that speculative bearish positions against the Pound increased ahead of the BoE meeting. While the Monetary Policy Committee delivered a more hawkish voting outcome than expected, Bailey’s dovish remarks limited support for sterling, leaving overall sentiment toward the currency subdued.
The US Dollar Index (DXY) trades with a softer tone near 99.70 during Monday’s Asian session. The greenback came under pressure after President Trump stated that fresh negotiations with Iran would begin on Monday, following his decision to cancel a planned military strike. Investors are now turning their attention to Friday’s US Nonfarm Payrolls (NFP) report, which could provide important clues about the Federal Reserve’s next policy move.
US Dollar Weakens as Improved Risk Appetite and Iran Diplomacy Weigh on Safe-Haven Demand
The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, trades around 99.70 during Monday’s Asian session. The index remains under pressure as improving market sentiment reduces demand for traditional safe-haven assets. Investors are also awaiting the release of the US ISM Manufacturing PMI later in the day for fresh economic signals.
Risk sentiment received a boost after US President Donald Trump announced on Sunday that he had canceled a planned military strike on Iran and that new talks between Washington and Tehran would begin on Monday. Trump indicated that an agreement to reopen the Strait of Hormuz could be within reach and reiterated his commitment to pursuing a diplomatic solution to Iran’s nuclear program.
The prospect of easing tensions between the United States and Iran has diminished demand for the US Dollar as a defensive asset, weighing on the currency in the short term. If diplomatic progress continues, the greenback could face additional downside pressure against its major peers.
Market participants are now focused on Friday’s US labor market report for further direction. Economists forecast that Nonfarm Payrolls (NFP) increased by 91,000 jobs in July, while the unemployment rate is expected to edge higher to 4.3%. A stronger-than-anticipated employment report could provide support for the Dollar and help limit further losses in the DXY.
Meanwhile, the Federal Reserve left interest rates unchanged at its July meeting last week. According to CME FedWatch data, traders now see roughly a 64.7% probability of a September rate hike, down significantly from nearly 77% before the Fed’s latest decision, reflecting a more cautious outlook for monetary tightening.
Analysts at Commerzbank believe the Dollar could face renewed selling pressure once geopolitical tensions ease further. They argue that the Fed is unlikely to raise rates as aggressively as current market pricing suggests, meaning the fading geopolitical premium could expose the currency to additional weakness if expectations for tighter policy continue to moderate.
The Federal Reserve left interest rates unchanged at 3.50%–3.75% on Wednesday, but the key takeaway for markets was not the decision itself—it was what Chair Kevin Warsh chose not to signal about September.
Three members of the Federal Open Market Committee (FOMC) voted in favor of an immediate 25-basis-point rate increase, while the policy statement retained a generally hawkish stance on inflation. The Fed noted that economic activity continues to expand at a solid pace, the labor market remains resilient, and inflation is still running above the central bank’s 2% target.
Taken at face value, those remarks could be interpreted as laying the groundwork for further tightening.
However, Warsh avoided providing any clear indication that a September rate hike is likely. Instead, he emphasized a data-dependent approach, preserving flexibility rather than committing to another increase.
That nuance is important.
Ahead of the meeting, many investors viewed September as the most probable timing for the next rate hike if policymakers remained on hold in July. After Warsh’s remarks, confidence in that scenario eased noticeably, leaving the outlook for September far less certain.
Hawkish Messaging, Softer Market Interpretation
The result is a notable disconnect.
On one hand, the Fed’s message remains hawkish. Inflation is still above target, economic growth appears strong enough to withstand tighter policy, and several policymakers already favor higher rates.
On the other hand, financial markets interpreted the outcome as relatively dovish because the Fed showed no urgency to tighten further.
This was evident in the immediate market reaction. Two-year Treasury yields declined and the US dollar weakened after the announcement, indicating that traders reduced expectations for near-term rate increases.
From my perspective, the dollar may continue to face pressure unless upcoming inflation reports revive expectations of a September hike.
For now, the Fed has effectively shifted the focus back to incoming economic data.
