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FX Weekly: Yen Returns to Losses, Dollar Under Pressure

Following a record intervention by the Japanese Ministry of Finance and the US Department of the Treasury, the yen strengthened by over 5%, recovering losses incurred over the last 5 months, since the outbreak of the war in Iran. After reaching a local low below the 156 level, the USDJPY pair has returned to growth.

Figure 1: Weekly Performance of Selected Currencies [vs. USD] (31.07 – 07.08)

Source: XTB Research, 10.08.2026

Japanese Yen (JPY)

The fundamentals have not changed significantly and continue to exert pressure on the Japanese currency. The key issue remains the carry trade, or trading on the interest rate differential. As long as the discrepancy between the projected interest rate levels in the United States and Japan remains significant, even interventions amounting to nearly 90 billion dollars may prove insufficient to permanently reverse the trend. Figure 2: USDJPY (31.10.2025 – 10.08.2026)

Source: xStation, 10.08.2026 Currently, the interest rate differential between both sides of the ocean stands at 2.675%. Market valuations suggest that it will narrow slightly in the coming months, reaching approximately 2.35% in July 2027. However, it seems that investors expect more decisive action from the Bank of Japan, with the next opportunity appearing only on 18 September. A decision to raise interest rates then could serve as a significant declaration for the market, leading to increased bets on subsequent hikes in the following months. Currently, such a move is priced at approximately 60%.

Figure 3: Bank of Japan Implied Policy Path (Hikes/Cuts) (2026-2027)

Source: XTB Research, 10.08.2026 In the meantime, the market’s attention will focus on the United States and the developing situation in the Middle East. Japan is almost entirely dependent on imports for its energy needs, and under standard conditions, nearly 90% of its crude oil comes from the Middle East. Figure 4: Japan’s Crude Oil Import Structure (2024)

Source: OEC, 10.08.2026 However, further interventions cannot be ruled out, which the markets seem to fear. Positioning on the yen has changed significantly after many investors withdrew speculative short positions for fear of further actions aimed at defending the exchange rate. Figure 5: Yen Positioning (2000 – 2026)

Source: XTB Research, 10.08.2026

US Dollar (USD)

The July NFP report has been published. The number of new jobs in the US economy fell by 23 thousand, missing expectations by 5 standard deviations. Although extreme phenomena occur much more frequently in the world of macroeconomics (the so-called fat tails), assuming the data follows a normal distribution, we would have to wait 290,000 years for another such reading. Figure 6: NFP and Employment Component in ISM PMI (2016 – 2026)

Source: XTB Research, 10.08.2026 The market reaction was certainly noticeable, though not as strong as many might have expected. The dollar’s losses were limited by, among other things, a decline in the unemployment rate (to 4.1%) and problems with seasonal adjustment of the data (the decline resulted mainly from a lower number of jobs in the public education sector). Figure 7: NFP and Unemployment Rate (1980 – 2026)

Source: XTB Research, 10.08.2026 It is worth noting, however, that higher energy prices have affected companies in the retail, leisure, and hospitality sectors (this despite the World Cup ending in July). Investors are currently unsure which direction the Fed will take in September; looking at market valuations, the chances of a hike can be compared to a coin toss. All eyes are on the July inflation reading scheduled for Wednesday. If, despite rising oil and gas prices, it shows similar values to June, we expect the committee led by Kevin Warsh to refrain from a hike until the next meeting. Figure 8: US CPI Inflation (2004 – 2026)

Source: XTB Research, 10.08.2026 For Warsh himself, this would be an exceptionally comfortable situation. In the event of intensifying inflation concerns, the committee would be almost forced to raise rates, especially in the face of revived discussions regarding the Fed’s independence. The topic returned to the table after further threats from Donald Trump directed at Lisa Cook, one of the FOMC decision-makers. These appeared more than a month after the Supreme Court deemed the president’s recent actions in this area unlawful.

