The Hong Kong Monetary Authority (HKMA) is the central bank of Hong Kong and is buying Hong Kong dollars (HKD) to support the currency. This action is needed because the HKD has reached the top of its trading band, amidst a strong U.S. dollar (USD) and a weak HKD. Since 1983, Hong Kong’s currency policy has pegged the HKD to the USD through the Linked Exchange Rate System (LERS). This system keeps the HKD trading around 7.80 per USD, within a range of 7.75 to 7.85.

Currency Board System

The HKMA uses an automatic mechanism to maintain this band. They have a Currency Board System, where every HKD issued is backed by U.S. dollar reserves at a fixed rate, linking the monetary base to foreign exchange flows. When the HKD gets close to 7.75, the HKMA sells HKD and buys USD to increase liquidity. When it approaches 7.85, they buy HKD and sell USD, reducing liquidity. This process helps keep the HKD stable within its trading limits. The HKMA’s actions show a clear monetary policy to protect the currency peg. With the HKD pushing towards the weaker end at 7.85, there is increased selling pressure. By buying HKD and selling USD reserves, the HKMA is taking HKD out of circulation. This decreases the available liquidity of HKD, making it less likely to weaken further. This peg has worked for over forty years because it is automatic and widely trusted. It helps remove uncertainty around exchange rates, making cross-border business planning easier. However, historical trends indicate that strong pressures on either side of the band usually happen when interest rates are moving apart. This is what we are seeing now, as U.S. rates remain high while Hong Kong follows U.S. monetary policy, despite different conditions at home.

Aggregate Balance and Market Implications

We can track this situation by looking at the Aggregate Balance, which shows the liquidity in the interbank market. The more the HKMA sells USD and buys HKD, the smaller this balance becomes, indicating tighter funding conditions. Market players using forward rates or assessing future liquidity should closely monitor these actions. During past interventions, prices in derivatives, especially in FX and interest rates, often adjust in anticipation of higher local funding costs. We should also consider the impact on carry trades and short-term interest rate hedges. Current trends indicate that further interventions may be required if negative sentiment about the HKD continues, which could temporarily affect implied volatility or pricing. Short-term markets usually respond quickly, so any changes here might signal future trends. Yuen has previously stated that the peg is strong and reliable. His focus on the operational mechanism is a reminder; the HKMA is not just reassuring but actively using this system. Frequent transactions indicate that they are countering speculative positions directly. Keep an eye on swap market demand and any irregularities in forwards. Changes in USD/HKD forwards, especially those that diverge from covered interest parity, can reveal funding pressures or market imbalances. Watching how these spreads shift in the coming days could provide important insights. Volatility in one-month implied rates has already begun to increase since last week. For positioning, changes may be needed if there are assumptions of low liquidity. Swaptions and FX options with shorter timeframes may start reflecting the chances of more reactive rate conditions. If the Aggregate Balance continues to decline, some hedging strategies involving rate caps or collars may need adjustment. The technical peg itself is not a prediction; it’s a stable point maintained by a functioning system. However, this system creates liquidity challenges when activated. As this situation unfolds, we are reconsidering the cost of short-term positions in HKD-related instruments. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

In May, new home sales in the US totaled 623,000, which is lower than the expected 690,000. This shortfall suggests a decline in the housing market’s performance. The EUR/USD is approaching a peak not seen since 2025, recovering from previous lows. A weakening US Dollar is influencing both the EUR/USD and GBP/USD, with GBP/USD reaching elevated daily levels.

Gold on the Rise

Gold is bouncing back, climbing from a weekly low to around $3,340 per troy ounce. This increase comes as the US Dollar weakens and American yields show mixed results. Bitcoin is rebounding, targeting $110,000, while Ethereum and XRP also show signs of potential gains. This recovery follows a drop below $100,000 during a sell-off over the weekend. The ongoing tensions between Israel and Iran are raising fears about the possible closure of the Strait of Hormuz, which could greatly affect global oil markets due to its strategic importance. The gap between the actual new home sales of 623,000 and the expected 690,000 indicates a decline in consumer confidence or affordability, perhaps both. With interest rates high and wages not keeping pace with rising prices, the housing sector is not recovering as hoped. This situation serves as a key indicator for broader economic sentiment, especially regarding disposable income and domestic demand. For those analyzing risk appetite through indirect measures, this points to a weaker American consumer, which could lessen the pressure for future rate hikes and change probabilities for rate-linked products.

