CAPITALDIGEST MARKET REVIEW, 10/08/2026
August 10, 2026
US DOLLAR TO RETAIN STRENGTH, YEN INTERVENTION NO GAME CHANGER: REUTERS POLL
The U.S. dollar will hold firm in coming months before weakening later in the year, according to FX strategists surveyed by Reuters who also generated some of the weakest consensus Japanese yen forecasts since polling began in the early 1990s. Fuelled by interventions from Tokyo and coordinated action with Washington in recent days, the yen rallied about 4% against the dollar but was not able to reclaim a peak from the previous intervention by the Japanese authorities in May. Nearly 95% of about 60 respondents in the July 31-August 5 survey said future Japanese currency interventions alone would not sustainably curb the currency’s weakness. Nearly every respondent who said that also said the Bank of Japan would have to raise interest rates to make a lasting impact. So far, the BOJ has been reluctant to raise borrowing costs quicker than once every six months, in part because of a weak economy, although interest rate futures now show another rate rise in October following June’s hike to 1%. With the U.S. economy performing well, the Federal Reserve may need to raise interest rates sooner rather than later to contain inflation pressures stemming from the U.S.-Israeli war with Iran. That means the 2% rise in the dollar so far this year may hold for a while. According to the poll the euro will hold around $1.15 in the next three months before strengthening about 1% to $1.16 by end-January and to $1.18 in a year. Those results extend a recent shift away from forecasts of steeper dollar declines. Nearly half of respondents, 25 of 53, also expected current long-dollar positions to be little changed by end-August while 22 saw them decreasing. Six forecast a further increase. “I still have an underlying view the dollar will remain strong as long as the U.S. economy remains strong. But I don’t think it’s going to go dramatic distances – we’re either going to be range-bound or go another leg higher depending on how the incoming economic data turn out,” said Kit Juckes, chief FX strategist at Societe Generale. “Left to itself, the yen is a cheap currency on most measures because it’s got a weak economy supporting it and while interest rates may be going up they’re pretty low. There are still long-term debt concerns out there. There are still questions about potential growth given the population metrics. And so all of that’s weakened the currency.”
STERLING INCHES LOWER AS MARKETS FOCUS ON MIDEAST DEVELOPMENTS, U.S. PAYROLLS
The British pound edged lower against both the euro and U.S. dollar on Friday, with markets weighing talks, and escalations, in the Middle East and awaiting the closely watched monthly U.S. payrolls report due later in the day. Sterling was 0.1% lower against the dollar at $1.3438. Against the euro, the pound was similarly lower at 85.76 pence. Investors were cautious about diplomatic efforts to end the Iran war and reopen the crucial Strait of Hormuz, especially as tensions flared up again in the Middle East. An attack by Yemen’s Houthis on southern Saudi Arabia wounded 11 civilians on Thursday, a military official said, as the kingdom warned that coordinated attacks by the Houthis and Iran-backed Iraqi militias were imminent. Brent crude futures were last slightly lower on the day at $82.16 per barrel. Elsewhere, U.S. nonfarm payrolls are forecast to have risen by 80,000 last month after an increase of 57,000 in June, according to a Reuters survey of economists. The data could provide clues about the Federal Reserve’s interest rate path ahead as markets are weighing the chance of a potential interest rate hike. Domestic catalysts for Sterling are meanwhile few and far between. “The next big sterling catalyst that we are looking for is actually that everything else in the world calms down. When that happens, what we tend to see is attention switches back to some of the UK fiscal concerns,” Nick Rees, head of macro research at Monex Europe, said. “If Middle East tensions can cool once we’re through payrolls, then we think attention can turn back to some of these UK fundamentals, which aren’t good for the pound,” he said. Investors next week will also get fresh UK economic data, with a gross domestic product reading for both the second quarter and the month of June due Thursday. The data could provide hints about how the economy has fared throughout the Iran war so far. Last week, the Bank of England kept interest rates on hold, noting that it needed more time for a sense of how much the war in the Middle East would push up inflation. Investors were last pricing in around 25 basis points of tightening by year-end, and were not fully pricing in a rate hike until the BoE’s February 2027 meeting.
DOLLAR DROPS AS WEAK US JOBS DATA PUSHES OUT FED HIKE EXPECTATIONS
The dollar fell against major currencies including the yen and euro on Friday after U.S. employment unexpectedly declined in July, fueling concerns about the economy’s strength and undermining the case for the Federal Reserve to raise interest rates. The U.S. economy lost 23,000 jobs in July, the Labor Department said, compared with economists’ expectations for an increase of 80,000 jobs, according to a Reuters poll. The U.S. unemployment rate fell to 4.1% as the labor participation rate fell to a near a five-and-a-half year low of 61.4%. The dollar weakened against the yen after the report, shedding gains made in recent days in the aftermath of a historic intervention last week between Japanese and U.S. authorities, which had pushed it to a 13-week low. It was last down 0.57% to 157.56 yen but on track for a weekly gain of about 0.10%. The euro was last up 0.39% against the dollar at $1.1568. It is on track for a weekly gain of 0.41% against the dollar. The dollar’s decline reflected the market’s waning expectations for a Fed hike. Markets now put a 56% chance that the Fed will holding rates steady in September, up from 45% a day earlier, according to the CME’s FedWatch tool. “I think no one really expected non-farm payrolls to be negative or that there would be a big downward revision in the June numbers,” said Thierry Wizman, global FX and rates strategist at Macquarie Group. I’m inclined to think that the market has shifted the Fed hike into October or December instead of September, Wizman said, adding that “anytime you see a print that suggests the U.S. economy is weak or that the labor market is not as strong as otherwise thought, they effectively push out the prospect of a Fed rate hike.” U.S. Treasury yields fell sharply following the report. The 2-year note yield, which typically moves in step with Fed rate expectations, fell 4.2 basis points to 4.245%. The yield on benchmark U.S. 10-year notes fell 2 basis points to 4.649%. The dollar index , which measures the greenback against a basket of currencies including the yen and the euro, fell 0.44% to 99.50. It is set to a weekly loss of 0.31%, making the second consecutive week of declines. Gold rose as the U.S. dollar fell. Spot gold rose 2.55% to $4,347.29 an ounce.