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EUR/JPY Price Remains below 183.00 as bearish bias prevails

  • EUR/JPY could find primary support at the nine-day EMA at 183.34.
  • The 14-day Relative Strength Index at 47.63 indicates prevailing bearish bias.
  • The initial barrier lies at the 50-day EMA at 184.57.

EUR/JPY depreciates after registering modest gains in the previous day, trading around 183.80 during the Asian hours on Tuesday. The Relative Strength Index (14) at 47.63 sits just below the neutral 50 line, hinting at ongoing bearish momentum without yet reaching oversold conditions.

The EUR/JPY cross is holding a mildly bearish near-term bias as it remains below the 50-day Exponential Moving Average (EMA) while it is positioned just above the nine-day EMA. This configuration suggests the cross is caught between short-term support and overhead trend resistance, with price action vulnerable to further downside while the longer EMA caps the topside.

The initial support lies at the nine-day EMA at 183.34. A successful break below the short-term moving average would reinforce the bearish bias and put downward pressure on the EUR/JPY cross to fall toward the eight-month low of 179.37, reached on August 3, followed by the nine-month low of 175.70.

On the upside, the EUR/JPY cross could rise toward the primary resistance at the 50-day EMA at 184.57. Further advances above the medium-term moving average would cause a bullish emergence and support the currency cross to explore the region around the all-time high of 187.95, which was recorded on April 17.

Markets edge toward BoJ tightening as hike odds firm into year-end

BNY’s Wee Khoon Chong notes that policy expectations have shifted meaningfully, with “markets now pricing in roughly a 50% chance of a 25bp BoJ hike in September and a full hike by year-end,” underscoring the growing conviction that the BoJ will move further away from its ultra-accommodative stance over the coming months.

Chart Analysis EUR/JPY
EUR/JPY: Daily Chart
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GBP clings to gains against US Dollar, US CPI in focus

  • The British Pound trades firmly at around 1.3500 against the US Dollar.
  • Investors await the US CPI data for July and the UK Q2 GDP data.
  • The Fed is not expected to raise interest rates in September anymore.

The British Pound (GBP) holds onto two-day gains marginally at around 1.3500 against the US Dollar (USD) during the Asian trading session on Tuesday. The GBP/USD pair remains firm as the British Pound outperforms despite financial markets pricing out the possibility of an interest rate hike by the Bank of England (BoE) in the near term.

Pound Sterling Price This week

The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD0.08%-0.18%0.89%-0.14%0.08%0.12%0.29%
EUR-0.08%-0.27%0.79%-0.29%-0.06%-0.06%0.11%
GBP0.18%0.27%1.01%-0.03%0.21%0.23%0.36%
JPY-0.89%-0.79%-1.01%-0.71%-0.47%-0.59%-0.39%
CAD0.14%0.29%0.03%0.71%0.25%0.12%0.47%
AUD-0.08%0.06%-0.21%0.47%-0.25%0.00%0.14%
NZD-0.12%0.06%-0.23%0.59%-0.12%-0.00%0.15%
CHF-0.29%-0.11%-0.36%0.39%-0.47%-0.14%-0.15%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

Strategists at Rabobank point out that “for the UK, the market is currently pricing in a reduced expectation of a rate hike by the end of the year,

This week, the major trigger for the British currency will be the preliminary United Kingdom (UK) Q2 and the June month Gross Domestic Product (GDP) data, which will be released on Thursday. In the April-June period, the UK economy is expected to have grown at a moderate pace of 0.4% vs. the previous reading of 0.6%. On a monthly basis, the GDP is seen contracting by 0.1%.

Meanwhile, the US Dollar Index (DXY) trades almost flat at press time, holding onto Monday’s recovery move at around 99.80. The USD Index is expected to remain sideways as investors await the United States (US) Consumer Price Index (CPI) data for July, which will be released on Wednesday.