FX Market Trends

In the foreign exchange market, the EUR/USD is steadily moving back toward the upper range of its multi-year levels. This rise is happening amid a quieter Federal Reserve and slowing US economic data. As US Dollar-linked trades evolve, the weakening USD brings focus to rebalancing efforts. GBP/USD also benefits from its own specific drivers, though its daily momentum suggests limited upward movement unless wage or inflation data in the UK improves. From our view, this divergence from previous trading ranges hints at a repricing phase that will impact hedging strategies across euro and pound currency pairs. Gold’s rise from the weekly low to around $3,340 per troy ounce reflects the declining strength of the US Dollar. Although bond yields remain unpredictable, their failure to significantly increase supports gold’s position. We are seeing broader market participants returning to metal hedges—not due to inflation concerns this time, but in response to geopolitical issues and currency weakness. This aligns with gold acting more as a liquidity option rather than just a safe haven. Futures positioning indicates a return to long contracts; options traders are likely to notice renewed interest in upward price movements. In the wider digital asset market, Bitcoin is making a comeback after a steep drop, moving back toward the $110,000 level. The weekend sell-off showcased vulnerabilities in thin liquidity conditions, but the rebound suggests there is still demand, especially as macro risks ease. Other cryptocurrencies like Ethereum and XRP are following this trend, although they are lagging slightly. Earlier sell-side activity has shifted, causing volatility patterns to steepen again. Those involved in crypto derivatives should reevaluate their gamma exposures, as market movements still seem to react to overall market stability rather than inherent strength. Concerns about Middle East tensions, particularly regarding disruptions in the Strait of Hormuz, remain significant risks. With about 20% of global oil trade passing through that corridor, any escalations that threaten safe passage would quickly affect energy futures. Prompt spreads are especially sensitive here, creating opportunities for those structuring calendar spreads and who want to manage shipping or insurance risks. This external factor has not yet been factored into VIX or inflation swaps and could emerge unexpectedly. Thus, we may need to focus less on interest rates and more on cross-asset correlations, particularly how volatility in commodities might influence rates or FX markets indirectly. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