STERLING EDGES UP; UK SERVICE SECTOR ACTIVITY IMPROVES
The pound edged up on Wednesday, with most gains coming against the yen, which steadied after several rounds of intervention. Investors took some heart from U.S. President Donald Trump saying his administration had held “very good discussions” with Iran during all-day negotiations on Tuesday, which kept the oil price around $80 a barrel. Sterling was a touch stronger against both the dollar and the euro, trading at $1.347 and 0.856 pence, respectively, while rising 0.2% against the Japanese currency to 212.33 yen. Caxton currency strategist David Stritch said the pound “remains a little adrift of motivation”, given its lack of volatility. The yen is not far off its strongest against the dollar in three months, following historic intervention by Japanese and U.S. officials late last week. Against the pound, it is near its strongest in five months. UK markets were unruffled by a report from The Times that British Treasury officials are looking at possibly raising billions of pounds in extra borrowing by using flexibility within the government’s fiscal rules. Finance minister John Healey told the newspaper there was “scope for more and more rapid investment”. It said the cash could be spent on infrastructure, housing and help for business. Former finance minister Rachel Reeves changed Britain’s fiscal rules in 2024 to take into account public sector assets when considering the government’s debt levels, offering the possibility of more public borrowing for investment. Meanwhile, a survey of business activity on Wednesday by S&P Global showed Britain’s dominant services sector returned to growth last month as new orders picked up. The survey also showed expectations for activity in the next 12 months were the highest since before the start of the Iran war in February. “Stronger growth projections for the year ahead partly reflected hopes of de-escalating Middle East tensions and recent signs of easing inflationary pressures,” said Tim Moore, economics director at S&P Global Market Intelligence.
DOLLAR CLIMBS VERSUS YEN AS INVESTORS AWAIT US JOBS DATA
The U.S. dollar rose against the Japanese yen on Thursday, helped by safe-haven positioning from investors awaiting details on a proposed deal to end the Iran conflict and ahead of Friday’s monthly U.S. jobs report. The dollar has clawed back some recent intervention-driven losses that had pushed it to a 13-week low against the yen following joint action by Japanese and U.S. Treasury authorities to prop up the Japanese currency. The dollar was last up 0.44% against the yen at 158.45, for its third straight session of gains after falling to 155.20 on Monday, lowest since early May. “The idea that maybe there’s some good news on a ceasefire or a deal in the Persian Gulf has taken some of the dollar premium off with lower oil prices and so forth. It’s very quiet today because I think the markets are waiting for what happens with non-farm payrolls on Friday,” said John Velis, FX and macro strategist at BNY The euro was down about 0.28% at $1.1521 and sterling fell 0.15% at $1.34485. The dollar index , which tracks the U.S. currency against six major peers, was up 0.31% at 99.97 after it hit a six-week low on Monday. Tensions continued to play out in the Gulf after Reuters reported a proposed deal between Iran and Oman to help end the U.S.-Iran conflict could give Tehran control over inbound traffic through the Strait of Hormuz. The U.S. did not immediately comment on the proposal. President Donald Trump has said that a deal to reopen the strait was imminent, but U.S. officials have repeatedly insisted that they would never agree to Iranian control of access to the world’s most important trade route for energy supplies. Brent crude rose 3.8% to settle at $82.49 a barrel, although prices remain well below the almost $100-per-barrel level hit in July when attacks resumed following a brief détente. Speculators have amassed a near-record net dollar long position in aggregate compared with other major currencies, “leaving positioning prone to a squeeze in the event of dollar-negative developments,” Scotiabank’s Shaun Osborne said in a note, citing U.S. Commodity Futures Trading Commission data. Friday’s U.S. employment report (USNFAR=ECI), opens new tab for July could provide more clues on the Federal Reserve’s interest-rate path. The U.S. service sector remained strong in July while services-sector employment slowed. “Any data release after the Fed meeting in July is just very important,” said Francesco Pesole, an FX strategist at ING. “Tomorrow’s payrolls could be pretty big for dollar-yen. If it’s a hot print then you would probably start to see a new build up of speculative longs on dollar-yen.” U.S. nonfarm payrolls are forecast to have risen by 80,000 last month after an increase of 57,000 in June, according to a Reuters survey of economists. The unemployment rate (USUNR=ECI), opens new tab is expected to hold steady at 4.2%. Fed Governor Lisa Cook said on Wednesday that she was open to the idea of raising short-term interest rates to deal with levels of inflation that are “too high.” San Francisco Fed President Mary Daly said she was “completely supportive” of last week’s decision to hold rates steady, saying more data is needed before the central bank’s September 15-16 meeting.