The U.S. dollar fell on Friday, August 21, poised to close the week lower as investors grew concerned that the U.S. Treasury’s efforts to calm bond markets could signal weak conviction in the greenback.

Today, the U.S. Dollar Index (DXY), which measures the U.S. currency against a basket of six of its peers, dropped roughly 0.25% to 98.64 which is its lowest level in the last three months.

The currency sell-off escalated after Treasury Secretary Scott Bessent announced a sudden policy shift to double the department’s liquidity-support buybacks of long-term government debt from $2 billion to $4 billion per operation, which could be ramped up further if necessary.

Financial Repression vs. Currency Value

The Treasury’s aggressive tactic initially aimed to provide relief to a battered fixed-income market after the 30-year Treasury yield hit a 19-year high of 5.31%. However, the relief proved short-lived; yields quickly rebounded back toward 5.26% as fading market confidence and deep fiscal deficits overrode the government’s intervention.

Consequently, capping yields to suppress mounting government borrowing costs has stripped the dollar of its critical interest-rate advantage. Jonas Goltermann, Chief Markets Economist at Capital Economics, warned that a “hint of financial repression” and “more unconventional policy is unhelpful, concerning the dollar. He also added that our coming months’ forecast signals a weak conviction for dollar rebound, according to a report from Reuters.

Deficit Fears Outweigh Safe-Haven Bids

The currency’s devaluation takes place amid an uncertain geopolitical environment. The risk of continuing conflict in the Middle East keeps global energy prices high and further obscures the medium-term inflation forecast.

Geopolitical supply shocks usually trigger safe-haven inflows into the dollar, but investors are less inclined to buy because of the high fiscal deficits and the long-term sustainability of U.S. national debt.

High-Stakes Setup for Jackson Hole

The Treasury’s market intervention sets up a tense environment for the Federal Reserve’s upcoming Jackson Hole symposium. Investors are awaiting for a key address from Fed Chair Kevin Warsh.

Economists caution that the Treasury’s liquidity measures could stoke persistent inflation, potentially forcing the Fed to prolong its hawkish monetary stance. Consequently, Chair Kevin Warsh’s upcoming address will be heavily scrutinized for any indications of how the central bank plans to safeguard its inflation-fighting credibility amid intensifying friction between fiscal intervention and monetary policy.

Yen Gains After Japan’s Core Inflation Accelerates 

The Japanese yen gained 0.18% to 158.74 against the U.S. dollar on Friday after July data showed accelerating core consumer inflation, bolstering expectations for a Bank of Japan (BOJ) interest rate hike.

“The yen is certainly salvageable, but it’s not a one-way train,” said Roosevelt Bowman, senior investment strategist at Bernstein Private Wealth. “If the BOJ policy were seen as more symmetric—with the central bank pushing against any inflationary pressures—it would help the yen.”

While last month’s joint intervention by U.S. and Japanese authorities halted the currency’s slide, analysts stress that intervention alone cannot sustain long-term strength without monetary tightening.

Markets are now focused on the BOJ’s next policy meeting on September 17–18 for signals on further rate hikes.

USD/JPY Wobbles In a Narrow Range Before Next Breakout

Over the past two weeks, the USD/JPY pair has been wavering between the 100-and-200-day exponential moving averages (EMAs), marking a range from 157.7 to 159.72. The sideways action reflects broader market uncertainty amid geopolitical tension and U.S and Japan’s monetary policy.

The momentum indicator RSI at 42 highlights the current bearish momentum in this pair, signaling a potential challenge to the 200-day EMA. If the Japanese yen continues to hold its strength against the dollar, the currency pair could break below the 157.7 floor and extend its correction to 155.2.

Conversely, if the U.S. dollar manages to rebound and push the USD/JPY exchange rate above the 159.72 barrier, the pair could surge to the 161.23 ceiling.

The Canadian dollar (CAD) saw a sharp gain against the US dollar on Thursday, August 20th, as its pair dropped 0.29% to 1.376 during the day. The biggest driver of the loonie’s power was geopolitical relief, as U.S. President Donald Trump postponed 50% tariffs on $20 billion of Canadian goods for a short term of three days to negotiate a deal. Moreover, the higher global oil prices, hotter Canadian inflation, and the general waning strength of the greenback provide further assistance for CAD.

