Sterling's sloth-like rise from its early-September low near 1.3475 toward today's 1.3566 high has come as fiscal concerns ebb on softening long-end yields, and broad USD selling against other major currencies — but the recovery looks fragile and may leave the pound trailing as other major central banks shift to more hawkish tacks.

This recent ascent can largely be attributed to the unwinding of long USD positions, driven by a persistent global inflation narrative that has bolstered hawkish expectations for central banks across developed markets. However, this macro shift poses a risk of sidelining sterling in comparison to its peers.

Despite sterling being one of the higher yielding currencies, the pivot to a tighter monetary policy by the Fed, ECB, BoC, and even the traditionally cautious BoJ could see the pound lagging, as the Bank of England (BoE) maintains a relatively static policy stance.

While UK inflation remains stubbornly high, with July's headline figure rising to 2.9% from 2.6% in June, the BoE's cautious approach to tackling inflation may disadvantage sterling against other G7 currencies.

Additionally, growth concerns stemming from high borrowing costs are choking off investment and consumption, contributing to increased fiscal anxiety. UK long-end yields have surged to multi-decade highs, raising questions about Prime Minister Andy Burnham's fiscal strategies ahead of the upcoming UK Autumn Budget in October.

As the central bank meeting cycle unfolds, with a fully priced ECB hike and 60-80% odds for rate increases from the Fed, BoJ, and RBA, sterling faces a 12% chance for a BoE hike, according to LSEG's IRPR. While a BoE hike is anticipated by year-end, the recent GBP/USD gains may face headwinds as other central banks potentially act sooner.
Sterling Chart:

(Paul Spirgel is a Reuters market analyst. The views expressed are his own)

MUFG Research discusses the latest comments from US Treasury Secretary Scott Bessent

"The yen has continued to strengthen overnight resulting in USD/JPY falling back towards the 153.00-level. The stronger yen has been encouraged by bullish comments from US Treasury Secretary Scott Bessent overnight who stated that “I am the house now, so when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the Bank of Japan is going to do, what Japanese policymakers are going to do...and you can bet against me if you want”. He pushed back against his critics who have criticized the decision to intervene alongside Japan to support the yen by stating “whenever people say, ‘Oh, well, Treasury Secretary is taking a risk’, - well, it’s my dream, I have asymmetric information”.," MUFG notes.

"The comments will reinforce expectations that the Japan has agreed to change domestic policies to provide more support for the yen and back up support from joint intervention. It already appears increasingly likely the BoJ will speed up the pace of rate hikes this month which is helping the yen to rebound without the need for further intervention," MUFG adds.

Goldman Sachs highlights the key levels in USD/JPY going into this week's August PPI (Thurs) and CPI (Fri) reports.

" Levels: Into CPI/PPI expect USDJPY to hold into the 152-153 area as clients take profit and some CTA positioning cleaned up. Expect spot to stall into 155.20 and 158.50 to be major resistance," GS notes.

On a break of 152.00, target 148.00," GS adds.

• AUD/USD rallied to 0.7238 overnight as USD fell & gold, silver rallied

• Sellers emerged after the 4-month high traded and the pair turned lower

• USD rallied on US yield gains & oil breaking $100 per barrel

• Drop in equities & pull backs in gold, silver added weight on AUD/USD

• 0.7212 traded ahead of NY's open, the pair was down -0.01% in early NY

• Daily techs warn bulls; RSI diverged on the high, inverted hammer candle formed

• Rising monthly RSI, 15-mo Bolli bands & monthly bull hammer a bullish signals
audusd

(Christopher Romano is a Reuters market analyst. The views expressed are his own)

• EUR/USD unable to close above the 200-dma at 1.1634 - a break might encourage bulls toward 21 Aug highs at 1.1711

• Limited/familiar ranges continue to weigh on FX option prices - implied volatility languishes at long term lows

• Even overnight expiry which includes the more significant than usual PPI data, is only marginally above recent lows

• Actual/realised volatility measures are below implied - further sapping incentive for long option positions

• Directional trades remain limited too - further evidence that the EUR/USD FX option market is lacking conviction