If inflation proves persistent, markets could quickly reprice toward a more hawkish September outlook. However, if inflation and labor-market data begin to soften, investors may increasingly view July’s decision not as a postponed rate hike, but as the start of a more prolonged pause in the tightening cycle.
DXY: 100.300 Back in the Spotlight
Technically, the US Dollar Index now has the potential to extend its move lower following the post-Fed rejection.
The key downside area to watch is 100.300, which provides the next meaningful support zone.
As long as DXY fails to regain its recent highs and expectations for September tightening remain contained, the path of least resistance could remain lower towards this level.
A clean break below 100.300 would strengthen the bearish dollar narrative, while a recovery driven by stronger inflation data and renewed Fed hike expectations would challenge it.
For now, the interesting takeaway from the Fed is simple: the rhetoric was hawkish, but the market was expecting something even more hawkish.
And in markets, the difference between what happens and what was already expected is often what matters most.
From a technical perspective, the US Dollar Index (DXY) appears vulnerable to further downside after its post-Fed rejection.
The next key level to monitor is 100.300, which stands out as the nearest significant support zone.
As long as DXY remains unable to reclaim its recent highs and market expectations for a September rate hike stay subdued, bearish momentum could continue to build toward this area.
A decisive break below 100.300 would reinforce the case for further dollar weakness and confirm a more bearish outlook. Conversely, stronger-than-expected inflation data or a renewed increase in expectations for Fed tightening could help the dollar recover and invalidate the current downside scenario.
For now, the main lesson from the Fed meeting is straightforward: policymakers delivered a hawkish message, but markets had been positioned for an even more hawkish outcome.
In financial markets, what drives price action is often not the event itself, but the gap between reality and investor expectations.
USD/CAD edges higher as the US Dollar stages a solid rebound from its lowest level since June 17. Rising tensions between the United States and Iran continue to fuel inflation concerns and reinforce expectations that the Federal Reserve could maintain a hawkish stance, providing support for the Greenback. Meanwhile, worries over potential supply disruptions help keep oil prices elevated, lending support to the Canadian Dollar and limiting further gains in the currency pair.
The USD/CAD pair moved slightly higher during Friday’s Asian trading session, ending a three-day decline that had pushed the pair to its lowest level since June 17. The pair remains above the key 1.4000 level, although buying momentum appears limited.
The US Dollar found modest support as markets continued to price in the possibility of at least one additional interest rate increase from the Federal Reserve. While recent US economic data painted a mixed picture—showing slower economic growth in the second quarter and easing inflation pressures through the Personal Consumption Expenditures (PCE) Price Index—investors remain cautious about ruling out further monetary tightening.
Despite signs of cooling inflation, fluctuating oil prices continue to raise concerns about price stability, potentially encouraging the Fed to maintain a restrictive policy stance. At the same time, escalating tensions between the United States and Iran, along with fears of a wider Middle East conflict, have boosted demand for the safe-haven US Dollar. Most recently, the US military confirmed a major wave of strikes against Iranian targets in response to missile attacks on American forces earlier in the week.
However, gains in USD/CAD may remain constrained by support for the Canadian Dollar. Iran’s rejection of an Omani proposal regarding partial control of the Strait of Hormuz, combined with continued attacks by Yemen’s Houthi forces in key shipping routes such as the Bab al-Mandab Strait, the Red Sea, and the Gulf of Aden, has intensified concerns over potential disruptions to global energy supplies. These risks have helped support crude oil prices, which in turn provide backing for the oil-sensitive Canadian Dollar and may limit further upside in the USD/CAD pair.
US Dollar bulls stay cautious ahead of the highly anticipated FOMC policy announcement later on Wednesday.
Ongoing geopolitical tensions continue to support demand for the safe-haven US Dollar.
A rebound in oil prices has reignited inflation concerns and strengthened expectations of further Fed tightening, lending support to the greenback.
The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, is trading in a narrow range below the 101.50 mark during Wednesday’s Asian session as investors await the outcome of the Federal Reserve’s two-day FOMC meeting. Despite the consolidation, the index remains supported near a one-month high reached on Tuesday and continues to exhibit a constructive bias amid ongoing geopolitical tensions.