The U.S. Dollar Index (DXY), tracking the dollar against six key currencies, was down 0.03% at 98.80 at press time.

Trump Pauses 50% Canada Tariffs For Three Days

In the last 48-hours, the USD/CAD recorded a sudden drop from 1.389 to 1.376, following a temporary relief from Trump’s 50% tariffs on $20 billion of Canadian goods. According to the earlier arrangement, both nations were expected to reach a suitable trade agreement before the deadline of August 20th(today).

However, just hours before the deadline, Donald Trump shared a post on Truth Social, stating a three-day suspension of the scheduled 50% tariffs against Canada, declaring that the two nations have reached a preliminary agreement. 

“I have paused the 50% Tariffs against Canada that were scheduled to kick in tomorrow morning for a three-day period, based on the fact that Canada and the U.S.A., subject to the finalization of documents, have a DEAL!” Trump wrote.

Furthermore, on Wednesday afternoon on the South Lawn of white House, Donald Trump detailed his phone conversation with Canadian Prime Minister Mark Carney to reporters, saying that “we have come to deal with Canada” and the agreement was “very fair” to both sides.

He further claimed that Canada has agreed to end tariffs on U.S. agricultural products, stating, “The tariffs will be non-existent for our farmers. Our farmers were paying tremendous tariffs into Canada, and those tariffs are going to be totally eviscerated. Down to zero,” 

In an official statement released by the Prime Minister’s Office dated August 18, Carney revealed that the brief postponement follows “intensive discussions” aimed at resolving deep-seated trade frictions and bringing economic certainty to Canadian businesses and agricultural sectors.

“Substantial progress has been made, although there is important work still to be done,” Carney stated. “As this work is ongoing, the United States has agreed to postpone the implementation of its 50% tariff.”

The details of the trade agreement are not public yet, but if the official documentation is not finalized, the next deadline for aggressive tariffs on Canadian imports is currently postponed to Saturday. The elimination of this large trade headwind resulted in a significant short-covering rally for the Canadian dollar.

Global Oil Price Soaring Again

The loonie is a major commodity currency and thus directly benefited from the rally in energy markets. Crude oil for West Texas Intermediate (WTI) trades about 3.5% higher at $87.34 per barrel, while Brent crude oil rises by approximately 3% to $94.22 per barrel.

Stalled U.S.-Iran diplomacy and escalating tensions in the Strait of Hormuz continue to prop up global crude prices. This geopolitical tension is a strong macroeconomic tailwind for the energy exporters in Canada and is weighing on USD/CAD.

USD/CAD Technical Analysis: Key Support Under Pressure

The USD/CAD pair is testing critical support at 1.376 following an intraday decline. Bearish momentum is building on the daily chart, amplified by an impending death cross between the 20-day and 100-day exponential moving averages (EMAs).

The daily relative strength index (RSI) at 24 highlights a bearish narrative among forex speculators for this pair, reinforcing a continued downtrend in the near term. If the breakdown materializes, the USD/CAD pair could plunge to the 1.370 floor.

On Wednesday, August 19th, the South Korean Won (KRW) witnessed a sudden spike against the US dollar, breaking a key psychological level of 1,400. By press time, the USD/KRW was down roughly 1.52%, hitting an intraday low of 1,388.18—its lowest level since September 2025.

While the South Korean Won has been projecting significant strength against the greenback since early July 2026 amid large-scale, automated dollar-selling programs executed by Seoul-based custodian banks on behalf of foreign institutional investors.

These automated sales coincided with a rapid increase in South Korea’s export economy amid demand for artificial intelligence infrastructure and High-Bandwidth Memory (HBM) chips amid a wave of corporate cash repatriation.

The Custodian Bank Pipeline & Corporate Repatriation

Wednesday’s dramatic move was driven by heavy dollar liquidation by major local custodian banks. These banks have been selling massive blocks of U.S. dollars on a systematic basis to pay for foreign buying of local tech stocks, institutional desks said.