J.P. Morgan is optimistic that the recent market rally driven by artificial intelligence will withstand new tariff threats and a possible slowdown in the U.S. economy. They highlight strong technology fundamentals and rising institutional demand as crucial support. The bank notes that higher tariffs could slow growth enough to motivate the Federal Reserve to take action, including a potential interest rate cut by December. J.P. Morgan has revised its 2025 U.S. GDP growth forecast from 2% to 1.3%, but still anticipates strong corporate profits and solid business investments to buffer against negative impacts. Analysts now predict up to four rate cuts by early 2026, targeting a range of 3.25%–3.50%. Despite certain risks in policy, they believe the overall economic environment remains favorable for risky assets. The report discusses how the AI trade has shifted from retail speculation to more stable investments from institutions and systematic strategies. This transition, along with strong earnings and balance sheets in tech, is likely to keep the market rally alive. The analysis is clear: despite new tariff concerns and signs of a slowing U.S. economy, J.P. Morgan’s team remains confident that the AI-driven market rally has enough strength to continue. Their optimism is based on two main factors: solid company fundamentals in tech and increasing investments from large institutional players. This shift means the rally is now supported by stable and measurable demand rather than speculative sources. Additionally, the firm’s slower growth forecast may lead the Federal Reserve to consider a series of interest rate cuts, starting this year and continuing into 2026. In this scenario, policy decisions are likely to focus on easing, which could benefit riskier market segments. For traders in derivatives, particularly in rate-sensitive sectors, this suggests downward pressure on yields might change the pricing of various contracts. Moreover, strong corporate earnings and business investments should not be overlooked. Companies, especially in tech, are not just riding hype; they are generating real profits and reinvesting in their operations. This financial strength, along with the shift towards institutional participation, helps reduce volatility in pricing for structured products and options tied to these sectors. Kolanovic’s team highlights a change in the source of AI-related investments—from retail traders to funds with defined algorithms and larger mandates. This shift matters because institutional investments tend to have longer timeframes and lower turnover rates. As a result, implied volatility may decrease in sectors where these strategies are concentrated, particularly in large-cap tech and communication services. Equity options traders might see premiums declining, especially in shorter-dated contracts. With potential rate cuts ahead, short-term interest rate derivatives may see increased volume and tighter spreads. If the anticipated cuts occur, there will be clear opportunities for positioning with standard curve steepeners or forward rate agreements benefiting from the same trend. Calendar spreads will gain importance as expectations around rates feed into futures. In this case, it may be more effective to invest in structures that profit from unexpected economic downturns, alongside assets that can withstand shocks. It’s also important to note that strong corporate dynamics should lessen the severity of equity fluctuations. This can influence tail-risk hedging strategies. There’s less need now to pay a premium for out-of-the-money puts unless there are expectations for sudden changes in earnings guidance or monetary policy. Instead, relative value strategies, like volatility arbitrage across sectors, could offer steadier returns, particularly when correlations diverge from historical norms. In summary, this market is not one likely to face sharp reversals. It rewards careful selection in both asset class and strategy horizon.

here to set up a live account on VT Markets now

Susan Collins from the Federal Reserve Bank of Boston stated on Wednesday that the US economy is generally strong. She affirmed that the current monetary policy is well-positioned. Collins highlighted the need for patience and care, supporting the Fed’s recent decision to keep interest rates steady. She mentioned that tariffs could raise inflation and lower growth and employment.

Future Rate Cuts

Future rate cuts might be considered later this year, depending on tariff developments. Despite her comments, the US Dollar Index rose by 0.15%, reaching 98.12 at the time. Overall, Collins’ remarks did not significantly impact the market. Her comments received a neutral score of 5.4 on the Fed Speech Tracker. Trading in foreign exchange is risky and may not be suitable for everyone. High leverage can be beneficial or harmful. Before trading foreign exchange, it’s essential to evaluate personal goals, experience, and risk tolerance. Understanding the risks and consulting with an independent financial advisor is critical if you have any doubts.

Central Theme of Hesitation

Collins’ message reflects a theme of hesitation, not urgency. She supports the Fed’s decision to hold rates steady, emphasizing the importance of not overreacting to short-term economic fluctuations or political events. Her language was careful and balanced. Her insights indicate that the economy isn’t in a state of panic. Key domestic indicators—growth, employment, and inflation—are strong enough to avoid immediate actions. However, that doesn’t mean there aren’t challenges ahead. She flagged tariffs as a significant factor. Simply put, tariffs add costs to businesses, which can result in higher prices for consumers, leading to decreased demand and jobs. If tariffs increase, there may be pressure for policy changes, likely through rate cuts. At the same time, the US dollar’s slight rise after her remarks suggests that traders do not expect immediate changes. The market was attentive but stable, as reflected in the 5.4 score on the Fed Speech Tracker—acknowledging her points without dramatic reactions. This calmness itself provides important information. For futures and options traders, the current situation doesn’t offer a clear direction. However, it does open up a window of opportunity. Monetary policy is remaining unchanged for now. Rates won’t decrease unless there are bigger discussions on trade disruptions and their effects. It seems a waiting game is ahead, largely influenced by events like tariff policies. As we position ourselves, it’s important to note that implied volatility hasn’t spiked, indicating that expectations remain steady—so far. However, anticipating sudden moves based on geopolitical events may require factoring in the unpredictability of external policies rather than relying solely on domestic economic strength. This is also a moment to be cautious with leverage. With uncertain interest rate trends, movements can be unpredictable. Misjudging the Fed’s patience can lead to significant losses if trades are overly leveraged. We seek alignment between statements (like Collins’) and actual economic data before making directional trades. The risk isn’t just about what the Fed will decide; it’s also about anticipating when they might shift from observation to action. Meanwhile, shorter-term strategies focused on data releases or known risk events could provide clearer opportunities. As always, each trade should be considered within a broader context and portfolio exposure. During these weeks, exercising caution is more valuable than pursuing uncertain trends. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