Market sentiment shifted after Iran’s Islamic Revolutionary Guard Corps (IRGC) launched multiple ballistic missiles at US military positions in the Middle East late Tuesday. Adding to the uncertainty, President Donald Trump reiterated that Washington is prepared to resume strong military action against Iran if diplomatic efforts fail to quickly resolve the crisis. These developments have heightened concerns about a renewed escalation in the region, boosting demand for the safe-haven US Dollar.
At the same time, the latest Middle East tensions have triggered a sharp rebound in crude oil prices, reigniting worries about inflation and increasing speculation that the Federal Reserve could raise interest rates again. This backdrop is likely discouraging traders from taking aggressive bearish positions on the DXY, though gains remain limited ahead of the Fed’s policy announcement later in the day.
Investors are primarily focused on the Fed’s guidance regarding future monetary policy, which is expected to be the next major catalyst for the US Dollar. Analysts at DBS note that markets remain “highly cautious” ahead of the FOMC decision, despite the recent pullback in oil prices following a temporary easing of US-Iran hostilities. According to the bank, traders are still pricing in roughly a 34% probability of a rate hike at this meeting and nearly 100% odds of a hike in September, highlighting expectations that the Fed may resume tightening even as some geopolitical risk premium in energy markets has faded.
USD/JPY remains below the 164.00 mark after last week’s rally stalled just shy of that psychological level, leaving the pair at its strongest level against the Japanese Yen since 1986.
Japan’s authorities spent a record ¥11.73 trillion intervening in April and May to support the Yen—nearly twice the size of the previous record effort. Despite the massive defense, the protected exchange-rate level was breached within six weeks.
Attention now turns to Friday’s packed schedule, which will feature the Bank of Japan’s policy decision, the release of its quarterly Outlook Report, and the Finance Ministry’s monthly intervention data, all arriving in the same trading session.
USD/JPY Outlook: Tokyo Can Still Defend the Yen, but Its Options Are Narrowing
The Japanese Yen edged slightly higher on Monday, with USD/JPY slipping 0.05% while remaining just below the 164.00 level after last week’s rally stalled a mere ¥0.01 short of the mark. Investors have spent the past two weeks wondering whether Japanese authorities will step in again—and whether they can still afford to do so. The issue, however, is not a shortage of funds but a shortage of effective policy options.
Japan Has Plenty of Dollars, but Limited Flexibility
Japan’s foreign-exchange reserves stand at roughly $1.3 trillion, second only to China globally. However, around $1.1 trillion is invested in foreign securities—primarily U.S. Treasury bonds—which cannot be sold quickly without disrupting markets and potentially locking in losses.
The country’s readily deployable reserves are estimated at $150–180 billion in cash deposits held at the Bank of Japan and other central banks. In addition, Japan maintains a Federal Reserve swap line worth up to $120 billion. Based on the average size of previous interventions, analysts estimate Japan could still conduct roughly 30 more operations if necessary. The real limitation is therefore not financial capacity.
A Record Intervention Delivered Only Temporary Relief
After USD/JPY broke above 160.00 in April, Japan’s Ministry of Finance spent a record ¥11.73 trillion (around $73 billion) intervening in April and May. The effort was nearly twice as large as any previous intervention campaign.
Despite the scale of the operation, the market erased its impact within six weeks, with USD/JPY not only reclaiming the defended level but advancing roughly four yen beyond it. The episode highlighted how difficult it is to reverse a strong market trend without supportive economic fundamentals.
IMF Rules Create Another Constraint
A lesser-known challenge comes from international classification rules. The International Monetary Fund generally considers a currency “freely floating” only if official interventions remain limited and infrequent over a rolling period.
Analysts estimated earlier this year that Japan may have room for only a few additional interventions before risking scrutiny over its free-floating status. In other words, Tokyo’s ability to defend the Yen may be constrained more by policy credibility and international standards than by available cash.
Monday’s Market Action Highlighted the Yen’s Weakness
The Yen’s muted reaction to a sharp decline in oil prices underscored the currency’s structural challenges. Crude oil plunged nearly 9% following easing tensions between Washington and Tehran—a development that should significantly benefit energy-importing Japan.
Yet the Yen gained less than ¥0.10 against the U.S. Dollar.
