Bank FX views in one page, covering the key drivers, clear bias by pair, and the week’s events that move markets.
USD
The US dollar weakened against most major currencies last week after softer inflation data reduced expectations for further Federal Reserve rate hikes.
Marc Chandler notes that markets were pricing around 43 basis points of tightening earlier in July. That has now fallen to around 26–27 basis points. The US two-year yield also declined after CPI and PPI came in below expectations.
Danske Bank says the inflation slowdown was broad-based. Core CPI fell to 2.6%, while services and housing inflation also eased. Danske now sees little chance of a July rate hike but still expects the Fed to raise rates in December.
Barclays also expects the Fed to remain on hold in July. However, Barclays warns that the renewed rise in energy prices is bringing back stagflation risks, where inflation rises while economic growth slows.
For traders, the dollar may struggle to build a sustained rally from rate expectations alone. However, further escalation in the Middle East or a deeper equity sell-off could quickly bring USD buyers back into the market. The Dollar Index has support around 100.35, while 101.00–101.20 is the main resistance zone.
EURUSD
The European Central Bank is widely expected to leave rates unchanged at 2.25% on Thursday.
Danske Bank expects President Lagarde to keep the door open to a September hike without making a firm commitment. Danske still expects one final 25-basis-point hike in September, followed by rate cuts next year as growth and inflation slow.
Commerzbank says the ECB’s tone could be more important than the decision itself. If Lagarde strongly warns about inflation risks from oil and the Strait of Hormuz, markets may begin pricing rate hikes beyond September. That would help support the euro.
However, Danske remains bearish on EURUSD. It expects stronger US growth, more Fed tightening and Europe’s dependence on imported energy to push the pair towards 1.12 over the next 12 months.
For traders, the ECB may create a short-term euro rally, particularly if Lagarde sounds hawkish. However, higher energy prices and weak European growth still favour selling stronger EURUSD levels. Support is near 1.1380 and 1.1325, while resistance is around 1.1485.
GBPUSD
Sterling has been supported by hopes that the change in UK leadership will bring greater political stability.
Commerzbank says markets have initially given new Prime Minister Andy Burnham the benefit of the doubt. Reports that Shabana Mahmood could become Chancellor have also been received positively because she is viewed as a pragmatic and financially responsible choice.
However, the UK’s underlying problems remain. Growth is weak, government debt is high and the cost of servicing that debt is rising. Commerzbank warns that the current optimism could reverse if the new government fails to improve growth while keeping the public finances under control.
Danske Bank says the labour market is cooling and private-sector wage growth is slowing. It expects the Bank of England to remain on hold over the coming year, although the market continues to price some risk of another hike.
For traders, sterling may remain supported while the market welcomes the new government. However, this week’s jobs, inflation and retail sales figures could bring the focus back to weak growth and fragile public finances. GBPUSD support is around 1.3380–1.3400, with resistance near 1.3560.
USDJPY
The yen remains one of the weakest major currencies.
Danske Bank says higher oil prices are a clear negative for Japan because the country depends heavily on imported energy. The rise in oil and natural gas prices is hurting Japan’s terms of trade and putting pressure on household incomes.
The Bank of Japan raised rates to 1.00% in June, and Danske expects two more hikes over the next year. However, the wide interest-rate gap with the US and the renewed energy shock are keeping USDJPY supported in the short term.
Danske forecasts USDJPY near 163 over the next month before falling towards 156 over 12 months. That longer-term decline depends on energy prices stabilising and the BoJ continuing to raise rates.
For traders, USDJPY remains biased higher while oil prices and US yields remain elevated. National CPI is expected to rise from 1.5% to around 1.7–1.8% on Friday. A stronger result could support the yen, while Japanese intervention remains an important risk above 162.
AUDUSD
The Australian dollar is showing resilience despite weaker global risk sentiment.
Danske Bank says higher LNG prices and softer US inflation are providing support. Australia’s strong terms of trade and positive interest-rate carry should also help AUDUSD remain near current levels in the short term.
However, weaker growth in China and falling industrial metal prices remain important risks. Danske expects AUDUSD to stay near 0.70 over the next three months before easing towards 0.68 over 12 months.
Westpac expects Australian employment to increase by only 15,000 in June. It says employment growth has slowed sharply, while underemployment appears to be rising. The unemployment rate is expected to remain at 4.4%.
For traders, AUDUSD still looks reasonably supported on dips. Softer US yields and Australia’s commodity position are positive, but a deeper global risk sell-off or further weakness in China could prevent a clean breakout above 0.7020. Support is around 0.6960 and 0.6940.
NZDUSD
The New Zealand dollar faces a mix of higher rates and weak domestic growth.
Westpac notes that the RBNZ raised the cash rate earlier this month, its first increase in three years. Markets are now pricing around a 90% chance of another 25-basis-point hike in September.
Tuesday’s CPI report is the main event. Westpac expects inflation to rise by 1.5% in the second quarter, lifting annual inflation from 3.1% to 4.1%. That is slightly above the RBNZ’s 3.9% estimate.
Scotiabank says a strong CPI result would give the RBNZ ample reason to continue tightening. However, Westpac cautions that consumer spending, housing activity, tourism and the labour market all remain weak.
For traders, a strong CPI result should initially support NZD. However, with another RBNZ hike already heavily priced, the upside could be limited unless underlying inflation is also stronger than expected.