Much of this automatic sale is directly linked to the structural cash pipelines of South Korea’s biggest semiconductor firms. Recently, tech major SK Hynix launched a massive American Depository Receipt (ADR) fundraising marathon in New York, raising billions of dollars from foreign investments. The company has been systematically repatriating these USD proceeds to local currency in order to invest in its domestic manufacturing infrastructure, comprising a newly fast-tracked USD 54 trillion investment in its Yongin and Cheongju production bases. 

Moreover, the local supply of dollars has been significantly increased by the expansion in exporters’ dollar sales in advance of corporate tax prepayments, creating a localized dollar glut that drove the USD/KRW rate down very quickly.

Concurrently, SK Hynix’s recent announcement of a historic 40 trillion won ($29 billion) share buyback further supercharged institutional demand for the currency.

Fundamental Strength: The AI Chip Trade Wind

In addition to local banking flows, the won’s strength stems from a stellar macro re-rating for South Korea’s export economy. Soaring global demand for AI infrastructure and High-Bandwidth Memory (HBM) chips has propelled South Korea’s current account surplus to record highs. As local think tanks repeatedly raise their annual surplus forecasts, this surging trade strength provides solid macroeconomic backing for investors bullish on the South Korean Won.

According to a recent report from Korea JoongAng Daily, the state-run Korea Development Institute (KDI) raised its 2026 growth forecast to 3.2% from 2.5% on Wednesday.

The 0.7% jump is predominantly fueled by the semiconductor industry as the world grapples with a massive demand for AI infrastructure.

“More than half of this year’s 3.2 percent growth can be seen as semiconductor-related,” said Kim Mee-roo, senior director of KDI’s Department of Macroeconomic and Financial Policies.

KPI also expects an 8.7% export growth this year, which is 4.1% above its May forecast, while equipment investment is projected to rise 7.9%, up 4.6% from the previous estimate.

Fading US Dollar Yield Advantage

Hawkish Fed expectations fell sharply after recent US economic data disappointed, driven by cooling CPI and PPI readings and a surprisingly steep decline in retail spending. Traders have begun to cut their expectations of a prolonged Fed hawkish stance, and 10-year USTs fell from their multi-month highs. This reduced the spread in yields between the dollar and emerging-market currencies, leading to a general shift of institutional capital from the US dollar to highly competitive Asian export currencies such as the won.

USD/KRW Pair Prepares Next Breakdown Amid EMA Crossover

Since early July, the USD/KRW pair has showcased a steady downtrend, pulling its exchange rate from 1,557 to 1,3888, registering a 10% decline. The increasing strength of the South Korean won has pulled this pair below key exponential moving averages of 20, 50, 100, and 200.

If current momentum persists, the USD/KRW pair would likely challenge the next chart support of 1,385. A recent bearish crossover between the 50- and 200-day moving averages should raise speculative selling pressure in the forex market and bolster the next breakdown.

If the pair flips this immediate support into resistance, the KRW could drop to 1,372 or 1,366 in the near term.

On the other hand, this volatility of the exchange rate may create instability because it directly affects the trade relations between the two countries.

On Tuesday, August 18, the USD/CAD showed a narrow spike of 0.01% to reach an exchange rate of 1.387. This resulted in a neutral candle formation in the pair’s daily timeframe chart, accentuating the increasing market uncertainty ahead of the US-Canada tariff deadline. In addition, Canada’s PPI and retail-sales data are scheduled for later this week, which could impact the Bank of Canada’s discussion on an interest rate hike. Exchange-rate movements in USD/CAD since the early part of July have shown sensitivity to these developments.

Bilateral Tariff Discussions

Canada and the United States are still negotiating to resolve trade disputes before the August 19 deadline. On July 20, the United States announced it would apply tariffs of 50% on approximately $20 billion of Canadian imports, but delayed implementation for 30 days so that negotiations could be carried out. The immediate sticking points include autos, steel, dairy, and other bilateral trade irritants, with talks still ongoing and renewed escalation remaining a clear near-term risk.

History shows that a negative conclusion to trade talks has tended to spark upward pressure on the currency pair. 