This suggests that factors beyond energy costs are driving the currency. Although the U.S.-Japan yield gap has narrowed by roughly 40 basis points from its cycle extremes, the Yen has continued to weaken. Rising domestic inflation expectations and persistent capital outflows appear to be offsetting the impact of narrowing rate differentials.
Meanwhile, verbal intervention from Japanese officials has continued, but markets are increasingly ignoring such warnings.
A Critical Week for USD/JPY
Tokyo’s relative silence may be strategic. Currency intervention tends to be most effective when it aligns with broader market forces, and this week’s calendar could provide such an opportunity.
The key event arrives on Wednesday, when the Federal Reserve announces its policy decision. Markets largely expect rates to remain unchanged at 3.75%, though some investors still see a possibility of a surprise hike.
Japan’s data releases follow shortly afterward:
Thursday: Tokyo CPI, unemployment, and retail sales data.
Friday: Bank of Japan policy decision, Outlook Report, and Governor press conference.
Friday: Ministry of Finance intervention statistics for July, which could reveal whether authorities have already entered the market.
While the consensus expects the BoJ to keep rates unchanged at 1.00%, some reports suggest policymakers are becoming increasingly concerned that Yen weakness is adding inflationary pressure, potentially opening the door to a faster tightening cycle.
Key USD/JPY Levels
Resistance
164.00 remains the crucial barrier.
Above that, there is little historical chart structure, leaving 164.50 and 165.00 as the next psychological targets.
Support
163.00 is the first important support level.
162.50 follows below.
The rising 50-day EMA near 161.50 remains the key trend support.
Outlook
The broader trend remains bullish while USD/JPY holds above 163.00. However, the primary risk to further gains is not economic data or technical factors but potential official action from Japanese authorities. The period immediately following Wednesday’s Federal Reserve decision could prove especially important, as it offers the most favorable backdrop for any surprise intervention or policy shift.
Silver advanced over the week but continued to struggle to break decisively above the key $60 level. This major psychological resistance remains a focal point for traders, with selling pressure re-emerging as prices approach the area.
Meanwhile, the $55 region continues to provide solid support, helping to limit downside moves. Despite the recent gains, silver remains challenged by the higher interest-rate environment, which continues to weigh on the precious metals market.
Gold
Gold followed a similar pattern, climbing toward the $4,200 area before retreating from a level that has repeatedly acted as a significant resistance zone. The pullback highlights the market’s ongoing struggle to establish sustained momentum above this threshold.
On the downside, the $4,000 mark remains a key psychological support level, with additional buying interest emerging around $3,900. Overall, gold continues to trade in a volatile and uneven manner, with price action heavily influenced by developments in the Middle East. Geopolitical headlines are likely to remain a major driver of market sentiment, affecting not only gold but also interest-rate expectations, which continue to play a crucial role in shaping global financial markets.
USD/CAD
The U.S. dollar strengthened against the Canadian dollar over the week, even as oil prices surged. This divergence is not particularly surprising, as elevated market uncertainty has boosted demand for the U.S. dollar, while rising U.S. interest rates continue to support the currency. The positive interest-rate differential remains an important factor attracting buyers to the pair.
Although USD/CAD experienced a pullback in recent weeks after an extended bullish run, the correction appears to have helped ease overbought conditions. With the market showing signs of stabilizing, the pair may be positioned to resume its broader uptrend, with the 1.4150 area emerging as a key upside target.
EUR/USD
The euro weakened against the U.S. dollar during the week, with the 1.1400 level continuing to serve as a crucial support zone. This area has attracted significant market attention, having acted as a key consolidation level over the past year.
Looking ahead, the outlook for the pair remains heavily influenced by monetary policy expectations. Elevated U.S. interest rates continue to provide strong support for the dollar, reinforcing its appeal relative to other major currencies. As a result, interest-rate dynamics are likely to remain a primary driver of EUR/USD price action in the near term.
USD/JPY
The U.S. dollar remained firmly supported against the Japanese yen, as the yen continues to struggle amid the wide interest-rate gap between Japan and the United States. The pair’s broader trend remains bullish, with underlying fundamentals continuing to favor the U.S. dollar.
