FX OVERVIEW
The dominant theme is a renewed hawkish Federal Reserve repricing, led by Jackson Hole rhetoric that lifted September hike odds to 57% and reinforced a higher-for-longer USD outlook. That dollar strength is uneven: policy divergence is driving NZD and KRW outperformance, while EUR and GBP remain under pressure as their central banks appear closer to the end of their tightening cycles.
MAJOR PAIRS
EURUSD — EURUSD fell to 1.1595 after the Fed’s hawkish Jackson Hole signal pushed September hike odds to 57% and December pricing above 70%. The pair broke 1.1640 and 1.1624, remains below major moving averages, and trades in a descending channel; the bearish bias targets 1.1585 and 1.1565, although RSI near 24 leaves scope for a corrective bounce.
GBPUSD — Sterling remains under pressure as markets price only 24.7 bps of BoE tightening by December, effectively removing a 2025 hike from the curve. The break below channel support and the 50- and 100-period EMAs leaves 1.3565 as the key floor, with a break exposing 1.3526 and 1.3481; the main upside risk is the 62.5% surge in UK natural gas prices, which could force a more hawkish BoE response.
AUDUSD — AUDUSD is holding near 0.7200 and remains above its 50- and 200-period EMAs, showing relative resilience despite volatile USD trading around Jackson Hole. The near-term bias is cautiously bullish: pullbacks toward 0.7175 or 0.7150 are viewed as long-entry zones, while a sustained break at least 20 pips above 0.7200 would confirm further upside.
NZDUSD — NZDUSD rallied to around 0.5960 as markets assigned a 90% probability to a 25 bp RBNZ hike in September and priced the OCR above 3.0% by December. Momentum remains constructive above the 20-day and 100-day SMAs; a close above 0.5990 would open the next upside leg, with support at 0.5910 and 0.5845.
USDKRW — USDKRW remains biased lower as consecutive 25 bp BoK hikes, strong semiconductor exports, and a projected $450 billion current-account surplus support the won. The immediate outlook is more range-bound after the sharp rally: 1,360–1,400 is the expected trading range, with 1,350 the key psychological threshold and stronger inflation or a hawkish BoK signal capable of driving a test of that level.
CENTRAL BANK WATCH
- Federal Reserve: Jackson Hole commentary from Fed Chair Kevin Warsh emphasized price stability and argued that financial conditions remain insufficiently restrictive. Officials Beth Hammack and Jeffrey Schmid also described inflation as sticky, reinforcing the higher-for-longer Fed narrative.
- ECB: Isabel Schnabel, Martins Kazaks, and Radev supported the possibility of a September hike toward 2.50%, citing persistent inflation in France and Spain and renewed energy-price risks. The ECB signal is hawkish, but markets view its tightening cycle as closer to completion than the Fed’s.
- RBNZ: Markets expect a 25 bp September hike to 2.75%, with two-thirds of economists forecasting at least one further increase by December. This represents a clear hawkish pivot and has driven a sharp reduction in short-NZD positioning.
- BoK: The policy rate has reached 3.0% after back-to-back 25 bp hikes. The bank may pause in October and November, but resilient growth, rising inflation, and semiconductor exports keep the risk of a further move toward 3.25% alive.
- BoE: Markets have materially reduced expected tightening, with only 24.7 bps of hikes priced by December. The BoE’s cautious stance is vulnerable to reversal if the energy shock produces a renewed inflation impulse.
MACRO DRIVERS
- US rate repricing: The Fed’s hawkish communication has lifted front-end US rate expectations and strengthened the dollar against currencies with less credible tightening paths.
- Policy divergence: The RBNZ and BoK are tightening into resilient domestic and export conditions, supporting NZD and KRW even as the Fed remains hawkish.
- Energy and geopolitical risk: The closure of the Strait of Hormuz has cut Middle Eastern VLGC shipments by 46% year on year and redirected flows toward the US, India, and China. Persistent disruption raises freight and energy costs, reinforcing inflation risks across Europe and the UK.
- Risk and positioning: Short-NZD positions have been sharply reduced, supporting the kiwi, while oversold EURUSD conditions increase the risk of a tactical rebound without changing the broader USD-positive trend.
POSITIONING IDEAS
Bullish
- Long NZDUSD: The RBNZ’s likely September hike, expectations for an OCR above 3.0% by December, and the reversal of short-NZD positioning support a continuation toward and through 0.5990.
- Long AUDUSD: Buy pullbacks toward 0.7175–0.7150 while the pair holds above its 50- and 200-period EMAs; a confirmed break above 0.7200 strengthens the bullish setup.
- Long KRW / short USDKRW: Strong semiconductor exports, tightening BoK policy, and rising inflation support a move toward 1,360 and potentially the 1,350 threshold, though the trade is more tactical within the 1,360–1,400 range.
Bearish
- Short EURUSD: The Fed’s renewed tightening repricing dominates the ECB’s hawkish signals. A sustained break below 1.1624 keeps 1.1585 and 1.1565 in focus.
- Short GBPUSD: The BoE’s diminished tightening profile and deteriorating technical structure favor a move below 1.3565, with 1.3526 and 1.3481 as downside targets. The principal stop-risk is a renewed UK gas-driven inflation shock.