Economic Surprise Trends

Economic data performance has turned in favor of Canada relative to the United States. Citi’s Economic Surprise Indexes for the U.S. over the last two years have shown a more pronounced decline in positive surprises in the most recent month. Conversely, Canadian readings moved from deeply negative to strongly positive territory over the previous two months. Positive numbers on the spread indicate that Canadian data have been better than U.S. data versus expectations.

The divergence has helped cement expectations that the Bank of Canada will continue to hike rates by a further 25 basis points by the end of the year, despite core inflation staying close to target. On the other hand, the weak data from the United States has compelled a big dovish swing in Federal Reserve expectations. According to federal funds futures, implied Fed tightening for the remainder of the year has collapsed to just 21 basis points, down from over 43 basis points at the end of July.

Price Data and Policy Settings

Canada’s July consumer-price report showed a 0.5% monthly advance in the headline index, raising the annual rate to 3.0%—two-tenths higher than June and one-tenth above consensus estimates. The average of the Bank of Canada’s median and trimmed-mean core measures rose from 1.9% to 1.95%, staying close to the 2% target and marginally above the 1.85% market forecast. The Bank of Canada’s July projections forecast core inflation to remain at or near 2% through the end of 2028.

Scheduled Indicators

Canadian producer-price data is scheduled for release this Thursday, followed by retail-sales data on Friday. In the United States, the market focus is on the minutes of the July Federal Open Market Committee (FOMC) meeting. The minutes will reveal how broadly committee members agreed following a series of milder U.S. data points; notably, three regional Fed presidents voted for a rate increase at the meeting.

USD/CAD Pair Losses 200-day EMA slope

From an early July high of 1.423, the USD/CAD pair has dropped nearly 2.58% to hit the current exchange rate of 1.387. The 30-day negotiation period and Canada’s strong economic data likely strengthened its currency’s position against the dollar.

The technical chart shows that the current downswing in the USD/CAD pair has breached the 200-day exponential moving average. A previous breakdown below this moving average— if sustained— has bolstered further downside in this pair.

If history repeats and the trade deal with the U.S results in favour of Canada, the USD/CAD pair would further slide down to 1.376 or 1.37.

The Relative Strength Index dropped to 28, accentuating the aggressive downward pressure on this pair.

The Indian rupee is confined to a tight range, barely moving despite high crude oil prices and strong dollar demand. Having traded in a range of about 30 paise in the previous week, the currency moved in a range of around 10 paise on Monday, August 17, 2026, trading near 95.4775 per dollar.

Behind this calm is an increasingly visible presence of the Reserve Bank of India. State-run banks have been offering dollars at multiple price levels whenever the rupee comes under pressure, with traders saying that the RBI has sold dollars in every trading session since the previous Monday.

As a result, currency volatility has fallen sharply, to around 2% from more than 4% at the start of August, even as Brent crude remains close to $90 a barrel. This stability stands out because oil is one of the biggest external risks for India, a major crude importer, and higher prices usually increase demand for dollars to pay for imports.

At this point, for traders, the issue is not only whether the rupee moves, but also what ultimately drives it out of the RBI-supported band.

Oil Shock Could Put the Rupee Under Pressure

One obvious trigger is another oil shock. A continued rise in oil prices to levels substantially above $90 a barrel, especially in the event of a conflict in the Middle East that might threaten oil supplies through the Strait of Hormuz, may impose additional pressure on India’s import bill and its dollar requirements. This might force the RBI to act decisively on using its foreign exchange reserves.

The other thing to note here is that there has been a reversal in capital flows. The RBI’s special measures have attracted a large amount of foreign currency, helping offset pressure from importers and other dollar buyers. But the support from these measures could weaken once the special FCNR(B) window closes on August 31. The RBI brought forward the deadline after inflows through the scheme surged, with FCNR(B) deposits alone reaching $52.3 billion by August 13.

This does not mean that the deposits will suddenly leave India when the window shuts down. But markets will watch whether the end of fresh mobilization reduces the steady supply of dollars and later, how deposit rollovers and other foreign portfolio flows behave if global risk sentiment deteriorates.

