Record’s July 2026 market commentary focused on three main forces shaping currency markets: geopolitical tension, higher energy prices and changing expectations for central bank policy.
Geopolitical risk returned to the forefront early in the month. US strikes against Iran and the threat of further action raised concerns over energy supply, while Houthi attacks on Red Sea shipping added pressure to global trade routes. Brent crude moved above USD 90 per barrel during July.
The rise in oil prices had different implications across currencies. The Norwegian krone benefited from Norway’s position as a major energy exporter. By contrast, energy-importing economies such as the Eurozone and Japan faced greater pressure from higher costs. This widened the gap between currencies supported by commodity revenues and those exposed to imported inflation.
Japan became a key focus later in the month. The US and Japan carried out coordinated intervention to support the yen, with the Bank of Japan deploying at least USD 30 billion. The US sold EUR/JPY rather than USD/JPY, allowing it to support the yen without directly selling dollars.
The Bank of Japan kept its policy rate at 1.00%, although one policymaker voted for an increase. Governor Kazuo Ueda also highlighted the inflationary impact of a weak yen and indicated that currency moves could affect the timing of future rate rises.
The yen gained 2.1% during July, with intervention driving much of the move. However, low Japanese yields and higher oil prices remained headwinds. The next stage will depend partly on whether the Bank of Japan follows its stronger language with tighter policy.
US monetary policy expectations also shifted. Federal Reserve Chair Kevin Warsh used congressional testimony to reinforce a more data-dependent approach, while the July Federal Open Market Committee meeting also reduced confidence that further rate increases were firmly set.
Softer Core PCE inflation supported that change in tone. Markets moved away from the stronger tightening expectations seen in June, reducing conviction around two additional US rate increases before the end of the year.
The US dollar weakened as those expectations changed, falling by an average of 1.7% against G10 currencies during July. The move showed how quickly currency pricing can adjust when the expected path of interest rates changes.
Elsewhere, the European Central Bank left rates unchanged while keeping open the possibility of future increases. The Bank of England also maintained a restrictive stance but acknowledged greater uncertainty around growth.
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