While a short-term correction cannot be ruled out after the recent advance, any pullback is likely to be viewed as a buying opportunity by market participants. The substantial interest-rate differential between the two economies continues to attract demand for the pair, reinforcing the longer-term upward outlook for USD/JPY.
GBP/USD
The British pound declined over the week, but the broader market structure remains largely unchanged. GBP/USD continues to trade within a well-established consolidation range between 1.3150 and 1.3700, suggesting that the recent weakness is part of ongoing sideways price action rather than the start of a new trend.
As the pair remains range-bound, it is likely to continue attracting traders who favor consolidation and mean-reversion strategies. Compared with other major currencies, the pound has shown relative resilience against the U.S. dollar, supported in part by the Bank of England’s comparatively hawkish policy stance, which has helped limit downside pressure on sterling.
Bitcoin (BTC/USD)
Bitcoin continues to experience choppy and unpredictable price action, with market sentiment largely driven by shifts in overall risk appetite. As investors weigh macroeconomic conditions and broader financial market trends, volatility is likely to remain elevated.
Despite the recent fluctuations, the $60,000 level appears to be establishing itself as a significant support zone. From a technical perspective, the latest weekly candlestick resembles a shooting star, following two consecutive hammer formations. This combination suggests a market lacking clear directional conviction, increasing the likelihood of continued sideways trading as participants wait for a stronger catalyst to determine the next major move.
Nasdaq 100
The Nasdaq 100 attempted to move higher during the week but quickly surrendered its gains as investor caution remained elevated. Ongoing geopolitical uncertainty and concerns about the economic outlook continue to weigh on sentiment, limiting the index’s ability to sustain upward momentum.
From a technical standpoint, the index appears vulnerable to a deeper correction if selling pressure persists. However, a decisive break above the high of the latest weekly candlestick would signal renewed bullish strength and could improve the near-term outlook. For now, persistent tensions in the Middle East and expectations of higher interest rates remain key headwinds, making it difficult for growth-oriented assets such as the Nasdaq 100 to stage a strong and sustained rally.
The pair gains traction as the US conducts a 13th straight night of military strikes against Iran, fueling geopolitical uncertainty. Market participants are now turning their attention to the UK’s June Retail Sales data, due later on Friday, for fresh direction and trading cues.
GBP/USD rebounds toward 1.3325, ending a five-session decline during Friday’s Asian trading hours.
Despite the recovery, gains may remain capped as escalating military tensions in the Middle East continue to support demand for the safe-haven US Dollar. Investors are also awaiting the release of the UK Retail Sales report later in the day for fresh market direction.
Geopolitical risks remain elevated after the US Central Command (CENTCOM) carried out a 13th consecutive night of strikes on Iranian-linked targets. US President Donald Trump stated that Iran would be held accountable for Houthi attacks and warned that both Iran and the Houthis could face significant military consequences, further boosting risk aversion and underpinning the Greenback.
Meanwhile, expectations for the Bank of England remain largely unchanged. Markets widely anticipate the BoE will leave its benchmark interest rate at 3.75% at next week’s meeting while assessing the economic impact of the Middle East conflict. According to Reuters, traders continue to price in one or two quarter-point rate increases by the end of 2026, little changed from earlier expectations.
Attention now turns to the UK Retail Sales figures, which could provide additional insight into the BoE’s policy outlook. Economists forecast a 0.3% monthly decline in June sales following May’s 1.2% increase. A stronger-than-expected result could strengthen the case for the BoE to maintain a hawkish stance, potentially offering further support to the Pound.
Analysts at Scotiabank highlighted that market expectations remain firmly anchored ahead of the BoE meeting, with investors largely expecting no change in interest rates. The stable policy outlook is likely to continue shaping near-term GBP/USD trading as markets await fresh economic data for clearer direction.
The US Dollar Index (DXY) remains under pressure as investors weigh renewed inflation worries against signs of slowing economic momentum in the United States. Ambiguous signals from Federal Reserve Chair Kevin Warsh have added uncertainty to the Dollar’s longer-term trajectory, while ongoing geopolitical tensions in the Middle East continue to support safe-haven flows, potentially limiting further downside for the Greenback.