A Stronger Dollar Could Test RBI’s Defense

Then the third trigger would be a broad-based surge in the U.S. dollar. If the dollar index is driven by improved fundamentals in the U.S. economy, rising yields on its Treasuries, and changes in expectations for Fed policy, then demand for dollars will dominate the factors that have been preventing the rupee from depreciating. This situation would be extremely challenging for the RBI to contain.

According to Axis Bank’s Tanay Dalal, “nimble management should continue,” and he believes the rupee will trade in the 94.50-96.00 range till September-end. A decisive breakout on either side of this range will be important, as it might indicate that the current tight management of the trading range will eventually give way to a broader market move.

The RBI has some ammunition. The moves the RBI took in June, involving concessional hedging and swap facilities to attract foreign funds to India, have yielded about $57 billion and helped push foreign exchange reserves past the $700 billion mark. Reserves stood at about $707 billion at the beginning of August.

This is precisely why the rupee can remain placid despite so many external pressures. However, it will not remove the pressures; it will only reduce volatility through the intervention. As it stands, bankers have already characterized the new system as a throwback to 2024, when, under former governor Shaktikanta Das, the RBI was regarded as highly active in the foreign exchange markets.

In any case, the focus of traders and corporations now would be on crude oil price levels, global risks, and the RBI’s next move. The rupee may be constrained for a few more weeks, but an adequate external shock may ultimately break the band.

The Yen is heading for its worst week since May, falling about 1% to 159.43 per Dollar and pushing USD/JPY back toward the level that drew Washington and Tokyo into the market at the end of July. 

The slide has erased roughly half the gains sparked by that intervention, which Japan’s Ministry of Finance confirmed as the first joint operation with the U.S. in 15 years, conducted on Friday, July 31, after the Yen hit a 40-year low of 163.99. 

The 160 level is therefore less a technical barrier than a political one. State Street has described it as a line in the sand, where a rapid move through the threshold could draw officials back into the market. For traders, the relevant question at 159 is no longer resistance but reaction function.

The current setup is somewhat asymmetric for bulls trading in the USD/JPY pair. A sustained break above 160 is likely to increase momentum and carry-trade demand, but the probability of verbal warnings or direct intervention will also be high. 

For Yen bears, the question is therefore no longer simply whether the Dollar can push higher, but how much upside remains before policymakers become an active market risk.

Soft U.S. Inflation Takes Some Heat Out of Dollar Bets

The latest U.S. inflation data has complicated the case for further Fed tightening. The Producer Price Index for final demand was unchanged month over month in July, below the +0.2% consensus, while core PPI rose 0.2% month over month and 4.2% year over year. 

On an annual basis, final demand prices cooled to 4.7%, down from 5.5% in June. The release followed Wednesday’s CPI report and pointed in the same direction, though June’s PPI decline was revised up to 0.1% from 0.3%, adding an asterisk to the otherwise soft print.

Headline CPI rose 0.1% in July, with the annual rate easing to 3.4% and core CPI up 0.2% on the month and 2.5% on the year, both annual readings down 0.1% point from June and all four figures in line with the Dow Jones consensus. 

Core inflation is now at a five-month low. Because nothing surprised, the repricing came from the trend rather than the level: July marked a second consecutive month of annual moderation, and the three- and six-month annualised core rates slipped to 1.6% and 2.4%, respectively.

CME FedWatch odds of a September hike sat near 55% before Wednesday’s CPI, fell to 42% after the release, and dropped to roughly 32% following Thursday’s PPI. The Dollar has barely responded: the Dollar Index is around 99.87, holding a nine-session band between 99.50 and 100.00. The repricing has capped the Dollar without breaking it, leaving the rate differential wide enough that softer U.S. data hasn’t lifted the Yen.

For USD/JPY traders, the important point is less the absolute inflation rate than the direction of policy bets. If incoming U.S. data continues to push down September hike expectations, the interest-rate differential underpinning the Dollar-Yen becomes less supportive. That leaves 160 looking increasingly difficult to clear cleanly without a fresh catalyst.

Hormuz Risk Keeps Asia FX Gains in Check

The Yen’s improvement is also unfolding against a difficult geopolitical backdrop. Tensions involving Iran and the Strait of Hormuz remain a source of volatility for energy markets, with crude oil prices on track for a roughly 4% weekly gain. 