US new home sales for May were reported at 623,000, falling short of the expected 693,000. In the oil sector, EIA weekly US inventories dropped by 5,836K barrels, compared to the anticipated decrease of 1,960K barrels. The US Treasury auctioned $70 billion in five-year notes at a high yield of 3.879%. The S&P 500 held steady at 6,091, while US 10-year yields fell by 1 basis point to 4.28%.

Shell In Talks With BP

Reports indicate that Shell is discussing a potential acquisition of BP. In currency markets, the NZD saw gains, while the JPY lagged, causing a decline in the US dollar during North American trading. Forex markets were active, with the weaker US dollar affecting EUR/USD after Barclays noted moderate selling of the dollar toward the month’s end. Despite hawkish comments from a BOJ official, the yen was still weak. Federal Reserve Chairman Powell mentioned that there would be no immediate changes to monetary policy, focusing instead on managing inflation. Overall, there were minimal changes in bonds and stocks, but active trading occurred in foreign exchange. The new home sales data was disappointing, suggesting that consumer activity in the housing sector may be slowing down. These numbers can provide insights into consumer confidence and potential interest rate changes. When fewer homes sell, it generally indicates that households are spending less, and this could lead fixed income markets to expect lower rates if this trend continues.

Crude Inventories And Energy Prices

US crude inventories decreased by much more than traders expected. This suggests either stronger demand or some disruptions in production. A substantial inventory drop usually supports higher energy prices, although the earlier rise in oil may have already accounted for much of this reduction. We anticipate some consolidation in oil-related assets, especially if broader economic signals remain uncertain. The Treasury auction saw moderate interest at slightly higher yields than expected based on recent data. With five-year yields near 3.88%, there is steady demand from domestic and international buyers. Many participants view real yields as appealing compared to longer-term options. This could keep the yield curve flatter unless there are surprising inflation reports. In stocks, the S&P 500 stayed flat, which was not surprising given the balanced economic inputs. Bond traders made slight adjustments with 10-year yields falling by just one basis point, while stock indices remained steady. This indicates a day of waiting rather than deciding. With Powell maintaining a consistent stance on inflation and not signaling any immediate policy changes, we didn’t expect significant movements in risk markets. In currency markets, the New Zealand dollar performed well, bolstered by better domestic data and shifts in global risk sentiment. Conversely, the yen weakened, despite a Bank of Japan official indicating a commitment to future tightening—traders remained skeptical. Rate differentials seem too wide for the yen to rally significantly unless clear signs of policy changes emerge, which seems unlikely as Japan’s inflation remains unstable. Rumors of a potential merger in the energy sector sparked some speculative interest. Investors on both sides would consider balance sheet compatibility and geopolitical factors. However, without further details, the market is likely to view this more as headline risk than a major directional catalyst. Late in the session, the dollar weakened, partly due to month-end flows. A note from a major bank indicated subtle and steady selling throughout the day, matching observed price actions. It’s important to monitor if this trend continues into the new month, especially as positions are reset. While there wasn’t a major shift in market direction, we did see strong FX flows and short-term signals building, which often precede increased volatility. We will closely monitor technical levels and be ready for significant price movements. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

USD/CAD is rising as traders await comments from Fed Chair Powell. The market is also looking forward to the US New Home Sales data for May, set to be released at 14:00 GMT, which will provide insights into the US housing market. Currently, the Canadian Dollar is weakening against the US Dollar, with USD/CAD hovering around 1.3750. This movement is influenced by the anticipated new home sales data and Powell’s upcoming testimony.