• Risk reversal contracts recognise the lack of conviction too - all expiry dates returning to a neutral, from downside bias

• Related - FX option expiries - the big strikes for Wednesday September 9
EUR/USD FX options


EUR/USD 25 delta risk reversals

(Richard Pace is a Reuters market analyst. The views expressed are his own)

• Cable falls from 1.3566 to 1.3541 as Brent crude hits $100/barrel

• 1.3541 is fractionally fresh intra-day low (1.35415 was Asia low)

• Two and five-year gilt yields rise to one-week high on $100 oil price

• 1.3566 is high since August 28 (when USD rose on hawkish Warsh)

• Rise to 1.3566 influenced by Bessent's "I am the house now" boast

• UK food price inflation to rise above 6% next year, industry body says

GBPUSD

(Robert Howard is a Reuters market analyst. The views expressed are his own)

• Cable rises to 1.3566, its highest level since August 28

• 1.3598 was August 28 high - before dollar rose on hawkish Warsh

• Dollar weakness against the yen is source of support for GBP/USD

• Bessent: "I have pretty good insight into what the BOJ is going to do"

• 1.3550 (former resistance level) is now a GBP/USD support point

• Bailey pushes back against idea of BoE rate hike being inevitable

GBPUSD

(Robert Howard is a Reuters market analyst. The views expressed are his own)

• EUR/USD rising to highest since Aug 28 at 1.1645 on Sep 9

• Brent crude oil has risen by $11 pb since Aug 28

• Price of natural gas has increased by 19% in same period

• The eurozone imports energy which the U.S. exports

• Higher cost of energy should weigh EUR/USD

• $100 oil is a huge spanner in works of plans to strengthen the yen

•
EURUSD, natgas and oil

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

• AUD/USD hits 0.72365 after extending north from 0.7218 (Asia low)

• 0.72365 is fresh four-month high (0.7231 was Tuesday top)

• Australian dollar buoyed by hawkish RBA rate expectations

• Goldman Sachs now forecasts RBA hike on September 29

• GS also says a follow-up RBA hike in November is "a material risk"

• AUD/USD bull targets include 0.7277 (May high) and 0.73

AUDUSD

(Robert Howard is a Reuters market analyst. The views expressed are his own)

• AUD/USD +0.3% mtd, post-Jun rally extending as RBA hike anticipation builds

• Strong commodity prices and hawkish RBA rhetoric remain key AUD drivers

• Brent crude +1.8% Wed in Asia as U.S.-Iran war broadens and escalates

• Focus shifting toward U.S. Aug PPI due Thur, and CPI Fri (poll +0.4% m/m)

• AUD targets 0.72825 50-month high, break above will amplify upside potential

• Range Asia 0.7218-265 support 0.7122 0.6920, resistance 0.7277-82 0.7661
AUD Daily 21/55/100-DMA

(James Connell is a Reuters market analyst. The views expressed are his own.)

• GBP/USD inches higher in Asia but resistance at 1.3550-60 likely to cap

• Escalation in U.S.-Iran conflict, higher oil prices constrain upside

• U.S. PPI Thu, CPI Fri key; will determine whether Fed hikes rates on Sep 16

• UK has busy Fri too; July GDP, industrial & manufacturing output, trade due

• Next week brings July employment, Aug inflation, BoE rate decision Sep 17

• BoE to hold rates, show patience with war-driven inflation: Reuters poll

• More resistance at 1.3575, 1.3600; support 1.3520, 1.3500, 1.3470-75

• Tuesday range 1.3522-1.3561, Asia 1.3541-1.3548
GBP:

(Krishna Kumar is a Reuters market analyst. The views expressed are his own.)

• AUD/USD +0.1% Wed, oil prices surging as U.S.-Iran war broadens & escalates

• Futures pricing now implies 72.9% probability RBA will hike 25 bps in Sep

• RBA's Hauser says board will debate Sep hike amidst inflation concern

• Focus will shift to U.S. Aug PPI due Thur, and CPI Fri (poll +0.4% m/m)

• AUD targets 0.72825 50-month high, break above will boost topside potential

• Range Asia 0.7218-26 support 0.7122 0.6920, resistance 0.7277-82 0.7661
AUD Daily 21/100/200-DMA

(James Connell is a Reuters market analyst. The views expressed are his own.)