US inflation seen firming but not reaccelerating in July

Brown Brothers Harriman’s Elias Haddad expects the upcoming US July CPI report to show inflation “firm modestly but stop short of signaling a renewed acceleration in inflation.” He notes that “headline CPI is expected to rise +0.1% m/m vs. -0.4% in June and ease to 3.4% y/y vs. 3.5% in June,” while “core CPI is expected to rise +0.2% m/m vs. 0.0% in June and ease to 2.5% y/y vs. 2.6% in June.” The data are due Wednesday and, in Haddad’s view, should confirm a gradual cooling in underlying price pressures rather than a renewed upswing.

The US inflation data will have a significant impact on the Federal Reserve’s (Fed) interest rate expectations, as the July monetary policy statement showed heightened concerns among policymakers toward upside inflation risks.

Lately, traders have priced out the possibility of a Fed interest rate hike in the September meeting after the release of weak US Nonfarm Payrolls (NFP) data for July.

GBP/USD Technical Analysis

In the daily chart, GBP/USD trades at 1.3500, retaining a bullish near-term tone as spot holds above the 60-day exponential moving average (EMA) at 1.3403 and the broken downward resistance trend line now offering support around 1.3456. The Relative Strength Index (14) at 61.1 leans into positive territory, suggesting buyers remain in control while momentum is not yet stretched into overbought conditions.

On the downside, immediate support emerges at the former trend-line cap turned floor near 1.3456, followed by the 60-day EMA at 1.3403, where a deeper pullback would be expected to attract fresh demand. As long as GBP/USD defends these layers of underlying support, the pair would likely continue to favor the topside, with bulls eyeing further gains above the recent 1.3509 close in the sessions ahead.

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Canadian Dollar sits near two-month top vs USD amid bullish oil prices

  • USD/CAD languishes near a two-month low as bullish oil prices continue to underpin the Loonie.
  • Geopolitical uncertainties, inflation risks and Fed hike bets support the USD and help limit losses.
  • Traders also seem hesitant and await the latest US inflation figures before placing directional bets.

The USD/CAD pair is seen consolidating its recent losses to a two-month low, touched last week, and trading below mid-1.3900s during the Asian session on Tuesday. Traders now seem hesitant to place aggressive directional bets amid a mixed fundamental backdrop and ahead of the crucial US inflation figures.

The US-Iran standoff dampens hopes for a swift reopening of the Strait of Hormuz, which, along with restricted shipping traffic through the Bab el-Mandeb Strait, continues to fuel supply concerns and supports crude oil prices. Moreover, Friday’s upbeat Canadian employment details seem to underpin the commodity-linked Loonie and act as a headwind for the USD/CAD pair, though a modest US Dollar (USD) strength helps limit the downside.

Investors remain worried about inflation risks stemming from volatile oil prices, which might force the US Federal Reserve (Fed) to adopt a more hawkish stance. In fact, traders are still pricing in a greater possibility that the US central bank will hike interest rates at least once by the end of this year. This, along with geopolitical uncertainties, assists the safe-haven buck in preserving the previous day’s modest gains and acts as a tailwind for the USD/CAD pair.

Traders, however, opt to wait for more cues about the Fed’s future policy path before positioning for the next leg of a directional move. Hence, the focus will remain glued to the US Consumer Price Index (CPI) and the Producer Price Index (PPI), due for release on Wednesday and Thursday, respectively. The crucial data, along with further developments surrounding the Middle East crisis, should provide a fresh impetus to the USD and the USD/CAD pair.

USD/CAD daily chart

Chart Analysis USD/CAD

Technical Analysis

The USD/CAD pair trades just above the 100-day Simple Moving Average (SMA) at 1.3918, with a break below this level likely to expose the recent closing area around 1.3900. On the flip side, spot prices would need to clear recent swing highs to extend the advance, while the close proximity of price to the 100-day SMA hints at a consolidation phase rather than an aggressive trend move.