US New Home Sales

The US Census Bureau will report on New Home Sales for May, covering single-family homes. Analysts expect sales of 690,000 units, a significant drop from April’s 743,000 units. This increase in April was largely due to buying before tariff changes. Powell is set to speak to the US Senate about inflation and interest rates. His remarks are part of a semiannual Monetary Report, impacting the Federal Reserve’s future rate decisions. Technical analysis of USD/CAD shows it may be breaking out from a descending wedge pattern. The pair’s momentum remains neutral, facing resistance near the 50-day SMA at 1.3795. Possible targets include the April high of 1.4415 or the June low of 1.3539.

Fed Chair Powell Testimony

The Dollar is gaining strength against the Canadian Dollar as investors prepare for Powell’s remarks. His testimony is significant, especially with ongoing inflation concerns and pending rate decisions. While traders are watching for signals of change, it’s too early to assume major policy shifts. We are also monitoring the latest US housing data, which may influence the discussion. Sales are expected to cool slightly after last month’s surge, leaving traders to wonder if this indicates weakened domestic demand or just seasonal adjustments. April’s spike was largely seen as preemptive buying in response to anticipated cost changes, so it may not signal a long-term trend. For traders, USD/CAD is approaching a potential breakout, although not all indicators are positive. The price is near the 50-day average, showing momentum, but it’s not yet clear in which direction it will move. The April high remains a key target, while recent lows from early June could serve as support. A clear direction will depend on breaking through these outer levels or a notable increase in trading volume. The recently spotted wedge pattern has not yet moved fully, and Powell’s testimony could provoke a decisive shift. Currently, USD/CAD finds itself in a state of anticipation and caution, with traders hesitant until more information is available. Additionally, the CAD faces local challenges. Economic indicators in Canada show mixed results, and the Bank of Canada is unlikely to make any significant changes soon. This situation weakens the loonie against currencies backed by stronger monetary policies. In the coming sessions, be ready for increased trading activity during Powell’s speech and the new home sales report. These events often lead to volatility, especially if outcomes differ from forecasts. Traders should be prepared to act quickly if key support or resistance levels are breached, as the current technical setup is tightly aligned and may break in either direction. Focus on psychological levels, particularly recent highs. If USD/CAD closes above 1.3795 with strong participation, the case for further gains strengthens. Conversely, if the pair weakens, especially due to disappointing housing data or dovish indications from Washington, we might see tests of earlier summer ranges. In the next few sessions, clarity on policy direction and consumer strength will likely drive market movements, not just technical setups or isolated data points. Current patterns indicate building pressure—we could be approaching a pivotal moment. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The economic calendar for Asia on June 26, 2025, has only a few data releases that could affect major currency exchange rates. Currencies like the South Korean Won (KRW) and Singapore Dollar (SGD) may see slight changes, while other currencies are not expected to move much. The ForexLive economic data calendar gives times in GMT. Previous results are shown in the right-most column, and the consensus median expectations, if available, are in the next column over. With fewer major releases expected in the region, market participants should prepare for lighter trading volume during the Asian session, unless unexpected news breaks. Generally, this lack of activity reduces short-term price fluctuations, especially in currency pairs without strong domestic influences. In quieter sessions, traders often look to larger trading hubs like London for direction. The Won and Singapore Dollar tend to react more to regional trends and overall risk sentiment than to daily economic data. While they might respond to major external events or movements in equity markets, we don’t foresee significant portfolio adjustments without stronger triggers. Each entry in the economic calendar is marked with Greenwich Mean Time (GMT), which helps synchronize tracking regardless of local time zones. This consistency helps in planning around potential volatility. The rightmost column shows previous results, which, along with median forecasts (when available), helps gauge possible market responses. Lee, who often analyzes Asia-Pacific macro trends, suggests that in low-data periods, movements in equity markets or geopolitical events may take center stage over economic figures. We agree. What matters now is the interpretation of data based on existing market expectations. It’s important to note that during these quieter sessions, participants in the options market sometimes focus on nearby expiries or gamma pockets to manage short-term risks. When realized volatility decreases, implied volatility tends to compress, especially in currency pairs like USD/SGD, which have tightly controlled ranges. Consequently, opportunities for quick trades diminish. Instead, we prefer monitoring downside risk indicators for signs of increased protective activity, rather than fixating on spot price movements. From a tactical standpoint, if there are no major disruptions overnight in the US markets, we believe Asia-based currency pairs will likely stay within a consistent range. Traders seeking short-term triggers should be ready for less interaction from interbank trading until later in the day. This allows time to watch for any changes in positioning ahead of the US session, especially as Powell’s recent comments have slightly lowered rate expectations. Yamada noted last week that the markets are currently more reactive than proactive, especially since central bank guidance is mostly factored into prices. This environment has led to more mean reversion trades and short gamma limits, indicating lower confidence. In derivatives markets, we are seeing tighter spreads and shorter contract durations, as traders are hesitant to hold options too far out without good reason. Rangebound conditions can cause implied volatility to tighten as liquidity decreases. For those employing intraday strategies, timing will likely be more crucial than confidence in direction. It’s wise to position risk lightly toward traditional safe-haven currencies or US rate-sensitive pairs, not due to any prevailing trend, but because nothing stronger is directing them otherwise. Without new data to adjust expectations, market flows will likely revert to focusing on technical levels, recent highs and lows, and gamma pressure points. We will continue to monitor these factors closely.