That matters for Asia FX because a sustained oil rally can revive inflation concerns and complicate expectations for central-bank easing. It also limits how far regional currencies can benefit from a softer Dollar. Markets may be less inclined to chase broad gains in Asian FX while the risk of another oil price spike remains tied to developments in the Middle East.

For the Yen specifically, higher energy costs are an additional complication. Japan is heavily exposed to imported energy prices, meaning a prolonged oil rally can put pressure on its external balance even as expectations for tighter Bank of Japan policy provide some support to the currency.

Fed and BOJ Calendars Set the Next Test of 160

The next major policy event is the Bank of Japan’s September 17-18 monetary policy meeting. The Bank of Japan’s official 2026 schedule confirms those dates. With USD/JPY already near 160, traders will be watching closely for any language suggesting that currency weakness is becoming a greater policy concern, alongside the usual signals from Japanese officials on excessive or disorderly FX moves.

Before then, intervention headlines could become a market-moving catalyst in their own right. A move through 160 would put the pair directly back in the area where traders have recent experience of official action, making the level more than a technical milestone.

The other key variable is the next U.S. inflation print. Another soft reading could further unwind September Fed hike bets and give the Yen room to extend its roughly 1% weekly gain. Conversely, renewed inflationary pressure, especially if accompanied by higher oil prices, could bolster Dollar support and create immediate pressure on the 160 level.

For now, USD/JPY remains a contest between fading U.S. tightening expectations and a Yen approaching a level at which policymakers have already demonstrated a willingness to act.

On Thursday, August 13th, the major currencies of the foreign exchange market remained in a holding pattern as yesterday’s U.S. Consumer Price Index report fell within market expectations. The U.S. dollar, euro, British pound, New Zealand dollar, and Japanese yen continue to trade in a tight range as in-line inflation data has quelled near-term Federal Reserve rate-hike bets. Now the market’s focus shifts to the upcoming Producer Price Index (PPI) and U.S. Retail Sales Report.

Dollar and Peers Remain Range-Bound After In-Line Inflation Data

On August 12th, the U.S. Bureau of Labor Statistics (BLS) released the U.S. Consumer Price Index (CPI) report, showing headline consumer prices rose 0.1% in July 2026, bringing the annual inflation rate to 3.4%, down from June’s 3.5%, and in line with the consensus forecast.

Key Inflation Figures

• Headline CPI (Monthly): Increased by 0.1%.
• Headline CPI (Annual): Slowed to 3.4%.
• Core CPI (Monthly): Rose by 0.2% (excludes volatile food and energy).
• Core CPI (Annual): Maintained a steady pace at 2.5%, matching its slowest rate since March 2021.

This combination of cooling labor demand and contained inflationary pressures has dialed back market expectations for a Fed interest rate hike in September. As a result, the target rate probability for 16 September shows a 61.9% chance that the central bank ‌will leave rates unchanged, and a 38.1% chance of a 25-basis-point rate hike, according to the FedWatch Tool.

By press time, the U.S. Dollar Index (DXY) showed a slight drop of 0.13% to 99.88. The euro showed a 0.13% bounce to reach an exchange rate of 1.153, while the British Pound (GBP) showed no significant intraday change and settled around 1.34.

Furthermore, the Japanese Yen gained 0.13% and reached 159.3 per dollar. This uptick can be associated with the market’s expectation of an interest rate hike from the Bank of Japan (BOJ), potentially narrowing the stark yield difference with the U.S. Domestically, the upcoming cabinet and Liberal Democratic Party (LDP) executive reshuffle could notably influence the BOJ’s decision for a further interest rate hike. 

“It is hard to see a September hike on that basis. The hawks’ concerns will continue to develop, but a trigger is lacking against that mix for the moment,” Sam Hill, head of market insights at Lloyds Bank.

“It is still pretty hard to make a compelling case that there is enough slack in the economy, though, nor outline a case that policy is sufficiently restrictive across the economy. It is hard to identify capacity that could create renewed disinflation.”

Renewed efforts to revive a Persian Gulf transit agreement have stalled once again amid political deadlock. Washington claims Tehran has failed to meet maritime safety requirements, while Iran continues to demand the release of its frozen assets. As a result, the oil price remains elevated globally, with the Brent crude oil price wavering at $87.2848.