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Japanese Yen holds range in thin holiday trading amid intervention speculations

  • Japanese Yen holds steady during Mountain Day holiday while markets weigh potential intervention amid thin liquidity.
  • The BoJ may raise rates in September to counter inflation from a weak yen and rising oil.
  • A weak July US payrolls report created headwinds for the US Dollar, introducing rate uncertainty following dovish policy repricing.

USD/JPY moves little after posting nearly 1% gains in the previous day, trading around 159.30 during the Asian hours on Tuesday. The pair moved little today, trading in tight ranges as market volumes remained thin with Japanese markets closed for the Mountain Day holiday.

The Japanese Yen (JPY) has retraced about half of the gains made during its recent intervention-driven rally, directly testing the resolve of officials in both Tokyo and Washington to support the currency.

According to a Reuters analyst, Japan’s decision not to follow through on its joint intervention, especially by failing to amplify Friday’s US Dollar (USD) weakness following soft US jobs data, suggests a passive strategy designed merely to slow the Dollar’s rise rather than fundamentally reverse the Yen’s multi-year decline. This distinction is critical for market positioning, as investors remain heavily short on the Yen, holding the largest net-short positions since early 2024. With liquidity reduced, analysts note that Tuesday’s holiday in Japan could serve as a prime strategic window for authorities to launch another intervention.

Meanwhile, monetary policy expectations in Japan continue to shift. According to Jiji Press, the Bank of Japan (BoJ) may consider another interest rate increase at its upcoming September 17–18 meeting, following its rate hike in June, to combat growing inflationary risks. Domestic prices face upward pressure from rapid growth in artificial intelligence-related demand, the Yen’s ongoing depreciation, and elevated global crude oil prices. A September hike would mark an accelerated timeline for the central bank, upending the consensus among financial market participants who had previously anticipated rate increases roughly once every six months.

Yen rates market leans toward BoJ lift-off by year-end

BNY’s Wee Khoon Chong notes that rate expectations have shifted meaningfully, with markets now “pricing in roughly a 50% chance of a 25bp BoJ hike in September and a full hike by year-end,” underscoring growing conviction that the BoJ will begin normalising policy over the coming months.

The USD/JPY pair holds losses as the US Dollar (USD) faces headwinds following a weaker-than-expected July payrolls report. The soft labor data sparked a dovish shift in market expectations, reintroducing two-sided policy risk into a market that had previously expected the Federal Reserve (Fed) to keep interest rates strictly on hold.

However, the US Dollar may regain its ground as geopolitical tension has driven a sharp rally in crude oil, which in turn has pushed Treasury yields higher. Concerns are growing that the Federal Reserve (Fed) may feel compelled to raise rates sooner rather than later, even against the backdrop of a cooling labor market.

Investors are now closely watching upcoming inflation data this week to gauge the Fed’s next move, with the CME FedWatch Tool showing that market-implied odds of a 25-basis-point Fed rate hike in September have climbed above 51%, up from 44.4% just a day prior.

Barkin flags uneasy labor tone but strong earnings keep Fed bias hawkish

Barkin’s latest remarks strike a cautiously uneasy tone on the labor market, with the description of “low hire, low fire” and a “sector in weak balance” pointing to softer job dynamics despite no acute stress. The FXS Speechtracker score of 5.4/10 sits slightly below the historical average of 5.8/10, underscoring a modestly less confident stance, even as Barkin highlights “quite strong” and “growing nicely” corporate earnings and explicitly watches those earnings for linkages to the job market. Overall, the mix of labor unease and solid corporate performance suggests a nuanced policy bias that is less upbeat than the established baseline but not decisively dovish for the Dollar.

The FXS Fed Sentiment Index fell by 1.68 points to 137.01, signaling a pullback in hawkish tone relative to recent communications. However, with the FXS Fed Sentiment Index still well above the neutral 100 mark, the Fed remains firmly in hawkish territory despite the softer labor rhetoric captured in the FXS Speechtracker.