here to set up a live account on VT Markets now

Gold prices are steady even though US housing data fell short of expectations and Federal Reserve Chair Powell made hawkish comments. His testimony before the Senate Banking Committee didn’t change forecasts for a rate cut by September, which limited any upward movement for gold. Gold is trading slightly above $3,300 as market participants consider the effects of recent US economic data and Powell’s statements, especially after Israel and Iran agreed to a ceasefire.

US Housing Data Impact

In May, US New Home Sales hit 623,000, lower than the expected 690,000 and showing a 13.7% drop from April’s 9.6% increase. Powell’s upbeat outlook for the US economy was called into question as consumer confidence fell from 98.4 in May to 93.0 in June. Currently, gold is trading in line with the 50-day Simple Moving Average at $3,325. For a sustained recovery, gold needs to break above $3,355, with possible resistance at $3,400. If it drops below $3,300, it may test support at $3,228. The upcoming US Personal Consumption Expenditures (PCE) data will be a key factor influencing the market’s expectations around interest rate changes. This situation highlights not just recent gold behavior but also potential short-term opportunities and risks, especially for those involved in rate-sensitive investments. The lack of a strong reaction in gold prices to troubling data or Powell’s hawkish stance suggests that markets still anticipate interest rate reductions by the end of the year, even if official language hasn’t acknowledged this yet.

Market Volatility and Trends

The gap between market expectations and official statements creates an environment ripe for volatility. Powell’s comments about confidence in the US economy seem off base given the significant drop in consumer sentiment. The contrast between decreasing housing data and consistently high interest rates puts pressure on the Fed’s future decisions. Traders are understandably adjusting to this divergence. From a technical perspective, trading near the 50-day SMA often attracts short-term interest. Stability above $3,300 suggests a solid support level, although it appears fragile. The important level at $3,355 is significant—not just because it’s a key number, but because it’s where momentum could shift dramatically. If this level remains unbroken, the chances of profit-taking or cautious trading increase. Support around $3,228 may get active if US economic data continues to disappoint. The housing report’s drop of over 13% indicates a declining appetite among consumers in a high-rate environment. If this week’s PCE data also softens, bond yields may fall, making non-yielding assets more attractive. Our team is closely monitoring the implied volatility in near-term options. So far, gold has shown little movement despite shaky economic indicators, suggesting that risk pricing is low. Such imbalances can change quickly. Whether this shift happens due to the PCE data or an unforeseen policy change remains to be seen, but it’s important not to overlook it. With this in mind, traders should avoid positioning solely based on directional bias. Instead, it makes sense to consider optionality—strategies that allow for larger moves in either direction without overcommitting given the current price range. As macro data continues to conflict with policy statements, attention is crucial. This kind of tension rarely resolves without some upheaval. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

