The global foreign‑exchange market has entered a broad wait‑and‑see phase. Market participants are heavily focused on U.S. July inflation data, which will shape the policy stance for the September FOMC meeting. The U.S. Dollar Index trades within a range, while major non‑USD currencies await directional catalysts. Policy divisions within the Federal Reserve remain prominent. Combined with geopolitical turbulence in the Middle East and lingering after‑effects of U.S.‑Japanese joint forex intervention, bull‑bear confrontation across currency markets remains intense.

At the late‑July FOMC meeting, the Federal Reserve kept the federal‑funds rate unchanged at 3.50%‑3.75%, marking the fifth policy hold in 2026. Nevertheless, three hawkish dissenting votes called for an immediate 25‑basis‑point rate hike. This represented the first occurrence of three aligned hawkish dissents since 2016, highlighting deep‑seated divisions within the committee. Some policymakers warn of renewed inflation risks and advocate keeping further rate hikes on the table. Other officials observe cooling signals in the labor market and prefer to maintain the current policy setting, awaiting additional economic evidence to confirm sustained inflation deceleration and avoid excessive tightening.

Recent public remarks from Fed officials have further widened market divergence. Austan Goolsbee, President of the Chicago Fed, noted that the Fed is currently more concerned about inflation rebounding than moderate labor‑market softening, and remains alert to inflation risks. Mary Daly, President of the San Francisco Fed, supports steady rates and recommends gathering more data before making adjustments at the September meeting. Fed Governor Michelle Cook delivered a hawkish message, stating she would back additional rate increases should inflation fail to cool as projected. Such fragmented official commentary prevents the formation of a unified market consensus. The U.S. dollar lacks sustained directional momentum and fluctuates sharply in response to each incoming economic release.

Last Friday’s U.S. July non‑farm payroll report marked a critical turning point. Non‑farm payrolls fell unexpectedly by 23,000, well below consensus forecasts. May and June payroll figures were also revised substantially lower, and the three‑month average job gain softened notably, signaling cooling momentum in the labor market. Following the print, market‑priced odds for a September Fed hike fell. According to the CME FedWatch Tool, the probability of steady rates versus a 25‑bp hike in September are nearly evenly split, with bulls and bears evenly matched. Normally, weak employment data would weigh on the dollar. However, rising crude‑oil prices stemming from Middle‑East geopolitical tensions revived inflation‑rebound concerns, and safe‑haven demand offered support to the greenback. Consequently, the dollar avoided a deep decline and stayed range‑bound.

The U.S. July CPI report is due at 20:30 Beijing Time on August 12, representing the most important inflation print ahead of the September FOMC. The July PPI will follow on Thursday. Consensus forecasts project headline July CPI at 3.4% year‑on‑year and core CPI at 2.5% year‑on‑year, with a modest monthly increase. Even with a slight pullback from June’s reading, inflation remains well above the Fed’s 2% target. A hotter‑than‑expected CPI reading would revive September‑hike expectations, lift U.S. Treasury yields, strengthen the U.S. dollar, and pressure the euro, Japanese yen, British pound and other non‑USD currencies. A meaningful downside inflation surprise would dampen hike bets, trigger dollar weakness and create rebound opportunities for non‑USD pairs. This inflation release will serve as the key catalyst for forex moves over the next one to two weeks.

Among major non‑USD currencies, the Japanese yen continues to draw heavy market attention. Previous U.S.‑Japanese joint foreign‑exchange intervention briefly pushed USD/JPY lower from elevated levels, yet the intervention effect proved short‑lived. USD/JPY has climbed back toward 159, near this month’s weaker territory. The root cause lies in the substantial U.S.‑Japan interest‑rate differential, which remains largely unchanged. The Federal Reserve maintains high interest rates while the Bank of Japan keeps accommodative monetary settings. Rate‑spread pressure continues to weigh on the yen; intervention can only generate short‑term market disturbance and cannot reverse medium‑term trends. Traders are closely watching whether the Bank of Japan will roll out further policy adjustments to support currency‑defense efforts.

EUR/USD trades at elevated range‑bound levels. Euro‑zone economic indicators show tentative improvement, and the European Central Bank is debating its rate path. The euro moves partly on dollar dynamics and partly on domestic euro‑zone inflation and macro prints. GBP/USD also trades in narrow ranges. Sticky domestic inflation keeps the Bank of England in a cautious policy stance. Commodity‑linked currencies such as the Australian dollar and New Zealand dollar are subject not only to dollar swings but also to volatility in crude oil and broader commodities. Energy‑price rallies driven by Middle‑East tensions indirectly affect commodity‑currency performance.

For the Chinese yuan, amid Dollar‑Index choppiness, the yuan has exhibited relative resilience. The official mid‑point has been consistently adjusted higher, and onshore yuan keeps advancing. Swinging Fed‑policy expectations combined with signs of domestic economic recovery have enabled the yuan to show independent performance. Foreign‑exchange supply‑and‑demand conditions are shifting, and yuan pricing will continue to be indirectly influenced by shifts in Fed‑rate expectations.

Major investment banks have laid out scenario‑based outlooks. Some institutions argue that as long as inflation does not show clear, persistent cooling, the Fed will not fully close the door to further tightening, leaving downside support for the U.S. dollar and warning against overly bearish dollar positioning. Other analysts believe a labor‑market inflection point has emerged, and inflation will cool with a lag. Under this view, additional Fed hikes are unlikely for the rest of the year, and the dollar faces medium‑term downside pressure. A broad market consensus holds that large‑scale directional forex moves are unlikely before the CPI release; many market participants remain on the sidelines, waiting for the data to set fresh trading parameters.

Middle‑East geopolitics constitute a critical external risk factor. Shipping conditions in the Strait of Hormuz remain volatile, and U.S.‑Iran negotiation developments drive oil‑price swings. A renewed conflict escalation that sends crude sharply higher would reignite U.S.‑inflation fears, force the Fed to maintain a hawkish bias and benefit the U.S. dollar. De‑escalation and lower oil prices would ease inflation pressure and weaken hawkish Fed arguments, weighing on the dollar. Geopolitical events can strike unexpectedly and break existing range‑bound patterns, representing a material risk for foreign‑exchange participants.

Key events to monitor going forward:

1. U.S. July CPI release at 20:30 Beijing Time, August 12
2. U.S. July PPI data on August 14
3. Ongoing public speeches from Federal Reserve officials
4. Middle‑East geopolitical developments and crude‑oil‑price fluctuations
5. The September 16‑17 FOMC meeting, a pivotal policy event for the second half of the year.