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New Zealand Dollar remains confined in a range vs USD amid Iran risks, ahead of US CPI

  • NZD/USD struggles to gain any meaningful traction amid mixed fundamental cues.
  • Geopolitical risks, inflation fears and Fed rate hike bets support the safe-haven USD.
  • The RBNZ’s hawkish tilt limits the downside for the NZD as traders await the US CPI.

The NZD/USD pair seesaws between tepid gains/minor losses during the Asian session on Tuesday and currently trades just below the 0.5900 mark. Spot prices, however, remain confined within a familiar range held over the past week or so, awaiting a fresh catalyst before the next leg of a directional move. Hence, the focus will remain on further developments surrounding the Middle East crisis and the latest US inflation figures this week.

The crucial US Consumer Price Index (CPI) and the Producer Price Index (PPI) are due for release on Wednesday and Thursday, respectively, which will be looked for more cues about the US Federal Reserve’s (Fed) future policy path. This, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide some meaningful impetus to the NZD/USD pair. In the meantime, the mixed fundamental backdrop is holding back traders from placing aggressive bets on the USD.

The disappointing US Nonfarm Payrolls (NFP) report forced investors to scale back their expectations for an immediate interest rate hike by the Fed. However, inflation risks stemming from volatile oil prices due to the Iran war underpin prospects for at least one Fed rate hike in 2026. The outlook remains supportive of elevated US Treasury bond yields, which, along with fading hopes for a US-Iran deal, continues to act as a tailwind for the safe-haven Greenback and caps the NZD/USD pair.

Iran ruled out any future negotiations with Trump and said that it will wait until the US President’s term ends on January 20, 2029, to resume talks, dampening hopes for a swift reopening of the Strait of Hormuz. Moreover, traffic through the Bab el-Mandeb Strait remains choked due to the Iran-backed Houthis’ naval blockade against Saudi Arabia. This favors USD bulls, though the Reserve Bank of New Zealand’s (RBNZ) hawkish tilt could limit deeper losses for the NZD/USD pair.

Strategists at BBH remain constructive on the Kiwi, arguing that “NZD has room to keep edging higher against most major currencies.” They point to “above target inflation, more favorable domestic growth outlook, and a policy rate near the lower-end of the RBNZ’s neutral range (2.20%-4.10%)” as factors that “argue for additional RBNZ rate hikes.” Reflecting this backdrop, BBH notes that “the swaps curve price in nearly 100bps of cumulative tightening over the next twelve months to 3.50%,” reinforcing the view that policy expectations continue to offer support for the currency.

NZD/USD 4-hour chart

Chart Analysis NZD/USD

Technical Analysis

The NZD/USD pair continues to consolidate in an over one-week-old range, leaving the near-term bias neutral. The focus remains on whether spot prices can sustain a move away from the 0.5880 area to define the next directional leg. A sustained push higher would open the way for a test of recent minor intraday highs, while a break lower from the current congestion zone would expose prior four-hour lows as the next bearish objective.

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Euro flat lines near mid-1.1500s vs USD as traders await US CPI amid Iran uncertainty

  • EUR/USD is seen consolidating in a narrow band as USD preserves modest recovery gains.
  • Mideast tensions lift oil prices, fueling inflation fears and Fed hike bets, supporting the USD.
  • Traders also seem hesitant and opt to wait for the release of the latest US inflation figures.

The EUR/USD pair struggles to gain any meaningful traction and holds steady around the 1.1545-1.1550 area during the Asian session on Tuesday. Traders seem hesitant to place aggressive bets and opt to wait for further developments surrounding the Middle East crisis and this week’s release of the latest US inflation figures. Nevertheless, spot prices remain well within striking distance of the highest level since June 17, touched last Friday.