The US Dollar Index (DXY), which tracks the US Dollar against a basket of six major currencies, extended its decline for a second straight session, hovering near 101.00 during Thursday’s Asian trading hours.
The Greenback remains under pressure as investors assess the impact of rising inflation risks, fueled by higher energy prices, alongside signs of a slowing US economy. Although the Federal Reserve is widely expected to keep interest rates unchanged at its next policy meeting, evolving rate expectations and mixed signals from newly appointed Fed Chair Kevin Warsh have increased uncertainty surrounding the Dollar’s longer-term direction.
Nevertheless, losses in the US Dollar may be limited by persistent safe-haven demand amid escalating geopolitical tensions in the Middle East. Market concerns intensified after US President Donald Trump warned of potential strikes on Iranian infrastructure if Tehran targets vessels passing through the Strait of Hormuz, prompting Iran to threaten rapid retaliation against US-associated energy facilities in the region.
Further adding to the uncertainty, Iran-backed Houthi forces reportedly carried out missile and drone attacks on two Saudi oil tankers in the Red Sea. The incident represents the first direct assault on tankers in the strategic waterway, threatening a key alternative route for Saudi crude exports and raising fears of a broader regional conflict.
EUR/USD edges higher to around 1.1405 during Wednesday’s Asian trading session. Elevated energy prices are raising concerns about renewed inflationary pressures, reinforcing expectations that the European Central Bank may maintain a tighter policy stance. Meanwhile, geopolitical tensions remain in focus after President Donald Trump downplayed the chances of near-term negotiations with Iran, as US military operations against the country entered an eleventh consecutive night.
EUR/USD posts modest gains near 1.1405 during Wednesday’s early Asian trading hours, supported by the European Central Bank’s increasingly hawkish outlook. The Euro finds demand against the US Dollar as investors position ahead of the ECB’s policy announcement scheduled for Thursday.
European sovereign bonds advanced earlier this week as persistent geopolitical risks in energy markets and concerns over renewed inflation pressures led traders to anticipate a less accommodative ECB policy trajectory.
Although the ECB is broadly expected to keep its deposit rate unchanged at 2.25% at the July meeting, market pricing suggests rates could climb to 2.66% by December and 2.73% by February 2027. According to Reuters, investors have also fully priced in a rate hike for September.
On the geopolitical front, US President Donald Trump downplayed the likelihood of near-term talks with Iran as hostilities continued and Yemen’s Iran-backed Houthi forces renewed threats against shipping in the Red Sea. Trump warned on Tuesday that Washington would retaliate if maritime routes were disrupted, though he provided no details on the potential response.
Meanwhile, Iran’s senior military leadership stated that Tehran would broaden its military operations and target US and allied interests throughout the region should Washington strike Iranian nuclear facilities, according to Xinhua. The escalating Middle East conflict could strengthen demand for traditional safe-haven assets, including the US Dollar, potentially limiting further upside in EUR/USD.
Major currency pairs traded within familiar ranges early Tuesday as investors avoided making aggressive moves while monitoring developments in the Middle East. Attention now turns to Germany and the Eurozone’s ZEW Economic Sentiment surveys, while the US economic calendar remains light for the remainder of the day.
After Monday’s volatile session, crude oil prices eased modestly, with West Texas Intermediate (WTI) slipping around 0.5% to trade near $82 per barrel. Oil initially retreated after reports suggested mediators had proposed a 10-day ceasefire between the United States and Iran to revive diplomatic negotiations. However, hostilities continued to escalate.
US President Donald Trump warned that Iran would face consequences following the deaths of American service members, while US forces carried out strikes for a tenth consecutive day, targeting areas near Sirik, Bandar Abbas, Qeshm Island, Chabahar, and Konarak. Iran responded with attacks on US assets across the Gulf, keeping geopolitical tensions elevated.
Oil Supported by Ongoing Geopolitical Risks
Despite signs of diplomatic engagement, analysts remain cautious. Deutsche Bank noted that Iran acknowledged receiving proposals from international mediators, but escalating rhetoric from both Yemen’s Houthi movement and President Trump helped push Brent crude to settle 1.27% higher at $89.22 per barrel.