• Australian gold stocks fall as much as 2.6%, their biggest intraday pct loss since September 2

• Bullion prices fell on Tuesday amid rising inflation concerns and expectations of a rate hike by U.S. Federal Reserve this month [GOL/]

• Major producers Evolution Mining and Northern Star Resources trade ex-dividend; stock down 3.7% and 3.1%, respectively

• Shares of Westgold Resources fall over 6%, becoming one of worst performers in the benchmark index

• Sub-index up ~1.4% YTD, including the session's moves

(Reporting by Anjali Singh in Bengaluru)

• USD/JPY seeing only dead-cat bounces in recent downturn, bias still down

• Some bounce yesterday to from 152.89 low to 154.43 but off again since

• Asia so far 153.93 to 153.36 EBS, Japanese exporter sales again tipped

• Other players may have joined too with market still seen net long

• Talk by some players near-term specs trading from short side, net short

• That said, USD shorts recently profitable, no need to change sell-rally tack

• Good resistance at descending hourly Ichimoku cloud, now 154.63-155.27

• Bounce yesterday well short of this cloud, tenkan now 153.86, kijun 153.66

• USD/JPY seeing no large nearby option expiries today, only 154.20 $450 mln

• JGB-US Treasury 2-yr rate differentials narrow @253 bps, 10s wider @190 bps

• Seems yen now less attentive to Middle East news, crude oil price moves

• Japan Inc still dependent on Middle East oil but plenty near-term reserves

• Related comments , , ,

• And , ,

• US markets , , ,

• On Middle East , for more click on [FXBUZ]

USD/JPY daily:


USD/JPY hourly:

(Haruya Ida is a Reuters market analyst. The views expressed are his own)

• NZD/USD -0.5% from Tue 0.58835 high; Iran-backed Houthis attack Saudi cities

• Brent crude +2.5% to $99.39 a barrel as U.S.-Iran hostilities continue

• RBNZ Assistant Governor Silk speaks Wed, followed by Governor Breman on Thur

• AUD/NZD hits 13-year 1.2352 high on RBA hike anticipation, weighs on NZD

• NZD targeting 0.5762 support, may encounter some buyers near 0.5831 55-DMA

• Aug U.S. inflation data looms large, PPI due Wed followed by CPI on Thur

• Range NZ 0.58526-595, support 0.5762 0.5627, resistance 0.5995 0.6012
NZD Daily 21/55/100-DMA

(James Connell is a Reuters market analyst. The views expressed are his own.)

• AUD/USD +0.15% Wed after hitting 0.7231 in NY, highest traded since May

• Pair retains strong upside bias, 0.72825 50-month high the short-term target

• RBA Deputy Governor Hauser worried on inflation, board will debate Sep hike

• Futures pricing now implies 71.9% probability RBA will hike 25 bps in Sep

• Iran-backed Houthis strike Saudi cities; U.S.-Iran hostilities continue

• Markets wary U.S. Aug inflation data, PPI due Thur, CPI Fri (poll +0.4% m/m)

• Overnight range 0.7205-31 support 0.6920 0.6866, resistance 0.7277-82 0.7661
AUD Daily 21/55/100-DMA

(James Connell is a Reuters market analyst. The views expressed are his own.)

Danske Research previews the US August CPI report due on Friday.

"Friday’s August CPI print will have potentially large market implications. We forecast headline inflation at 0.4% m/m SA, or 3.4% y/y, up from 3.3%, as higher oil prices lifted retail gasoline prices," Danske notes.

'The Fed will focus more on whether underlying inflation continues to trend lower. We expect core inflation at 0.2% m/m SA, or 2.4% y/y, down from 2.5% and in line with consensus. Our forecast includes a small uptick in ‘supercore’ services inflation momentum, which has remained near its pre-pandemic average over recent months. However, for the Fed, an upside surprise in broader services inflation beyond our forecast would be difficult to disregard as just a one-off. Also watch Thursday’s August PPI, which is unusually released before CP, and could therefore carry more market weight than usual," Danske adda.

