• President Trump says US is ready for more strikes on Iran  
• Bank of Canada turns hawkish as higher oil prices lift inflation risks
• US 10-year Treasury yield hits highest level since November 2023
• JPY hits one-week high against US dollar on intervention speculation

USD posted a fresh cycle high in the European session at 99.86 before selling just before the US open in USD/JPY saw the greenback close lower on the day. There was speculation about a rate check in the major, which often precedes intervention. See below for more. Treasury yields made fresh cycle highs too before pulling back, with the 10-year trading just above the January 2025 top at 4.8%. That is the next major resistance ahead of 5%. The Dollar Index ultimately printed a doji as Bessent interventionism battled with the bearish dollar debasement theme and the Fed hike story. The influential Fed’s Waller speaks today, who is likely to support a September rate rise.

EUR tapped the 100-day SMA at 1.1566 before modestly paring losses. Higher gas prices tally with hawkish ECB rate hike expectations, with officials also backing rate moves. There’s around 80bps of tightening priced in by next summer. The latest bounce in oil prices has also sparked concerns about the euro area’s terms of trade as a major energy importer.    

GBP underperformed as sentiment is wobbling and getting increasingly nervous ahead of the Autumn Budget. Fiscal headroom is disappearing before the new PM and the Chancellor’s eyes. Cable has bearish momentum which targets the 50-, 100- and 200-day SMAs around 1.3438/40.

JPY outperformed strongly on the sharp move ahead of the US open. Comments from BoJ officials including Governor Ueda reinforced market expectations for the BoJ to hike rates again later this month. A 25bps rate hike at its 18^th September policy meeting is now fully priced in. See more below.

CAD strengthened following the BoC meeting, which left rates unchanged but placed greater emphasis on its inflation mandate amid rising upside risks. Interestingly, Governor Macklem acknowledged the bluntness of monetary policy in addressing the impact of US-Canada tariffs. USD/CAD fell back to the 200-day SMA at 1.3838.

NZD fell sharply after the RBNZ raised rates as expected by 25bps to 2.75%. But as we highlighted yesterday, the bank failed to match hawkish market pricing of more policy tightening into next year. A more gradual path of rate hikes (one versus more than two) along with downside risks to the economy saw the kiwi plunge to 0.5802 before retracing some losses on dollar softness.

US stocks: The S&P 500 added 0.48% to close at 7,668. The Nasdaq closed up 0.23% at 29,143. The Dow Jones settled higher by 0.56% at 5`3,062. All sectors except for Real Estate were in the green with Materials, Communication Services, Healthcare and Financials the leading performers. Dell surged 15.8% after posting $47 billion in revenue as AI server demand boomed. It also raised full-year guidance and is now back near record highs. Broadcom fell 3% after the close as it forecast quarterly revenue below estimates, signalling intense competition could hamper gains from ​its custom processors.

Asian Stocks: Futures are mostly green. APAC stocks traded lower again with eyes on rising bond yields and oil prices. The ASX 200 sold off on mining and materials weakness with better GDP data looked through. The Nikkei 225 slid as tech succumbed to selling, though focus was also on hawkish BoJ comments and potentially more incoming rate hikes. The Hang Seng and Shanghai Comp saw auto weakness amid subdued sentiment.

Gold posted a fresh cycle low at $4,282 in the Asian session before buyers stepped in. The recent sell-off follows a strong August rally, with gold gaining nearly 10% and recording its biggest monthly increase since January. But central bank buying, uncertainty about rate hikes and safe haven demand should underpin support for bullion.

Chart of the Day – USD/JPY taps 200-day SMA

USD/JPY saw sharp selling falling form a high of 160.39 to an intraday low at 158.20 with intervention speculation high. Bank of Japan hawk, Takata implied that the BoJ could hike 50bp in two weeks or even deliver back-to-back rises, meaning a further hike in October. Takata has been in the minority as one of the three hawks on the BoJ policy board so his comments are not surprising. However, a BoJ hike in September would already represent a quickening in the pace of hikes after the tightening in June. Recently, the hawkish Fed has supported more upside in the major, though lingering uncertainty over Treasury intervention means the gains are not as strong as could have been. Treasury Secretary Bessent will not be happy with the hawkish Fed working against the yen buying operation, but he will no doubt appreciate the benefits of Fed independence here.

Technically, we have consistently highlighted the upward trendline from the April 2025 low at 139.88. After plunging from 164 on joint Japan and US intervention below this trendline, prices have repeatedly failed to break above this marker, which also now coincides with the 100-day SMA at 159.98. Yesterday’s sell-off dropped to the 200-day SMA and a long-term minor Fib level around 158.43. If we lose this support, then the spike low after intervention sits at 155.22 with the next retracement level at 154.77.