The Upcoming U.S. Economic Reports & Their Market Impact

The upcoming U.S. Producer Price Index (PPI) and Retail Sales reports are critical gauges for the Federal Reserve’s next interest rate decisions. The wholesale inflation report (PPI) drops today at 6:00 PM IST (8:30 AM ET), with economists forecasting a moderate 0.2% monthly increase. Tomorrow, August 14, 2026, at the same time, the Retail Sales report is expected to show a slim 0.1% growth, reflecting a highly cautious but resilient American consumer.

If these metrics surprise Wall Street and come in much higher than expected, it will signal that supply chain costs are rebounding, and consumer demand is still hot enough to fuel inflation. This scenario would encourage the Federal Reserve to implement further interest rate hikes to aggressively cool down the economy.

On the other hand, if the data aligns with the consensus—or drops further—the Fed will be cleared to maintain rates steady, triggering a relief rally in global stock and crypto markets as inflationary pressures sustainably fade.

The U.S. Dollar showed a slight uptick on Wednesday, August 12th, as market participants are eagerly waiting for the U.S Consumer Price Index (CPI) report for July. The Bureau of Labor Statistics would release the report today at 8:30 a.m. ET, which is actively tracked by investors to gauge the Federal Reserve’s next interest rate. The renewed uncertainty across the Middle East has raised the global oil price again, subsequently strengthening the dollar as it is a net oil producer, while Asian and European nations are net energy importers.

Dollar Gains Ground Against Major Currencies Ahead of CPI Print

The U.S. Dollar Index (DXY) witnessed a 0.1% increase on Wednesday to reach 99.89. Furthermore, the Japanese yen slips to 158.5 per dollar, despite the recent coordinated joint intervention between U.S. and Japanese government bodies to support the local currency.

The British Pound (GBP) holds steady at 1.3535 against the U.S. Dollar. Meanwhile, NZD bounced from an intraday low of 0.585 to the current exchange rate of 0.5884 against the dollar, a possible trigger of political risk premium, as New Zealand Prime Minister Christopher Luxon won a confidence vote of ruling party lawmakers on Wednesday.

Last week’s weaker-than-expected jobs report and a press conference by Fed Chair Kevin Warsh last month suggested a slowdown in economic growth, thus offering no clear signals for the Fed’s upcoming rate decision.

Today, the main focus of the market is the U.S. inflation data, which could signal the possible interest rate decision from the Federal Reserve after its next policy meeting on September 16.

“There is a path ahead for easing in inflation ​as we progress through the remainder of 2026,” assuming oil prices remain contained and the Strait of Hormuz reopens, ING analysts wrote. “In fact, the ⁠market is already discounting a mild inflation landing.”

According to consensus estimates, economists expect the data to show a slight cooling in annual inflation despite recent geopolitical supply shocks. The headline CPI (Year-over-Year) is expected to slow to 3.4%, down slightly from 3.5% in June, while the Core CPI YOY is forecasted to edge down to 2.5% (from 2.6% in June), marking its lowest level since January.

However, market participants’ views remain split on the Fed’s next move. Fed funds futures imply a 52% chance that the central bank ‌will leave rates unchanged, against a 48.1% chance that they may decide on a 25-basis-point rate hike, according to the Fed watch tool.

Scenario 1: Cooler-Than-Expected CPI (Dovish Outcomes): If headline CPI falls below 3.4% and core CPI prints below 2.5%— meeting the market’s expectations— it would confirm that inflation is cooling faster than expected. This reduces the need for the Fed to keep monetary policy restrictive and all but eliminates expectations for a September rate hike. This decision could weaken the U.S. Dollar Index as yields on U.S. Treasuries will drop, making dollar-denominated assets less attractive to foreign investors.

Scenario 2: Higher-Than-Expected CPI (Hawkish Outcomes): If headline CPI prints above 3.4% or core CPI registers a monthly gain of 0.3% or more, it will spark fears that inflation is becoming sticky due to global supply chain issues and high oil prices. As a result, traders will aggressively price in a 25-basis-point rate hike for the September FOMC meeting, driving U.S. Treasury yields and the dollar higher.