The euro firmed against most of its peers on Tuesday as short positions were trimmed ahead of Thursday's expected rate hike by the European Central Bank and U.S inflation data later this week.

In geopolitics, oil rose amid concerns about explosions near Iran facilities, while worries over Houthi attacks on Saudi cities subsided. Separately, the Trump administration announced additional Iran-related sanctions.

Bank of England Governor Andrew Bailey pushed back on expectations of inevitable rate hikes, while BOE Deputy Governor Dave Ramsden said inflation pressures appear relatively benign.

NY Fed survey showed U.S. inflation expectations were little changed in August, despite rising concerns over jobs and household finances.

DXY remained capped below its 200-day moving average at 99.14, with quarterly-roll activity boosting futures volumes.

The Canadian dollar outperformed its G10 peers, supported by fresh multi-decade highs in commodity indices despite Canada's retaliatory tariffs on U.S. goods taking effect.

EUR/USD edged up amid weakness in U.S. equites and a firmer CNH, but a doji below a nearby 200-DMA at 1.1634 keeps the near-term outlook slightly bearish, unless a rising 21-DMA at 1.1612 supports.

GBP/USD was steady within a 1.3523-1.3562 range, with a neutral near-term outlook below its 21-DMA of 1.3555 ahead of next week's Bank of England meeting.

AUD/USD climbed amid stronger metals and a stronger CNH, but a daily doji signals near-term indecision, with support at 0.7205-0.7220 and broader outlook remaining constructive.

USD/JPY rebounded to 154.43 on short-covering and stronger commodities, with scope to test 154.97 and 155.00 ahead of U.S. CPI, while support lies 153.31 100-WMA ahead of 152.10.

Treasury yields were up about 2 basis points, leaving the 2s-10s curve steady at +40.6bp.

The S&P 500 slipped 0.43%.

WTI oil rose 2.3% to a three-month high.

Gold fell 0.81% and copper gained 1.8%

Heading toward the close: EUR/USD +0.03%, USD/JPY -0.28%, GBP/USD +0.05%, AUD/USD +0.03%, DXY -0.35%, EUR/JPY -0.28%, GBP/JPY -0.29%, AUD/JPY -0.25%.(Editing by Burton Frierson Robert Fullem is a Reuters market analyst. The views expressed are his own)

• NY opened near 1.1615 after the pair fell to 1.1608 overnight

• Rally ensued as USD, US yields moved downward

• Upward moves in gold, silver & USD/CNH's drop helped lift EUR/USD

• 1.1634 traded but the pair neared 1.1625 late, was up +0.02% late

• Firmer USD, yields & drop in equities helped push EUR/USD downward

• A daily doji formed and EUR/UDS held below the 200-DMA

• EUR/USD rallied back above the 10- & 21-DMAs which comforted bulls
eurusd

(Christopher Romano is a Reuters market analyst. The views expressed are his own)

ANZ Research previews this week's ECB September policy decision.

"The ECB meets this week for its policy decision, alongside updated staff forecasts. A 25bp rate hike is fully priced, with recent ECB comments suggesting this week’s decision is largely a done deal. ECB member, Gabriel Makhlouf, noted in a 2 September interview that the decision “will not be a surprise”, so we do not expect the rate decision itself to be a major catalyst for the EUR. The focus will instead be on the ECB’s assessment of the inflation outlook and guidance on the policy path beyond September," ANZ notes.

"Against this backdrop, if the ECB maintains a neutral, datadependent tone and refrains from materially upgrading its inflation outlook, markets may scale back some of the additional tightening currently priced beyond September. This could create tactical downside pressure on the EUR in the near term. Overall, we remain constructive on EUR/USD and would view any ECB-induced weakness as an opportunity to add long positions," ANZ adds.