OCBC warned that any broader escalation could revive concerns over a prolonged disruption to global oil supplies, potentially lifting crude prices back above $100 per barrel. Such a scenario could increase market volatility, weaken demand for carry trades, and reinforce demand for the US Dollar as investors seek safe-haven assets.
Fed Faces Fresh Inflation Concerns
The US Dollar Index (DXY) extended Monday’s gains by more than 0.2%, although it traded sideways just below the 101.00 level during Tuesday’s European session.
According to Commerzbank’s Volkmar Baur, persistently high energy prices could make it increasingly difficult for the Federal Reserve to avoid raising interest rates. While policymakers typically focus on core inflation, sustained increases in oil prices risk feeding into broader inflation through second-round effects, complicating the Fed’s policy outlook.
Sterling Softens Despite Stable Labor Market
UK labor market data showed the ILO unemployment rate remained unchanged at 4.9% in the three months to May. Meanwhile, average earnings excluding bonuses increased 4.3% year-over-year, below expectations of 4.5%.
The softer wage growth limited Sterling’s recovery, although GBP/USD edged slightly higher to around 1.3450 after three consecutive daily declines. Investors now await Wednesday’s UK inflation report.
New Zealand Dollar Outperforms After Inflation Surprise
New Zealand’s second-quarter inflation accelerated more than expected, with the annual Consumer Price Index (CPI) rising to 4.1%, up from 3.1% in the previous quarter and exceeding forecasts of 4.0%.
The stronger inflation reading boosted expectations that the Reserve Bank of New Zealand could maintain a restrictive policy stance, lifting NZD/USD above 0.5850, its strongest level since early June.
Euro, Canadian Dollar and Yen Hold Steady
EUR/USD traded quietly around 1.1420 after posting modest losses on Monday.
USD/CAD remained above 1.4050 despite Canadian inflation slowing to 2.8% in June from 3.2% previously. The Canadian Dollar also faced pressure after the White House announced that President Trump would impose 50% tariffs on most Canadian imports, citing what Washington described as discriminatory treatment of US automobiles, alcohol, and dairy products.
Meanwhile, USD/JPY held near 162.50. Japanese Prime Minister Sanae Takaichi stated that the government would continue balancing economic support with fiscal sustainability while working to preserve market confidence.
USD/JPY may face downside pressure as the US Dollar loses momentum amid improving risk sentiment sparked by fresh diplomatic developments.
Iran has reportedly received mediation proposals aimed at easing tensions with the United States, including the possibility of a 10-day ceasefire.
Meanwhile, Japanese Prime Minister Sanae Takaichi reaffirmed her commitment to preserving market confidence and ensuring fiscal discipline in Japan’s economic strategy.
USD/JPY advanced for a fourth consecutive session, trading near 162.60 during Tuesday’s European session, though activity remained subdued with Japanese banks closed for the Marine Day holiday.
The pair’s upside may remain limited as the US Dollar struggles to build momentum amid improving market sentiment. Hopes for a reduction in geopolitical tensions emerged after Iranian officials confirmed receiving mediation proposals from international intermediaries aimed at easing the standoff with the United States, including discussions of a possible 10-day ceasefire.
According to Axios, President Donald Trump is considering two contrasting approaches: supporting a temporary ceasefire to allow the reopening of the strategically important Strait of Hormuz or joining Israel in a broader military campaign. The deliberations come as US military assets continue to be deployed across the region while diplomatic efforts remain underway.
Meanwhile, Japanese Prime Minister Sanae Takaichi reiterated the government’s commitment to preserving market confidence and maintaining fiscal discipline. She also highlighted plans to accelerate economic growth, targeting real GDP expansion above 1% and nominal growth exceeding 3% in the near term, while pursuing stronger long-term economic performance.
Investors are now looking ahead to Japan’s June National Consumer Price Index (CPI), due on Friday, for fresh clues on the Bank of Japan’s policy trajectory. Economists expect core inflation, which excludes fresh food, to increase 1.6% year-over-year, compared with 1.4% in May, reinforcing speculation over the central bank’s next policy move.