USDCAD
The Canadian dollar has recovered strongly, helped by higher oil prices, narrower US-Canada yield spreads and short-covering.
Scotiabank says the recent fall in CAD appears to have formed a base. Its fair-value model places USDCAD around 1.3988, while speculative CAD short positions have reached approximately USD25 billion. Similar extremes have marked important CAD turning points in the past.
Scotiabank expects a 1.3895–1.4091 range this week and views rebounds towards 1.4100 as attractive opportunities to sell USD.
Danske Bank has a different medium-term view. It expects the Fed to raise rates while the Bank of Canada remains on hold, pushing USDCAD towards 1.46 over the next year.
For traders, the near-term bias remains lower because of rising oil prices, better Canadian rate spreads and stretched CAD short positioning. Support is around 1.3980 and 1.3900, while resistance is near 1.4125 and 1.4160.
Other Pairs
Danske Bank expects the Swiss franc to remain firm. It says weak global growth, geopolitical uncertainty and Switzerland’s favourable energy position all support CHF demand. The near-term bias is therefore for USDCHF to remain under pressure during periods of stronger safe-haven demand.
Gold has recovered above the important $4,000 level as the US-Iran conflict has escalated. Westpac notes that gold returned to around $4,017 as risk sentiment weakened, although the move has been relatively controlled given the scale of the geopolitical headlines.
For traders, gold has a neutral to moderately bullish bias while it remains above $4,000. Safe-haven demand should protect this area, but higher bond yields and USD strength may limit the upside.
Bias Table
| Pair | Bias | Key Drivers |
|---|---|---|
| USD | Neutral | Softer Fed expectations offset by safe-haven demand and higher oil |
| EURUSD | Mildly bearish | Weak European growth, energy exposure and a stronger US outlook |
| GBPUSD | Neutral | Political optimism supports GBP, but growth and fiscal risks remain |
| USDJPY | Bullish | Higher oil hurts Japan, the rate gap remains wide and intervention risk persists |
| AUDUSD | Mildly bullish | Softer US yields, strong terms of trade and resilience around support |
| NZDUSD | Mildly bullish | Hot CPI and further RBNZ tightening expected, but weak activity limits upside |
| USDCAD | Bearish near term | Higher oil, narrower yield spreads and extreme CAD short positioning |
| USDCHF | Bearish | Geopolitical uncertainty and weak global growth support the franc |
| XAUUSD | Neutral to bullish | $4,000 support and safe-haven demand, offset by higher yields and USD strength |
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Key Event Outlook
United States
The US calendar is relatively light ahead of next week’s Federal Reserve meeting. Friday’s preliminary PMIs are the main release. Westpac expects manufacturing to remain firm, while services should continue recovering.
New home sales are also due Friday and may rebound after falling sharply in May. The Fed is now in its communication blackout period, so geopolitical developments, equity markets and US yields may have more influence on the dollar than domestic data.
Eurozone
The ECB meets on Thursday and is expected to keep the deposit rate at 2.25%. Danske Bank expects Lagarde to leave the door open to a September hike.
Commerzbank says the key question is whether the ECB is willing to signal additional tightening if oil prices continue rising. Friday’s PMIs will then provide an early look at July activity. Weak services data would reinforce concerns that the energy shock is hurting growth.
United Kingdom
UK labour data are due Tuesday, followed by CPI on Wednesday and retail sales on Friday.
Scotiabank says markets are still pricing one or two additional BoE hikes, but weak growth and labour-market slack may prevent higher energy prices from becoming embedded in underlying inflation.
The new government and the appointment of the Chancellor will also be important for sterling and gilt markets.
Japan
National CPI is due Friday. Headline inflation is expected to rise from 1.5% to around 1.7–1.8%.
A stronger result could support expectations for another BoJ rate hike. However, higher oil prices and the weak yen are also increasing imported inflation while reducing household purchasing power.
Australia
Australian employment data are due Thursday. Westpac expects employment growth of 15,000 and an unchanged unemployment rate of 4.4%.
A weak report could weigh on AUD, but the RBA is currently more focused on inflation than employment.
New Zealand
New Zealand CPI is due Tuesday and is one of the week’s most important releases. Westpac expects annual inflation to rise to 4.1%.
A result at or above this level would support another RBNZ hike in September. A softer core reading would be more important than a weak headline because much of the increase reflects fuel and other volatile prices.
Canada
Canadian CPI is due Monday, followed by retail sales on Thursday and producer prices on Friday.
Scotiabank expects headline inflation to remain near 3.2%, although lower gasoline and travel prices could produce a softer monthly result. The BoC is unlikely to react strongly unless the core measures surprise.
China
China’s one-year and five-year loan prime rates were left unchanged on Monday. With few major Chinese releases this week, traders will focus on the impact of recent weak domestic demand and the ongoing strength in exports.
Weak Chinese risk sentiment remains an important downside risk for AUD, NZD and Asian currencies.
Other / Geopolitics
The renewed US-Iran conflict remains the biggest market risk. Shipping through the Strait of Hormuz has fallen again, oil has moved above $90 and both sides have intensified military action.
A wider conflict would likely support the USD and CHF, raise inflation expectations and hurt EUR, JPY and energy-dependent Asian currencies.
The sell-off in AI and semiconductor shares is another source of risk. A deeper technology correction could strengthen safe-haven demand and place additional pressure on high-beta currencies such as AUD and NZD.
Bank Desk Weekly FX Report
What the banks are saying, the fundamental bias, and key events.