• NY opened near 0.7210 after 0.7205 traded overnight, pair rallied early NY

• Softer US yields , lifts in gold, silver, copper buoyed the pair

• USD/CNH drop toward 6.7060 also contributed to the pair's early lift

• A 4-month high of 0.7231 traded but the pair fell from its high

• Yields, USD firmed while gold, silver, copper traded softer

• AUD/USD neared 0.7220 late, it traded close to flat on the session

• A daily doji formed which suggests investors are a bit indecisive

• Monthly bull hammer, rising monthly RSI are bullish signals however
audusd

(Christopher Romano is a Reuters market analyst. The views expressed are his own)

Credit Agricole CIB Research previews the US August CPI report due on Friday.

"We expect US headline CPI to come out at 3.39% YoY in August, almost unchanged from the 3.36% YoY recorded in July. Our take is in line with the Bloomberg average consensus and what the market prices in (also 3.39%)," CACIB notes.

"We expect core at 0.24% MoM SA, marginally stronger than the 0.22% recorded in July. Our take is 2bp above the 0.22% MoM SA Bloomberg average consensus...The 3M ma annualised core would come out at 1.73% in August, following 1.63% in July and 2.27% in June, but we emphasise that this level is currently abnormally low because of the -0.02% MoM recorded in June," CACIB adds.

USD/JPY's slide from last week's highs near 160.00 showed no signs of abating on Tuesday, breaching 154.00 in Asian trade and extending losses to 152.89.

It's the options market telling the real story, however: Since the September 2-3 breakdown, demand for volatility and downside protection has been relentless, with 150.00 strikes actively sought. One-month implied volatility surged through the late-July intervention high of 10.5, trading as high as 11.4 in Asia — the highest in over a year — while even 1-year expiry vol is participating in the repricing. The skew tells the same story: 1-month 25-delta risk reversals jumped from 1.75 to 2.75, just shy of July's 3.0 peak, while the 3-month tenor has actually eclipsed that high at 2.0, its richest since May 2025. USD/JPY traded volumes are running at double the year-to-date norm, with downside protection demand more than double that at any point since January 2024 — a market caught offside by the scale of the move.

EUR/USD remains the polar opposite, sleepwalking through event risk with implied volatility remaining close to long-term lows. Large option expiries clustered around 1.1600 are helping pin the pair in its recent range, reinforcing the lack of movement even with the ECB and U.S. CPI both due this week.

That lack of conviction runs across G10 FX. Implied vol remains stuck at multi-year lows in almost every major pair bar JPY, and realised vol is often lower still — genuine calm, not mispricing. Positioning reflects the same story: Outright flows are thin, and demand for low-delta, tail-risk strikes has dried up. Risk reversals reinforce it — EUR/USD's 1-month 25-delta briefly reached 0.45 in favour of downside strikes through late August/early September but has already faded back to 0.2, while GBP/USD's equivalent eased from a 0.6 peak to 0.45. Both flirted with a USD-bullish skew and are already unwinding it.

The clearest expression of this malaise is EUR/GBP, where implied volatility is trading at record lows — 3.0 for 1-month, 3.6 for 3-month, 4.75 for 1-year. If options are the market's best guess at future movement, EUR/GBP is currently pricing in very little.

Together, it's a market split in two: JPY in the grip of a genuine, broadening repricing, and the rest of G10 stuck in a holding pattern, aware of the geopolitical and macroeconomic risks but unwilling to commit to a direction just yet.
EUR/USD 25 delta risk reversals-


Benchmark 1-month expiry FXO implied volatility


EUR/USD FXO strike expiries Sept 8-11

(Richard Pace is a Reuters market analyst. The views expressed are his own)

JP Morgan sees USDJPY a sell on rallies into the 1555 zone in the near-term.

"We retain decent length in JPY here but reduced a touch this morning given the distance we have come and the fact we have grazed the 152 handle which caused  so much disappointment back in Q1, would expect rallies back to 155.00/20 to be sold going forward," JPM notes.

"Risk-event- wise the BoJ could be tricky with so much priced in but we think the Fed could add fuel to the fire; 15bp priced is too much in my opinion given Williams and Waller (and Trump!) comments, roll on CPI. As mentioned, 152.10/25 is a sharp double bottom from Q1, through the big big figure of 150 the next target for me is 145.50/00," JPM adds.