The disappointing US Nonfarm Payrolls (NFP) report forced investors to scale back their expectations for an immediate interest rate hike by the US Federal Reserve (Fed). This, in turn, fails to assist the US Dollar (USD) to capitalize on the previous day’s modest gains and acts as a tailwind for the EUR/USD pair. Investors, however, are still pricing in the possibility that the US central bank will raise borrowing costs by the end of this year amid inflation risks stemming from volatility in oil prices due to the Iran war.

In the latest developments surrounding the Middle East crisis, Iran ruled out any future negotiations with Trump and said that it will wait until the US President’s term ends on January 20, 2029, to resume talks, dampening hopes for a swift reopening of the Strait of Hormuz. Moreover, traffic through the Bab el-Mandeb Strait remains choked due to the Iran-backed Houthis’ naval blockade against Saudi Arabia. This remains supportive of the recent rise in crude oil prices to an over one-week high, fueling inflation fears.

Cleveland Fed President Beth Hammack said on Monday that the current rate is not meaningfully restricting the economy and that there is a need for some number of rate hikes. Hammack stressed that the longer the Fed waits, the longer it misses the 2% inflation goal. Hence, the focus will be on the US Consumer Price Index (CPI) and the Producer Price Index (PPI), due on Wednesday and Thursday, respectively. The data will provide more cues about the Fed’s future policy path and influence the USD and the EUR/USD pair.

According to TD Securities, the recent inflation dynamics are likely to “keep the Fed looking to August inflation data ahead of the September meeting,” reinforcing the central bank’s data-dependent stance. The bank also highlights that “PPI on Thursday will also be a key input into PCE estimates,” underscoring the importance of upcoming producer price figures in shaping the broader inflation picture the Fed will assess.

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Chart of the Day: USD/JPY Recovers After Disappointing Payroll Data

The USD/JPY exchange rate quickly recouped most of the losses triggered by the weak US labour market report and is trading on Monday around 158.20–158.50, virtually where the pair stood prior to the data release. Friday’s payrolls figures showed a fall in employment of 23,000 against an expected increase of 80,000, triggering a sharp sell-off in the dollar and sending USD/JPY down from around 158.30 to approximately 156.70, before buyers quickly returned to the market. The market’s attention is now turning to Wednesday’s release of the US CPI for July, which will determine whether the Federal Reserve still has scope for a rate rise in September.

What the daily chart shows

The attached daily USD/JPY chart (D1 timeframe) shows a clear, well-defined uptrend that has been in place since February, with the price moving consistently along or above one standard deviation below the anchored VWAP since the start of 2026 (as the main support zone for the long-term uptrend). A key element of the chart pattern is the broad resistance zone around 159,000–160,000, marked on the chart as “Resistance area” – the same level which previously, from March to May, acted as a consolidation zone and repeatedly rejected price movements (and currently constitutes the main cluster of the value zone when looking at the volume profile marked since the start of the year), Friday’s long red candle with a long lower shadow was a reaction to the weak payrolls figures – there was a sharp fall from around 163,000–164,000 towards the resistance level, followed by a rebound that saw the week close near 158,500. The current price (158,496) sits right at the lower end of the resistance zone, just below the 159,000 level, suggesting that the market is testing whether the former resistance will now turn into new support.

What’s next for the couple?

The balance of risks remains uncertain, but for the time being it may appear to be tilted slightly towards gains as long as tensions surrounding the US–Iran conflict and the Strait of Hormuz persist, which is keeping bond yields higher (10-year US bonds are still around 4.655 per cent). At the same time, the risk of another joint US–Japan intervention is likely to cap gains around the 160 level, whilst a significantly weaker CPI reading could pave the way for a decline to the 155–156 range, where investors have previously been keen to buy on dips. Wednesday’s CPI reading for July (forecast at 3.4% y/y, down from 3.5% previously) will be a key test for the pair’s future direction, as it will determine whether the market will continue to scale back expectations of a Fed rate rise in September and reverse the trend, or whether the current narrative will prevail.