USD/INR has stabilized above 86.00, ending a three-day decline with support bouncing off the 21-day EMA around 85.80. Even with easing geopolitical tensions, the Indian Rupee is under pressure from higher USD demand from importers and cautious market sentiment. The Rupee started stronger due to positive sentiment but quickly fell as the US Dollar Index (DXY) hovered near last week’s lows. Crude Oil prices have leveled off after a significant drop, providing only limited support for the Rupee.

Mild Recovery

The USD/INR shows a slight recovery, moving away from an intraday low with prices around 86.15 during American hours. A ceasefire between Iran and Israel has eased tensions in the Middle East, stabilizing oil prices and cooling safe-haven demand. The Indian Rupee remains volatile, fluctuating between ₹85.80 and ₹86.89 over the past week. The Reserve Bank of India (RBI) acknowledges the economy’s strength despite global challenges and has updated its inflation forecast for FY2025–26 to 3.7%. The RBI is removing excess short-term cash with a plan to withdraw ₹1 trillion via a reverse repo auction. The domestic equity market is improving, with Sensex and Nifty gaining ground, thanks to better risk appetite and easing geopolitical tensions. US new home sales have dropped sharply while the DXY trades at 97.80 during American sessions. The USD/INR is currently trading in a short-term range between 85.80 and 86.90, with a possible shift in direction expected.

Influencing Factors

The Indian Rupee is significantly affected by crude oil prices, foreign investment, and RBI policies. High inflation usually weakens the Rupee unless offset by rising interest rates, which attract international capital. The USD/INR is finding its footing above 86.00 after a few days of pressure. This bounce, although modest, is supported by the 21-day EMA close to 85.80. A drop below this level could lead to further decline, especially with overnight risks still looming. While tensions between Iran and Israel have eased, usually boosting risk appetite, the Rupee hasn’t fully benefitted. Instead, steady demand for Dollars from local importers keeps upward pressure on the USD/INR pair. Intraday trading showed mixed signals. The Rupee initially strengthened on the back of rising local equities and a sense of calm, but this optimism faded quickly. The Dollar Index hasn’t shown aggressive movement, remaining around 97.80 during U.S. hours, suggesting more hesitation in the Rupee’s performance rather than weakness in the Dollar. Meanwhile, crude oil prices have paused their decline, which usually would alleviate some pressure on trade balance, but that hasn’t yet translated into strength for the Rupee. Weekly price movement has been erratic. The exchange rate has shifted between lows of ₹85.80 and highs around ₹86.89, indicating trader unease. The RBI’s recent inflation forecast, now set at 3.7% for FY2025–26, suggests a slowing trend. The RBI stated it won’t quickly tighten monetary policy unless there’s new evidence of persistent inflation. They are managing liquidity actively, confirmed by a recent ₹1 trillion withdrawal through the reverse repo. The local equity market is showing improvement, with benchmarks like Nifty and Sensex gaining due to reduced global anxiety and renewed confidence among domestic investors. While equity inflows can support the Rupee, this support might be inconsistent when accompanied by strong hedging demand. In the U.S., data isn’t providing much support for the Dollar either. A significant drop in new home sales indicates a slowdown in the domestic economy, but the DXY remains in a tight range. The USD/INR is currently trading between 85.80 and 86.90, which seems stable unless broader risk conditions change swiftly. For now, focus will be on how crude oil stabilizes, whether equity gains continue to attract foreign investment, and any new signals from the RBI or the Fed. High inflation generally devalues the Rupee, but attractive yields in India might attract more offshore interest. Long positions in USD/INR should be watched closely for existing resistance near weekly highs, while short positions need protection below the 85.80 threshold. Beyond technicals, factors such as short-term capital flows, the extent of RBI’s liquidity operations, and global Dollar trends will be key to volatility in this pair. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