“If CPI ‌disappoints today, speculators will likely trim their long USD positions against the NZD, EUR, and JPY, the currencies with the best market bets for a September hike,” DBS analysts wrote in a research note.

The recent military escalation in the Middle East has provided a notable boost to the US Dollar by triggering intense geopolitical uncertainty and global energy volatility. As safe-haven demand surges, global investors are aggressively pivoting to the greenback to shield capital from the risk of a wider regional conflict.

Foreign exchange trading remained quiet on Tuesday, August 4, 2026, with large institutional investors reducing risk. The dollar index was around 99.84. The euro held close to 1.1545 dollars, while the Australian dollar remained confined to around 0.7055 dollars. The absence of a clear trend is a reflection of the concurrent evaluation of weaker employment data from the United States, ongoing energy-supply uncertainty, and the upcoming release of the inflation data, which will shape policy sentiment.

Employment Data and Shifting Rate Assumptions

Nonfarm payrolls in July dropped by 23,000. Private-sector jobs grew by approximately 30,000, while government jobs fell by 53,000, including a drop of nearly 50,000 local education jobs. The unemployment rate edged lower to 4.1%, and the labor-force participation rate slipped to 61.4%. These results stood in contrast to previous market positioning that had anticipated a possible rate hike by the Fed later in the year, helping to drag down sovereign yields across several markets.

Delayed Deal Between U.S. and Iran Pushed Oil Price Up

Negotiations to reopen the Strait of Hormuz have stalled as U.S. President Donald Trump demands extensive historical reparations from Iran following Tehran’s own compensation demands. This diplomatic impasse has resulted in surging oil prices and increased global economic anxiety. As a result, the crude oil price rose to a multi-week high, with the global benchmark index Brent crude surging to $88.23 per barrel and West Texas Intermediate (WTI) to $82.47 per barrel.

The volume of shipping traffic through the waterway was considerably below recent levels, and both sides added extra conditions to delay any agreement. The U.S. is a net energy producer and thus is not as directly impacted by higher oil prices as net importers would be. The structural disparity has kept the dollar from falling a lot despite the weaker labor data.

European Growth and Price Dynamics

The euro remained trapped in a tight interval as the European Central Bank (ECB) navigated rising energy prices and divergent demand across Europe. Preliminary data for the euro area’s gross domestic product (GDP) indicated that the economy expanded by a modest 0.1% in the first quarter of this year, though upward revisions across the region have slightly brightened the baseline outlook. Notably, Spain demonstrated more robust growth (+0.6%) than both Germany and France.

Meanwhile, the euro-area annual inflation rate increased further to 2.9% in July, propelled primarily by mounting energy costs. Key national data expected later this week from Germany, France, and Spain will help confirm whether domestic demand can withstand these heightened cost pressures. Ultimately, the combination of surging energy liabilities and soft economic growth is expected to restrict the ECB’s policy options and cap sustained euro gains.

Focus on the July Consumer Price Index

Focus is now on the United States Consumer Price Index (CPI), due Wednesday August 12, 2026. The core price index is expected to increase by 0.2% month-on-month. If the reading falls below this threshold, it would indicate that the cooling labor market is successfully dampening price pressures, likely cementing further Federal Reserve inaction. Under this soft-inflation scenario, the dollar index could slide below 99.00, driving the euro above 1.1600.

Conversely, a hotter-than-expected print would signal a prolonged period of elevated U.S. interest rates, triggering a wave of short-dollar trade covering.

EURO Gains Strength Against Dollar Amid a Major Chart Breakout

Over the past two weeks, the EUR/USD pair has rallied from 1.1353 to the current exchange value of 1.154, registering a 1.66% spike. In the technical chart, this recovery in euro value against the dollar signalled a major breakout from a key resistance trendline in the daily chart.

Since late January 2026, a downswing trendline has limited euro recovery as a constant overhead supply. Therefore, the recent breakout signals a positive sentiment shift among currency speculators for EURO. 

If the current consolidation in the EUR/USD pair holds the breakout line, the EURO could continue its rally to 1.166 or 1.184.