A chart from Deutsche Bank shows how the US dollar has performed against other currencies since 1971. The Swiss franc has often performed better because Switzerland used to require at least 40% of its reserves to be in gold, a rule not followed by other countries. Only a few currencies, such as some from Japan and the eurozone, have done better than the US dollar, even after the US stepped away from the gold standard. The introduction of the euro helped some currencies stay strong. Many currencies have seen significant drops in value, with half of them experiencing steep declines. This list does not include extreme situations like Zimbabwe’s collapse but still highlights many previously stable economies suffering downturns. Over a long-term investment horizon of over 50 years, it’s essential to include hard assets or stable value stores in financial strategies. Since August 1971, the US dollar has lost about 98% of its value against gold, which was $35 an ounce at that time. It has also lost 50% of its value since October 2022. Deutsche Bank’s data offers a long-term view of currency performance, especially since the end of the Bretton Woods system in 1971. The key takeaway is that very few fiat currencies have outperformed the US dollar, while most have performed significantly worse. An exception is the Swiss franc, which benefited for decades from a monetary policy once tied to gold. Although that requirement has been lifted, the currency is still seen as a safe haven. In contrast, many currencies that were once considered stable have experienced major devaluations. This comparison excludes extreme cases, but even stable advanced and emerging markets have lost significant purchasing power. The euro has helped stabilize some previously fragmented European currencies, which explains the better performance of certain eurozone members. Gold serves as a reliable benchmark here, not as a foreign currency or central bank index, but as a tangible asset with no counterparty risk. Over the past fifty years, gold’s value has risen significantly against all fiat currencies. The US dollar, in particular, has lost nearly all its worth in gold terms since it separated from gold in the early 1970s, with a faster decline since late 2022. This comparison isn’t just symbolic; it reveals a trend impacting purchasing power and wealth preservation. If gold retains value while most currencies drop against it, we need to rethink what stability means in a financial system built mainly on fiat promises. Traders in derivatives, especially in currency markets, should view this data as a way to identify long-term risks rather than just historical information. Many short-term instruments often fail to account for ongoing currency depreciation, leaving hidden risks beneath seemingly stable positions. Rolling contracts forward while currency values decay is inefficient. Price activity shouldn’t be confused with value. Just because a currency trades frequently or has tight spreads doesn’t mean it’s not losing value in real terms. This erosion might go unnoticed on charts but is crucial for margin models and settlement risks. Rapid currency drops, such as a 50% fall in under two years, can spike volatility and create liquidity shocks across derivatives. These scenarios are not just theoretical for long-term investors saving for retirement. They directly affect margin requirements, volatility predictions, and liquidity assumptions. Situations like these make it vital to consider counterparty risk in multi-currency swaps, which often carry hidden exposures from pricing model assumptions. Proper hedging isn’t just about protection during known crises; it’s also about preparing for gradual value loss during periods of loose monetary policy or weak demand for the domestic currency. Even interest rate differences, which used to predict currency movements, sometimes fail to protect against severe drops, especially when central banks act inconsistently. Forward positions now need to be tested against larger potential drops, even if the overall scenario looks safe. It’s not enough just to consider price risk; we must also account for its time-related decline. Traders should start asking: what defines a good hedge in a world where money itself is unstable? The solution might involve focusing more on instruments that track real assets, adjusting expectations based on implied inflation, or spreading maturities over different regimes to minimize exposure to policy changes. We cannot rely solely on traditional measures like purchasing power parity, which are outdated and often fail to predict future shocks. Debasement happens quietly until it suddenly leads to cracks in valuations, widening spreads, and surging liquidity demands. Such moments can’t be retroactively hedged. Now is the time to examine every unsupported currency assumption in your strategy, including those that have historically seemed safe.

here to set up a live account on VT Markets now