Forex Major Currencies Outlook (Aug 4 – Aug 8)
BoE meeting, employment data from Canada and New Zealand as well as inflation data from Switzerland will highlight the economic news in the week ahead of us.
USD
US China trade talks were held from Monday in Stockholm. US side was led by Treasury Secretary Bessent while China was represented by Vice Premier He Lifeng. There was no deal made but countries did agree to work towards extension of a 90-day truce that is set to expire on August 12. President Trump threatened with harsh tariffs on countries that still import Russian oil. Additionally, he stated that new set of sanctions targetting Russian oil could come in play within 10 days. Tariffs on Brazil and Canada were increased, 40% and 35% respectively, with goods under USMCA agreement being excluded from tariffs. Switzerland was hit with 39% tariffs. The new tariffs will go into effect on August 7. Mexico received a new 90-day extension on tariffs. US South Korea deal was reached. Imports from South Korea will be tariffed at 15%. South Korea will invest $350bn in the US and buy $100bn worth of energy, mainly LNG. US goods will not be tariffed when entering South Korea.
Advanced reading of Q2 GDP saw economy grow by 3% vs 2.4% annualized as expected. This jump from -0.5% reading in first quarter was achieved mainly through net exports as lower imports helped this measure contribute 5pp. Personal consumption contributed with almost 1pp while government consumption added 0.1pp. Gross private domestic investment made an 180 turnaround as it lowered Q2 GDP by 3.1pp after successfully increasing it by 3.9pp in the previous quarter. Some reports suggest that CAPEX in AI contributed more to the GDP than personal consumption.
Fed has left interest rate unchanged in the range of 4.25-4.50% as was widely expected. The decision saw Governors Waller and Bowman dissent as they voted for a 25bp cut. The statement acknowledged whipsaws in net exports in first two quarters but despite that economic activity is said to have moderated in H1. "The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated." Regarding forward guidance we got "The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."
Powell sounded hawkish. He stated that he IS looking through the one-time effect of tariffs as he is not raising rates. He stated that the unemployment rate is the main data point to watch for the strength of the labour market. Powell characterized monetary policy as “moderately restrictive”. His resolution to stay the course and not lower rates lead to a collision course with President and Trump used the opportunity to ramp up insults calling him “too stupid”, “too political” and a “total looser”. Ironically, Trump’s pressure could backfire as Powell digs in deeper in his position.
July PCE report saw headline number print 2.6% y/y vs 2.5% y/y as expected and up from 2.3% y/y in June. Monthly number came in at 0.3% as expected (0.2805% unrounded). Core PCE ticked up to 2.8% y/y while it was expected to stay unchanged at 2.7% y/y. Monthly print also showed 0.3% increase as expected (0.2563% unrounded, barely above 0.2%). Personal spending and personal consumption both rose 0.3%.
NFP for July was a very disappointing. Headline number came in at 73k vs 110k as expected but June reading was revised from 147k to 14k! It showed almost no job gains in June! The unemployment rate ticked up to 4.2% as expected while participation rate ticked down to 62.2%. Underemployment rate rose to 7.9% form 7.7% in June. Wages came in a bit hotter at 0.3% m/m and 3.9% y/y. Private jobs added 83k while government lost 10k jobs and 73k jobs added were in healthcare. Weakness in the labor market, as can be seen from the report, pushed Trump to ramp up his attack on Chair Powell this time calling him a “MORON” and urging him to “DROP THE RATE”. Chair Powell stated that the focus is on the unemployment rate but markets sold USD hard with most pairs gaining around 150 pips in first 15 minutes after the report.
BoE meeting, employment data from Canada and New Zealand as well as inflation data from Switzerland will highlight the economic news in the week ahead of us.
USD
US China trade talks were held from Monday in Stockholm. US side was led by Treasury Secretary Bessent while China was represented by Vice Premier He Lifeng. There was no deal made but countries did agree to work towards extension of a 90-day truce that is set to expire on August 12. President Trump threatened with harsh tariffs on countries that still import Russian oil. Additionally, he stated that new set of sanctions targetting Russian oil could come in play within 10 days. Tariffs on Brazil and Canada were increased, 40% and 35% respectively, with goods under USMCA agreement being excluded from tariffs. Switzerland was hit with 39% tariffs. The new tariffs will go into effect on August 7. Mexico received a new 90-day extension on tariffs. US South Korea deal was reached. Imports from South Korea will be tariffed at 15%. South Korea will invest $350bn in the US and buy $100bn worth of energy, mainly LNG. US goods will not be tariffed when entering South Korea.
Advanced reading of Q2 GDP saw economy grow by 3% vs 2.4% annualized as expected. This jump from -0.5% reading in first quarter was achieved mainly through net exports as lower imports helped this measure contribute 5pp. Personal consumption contributed with almost 1pp while government consumption added 0.1pp. Gross private domestic investment made an 180 turnaround as it lowered Q2 GDP by 3.1pp after successfully increasing it by 3.9pp in the previous quarter. Some reports suggest that CAPEX in AI contributed more to the GDP than personal consumption.
Fed has left interest rate unchanged in the range of 4.25-4.50% as was widely expected. The decision saw Governors Waller and Bowman dissent as they voted for a 25bp cut. The statement acknowledged whipsaws in net exports in first two quarters but despite that economic activity is said to have moderated in H1. "The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated." Regarding forward guidance we got "The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."
Powell sounded hawkish. He stated that he IS looking through the one-time effect of tariffs as he is not raising rates. He stated that the unemployment rate is the main data point to watch for the strength of the labour market. Powell characterized monetary policy as “moderately restrictive”. His resolution to stay the course and not lower rates lead to a collision course with President and Trump used the opportunity to ramp up insults calling him “too stupid”, “too political” and a “total looser”. Ironically, Trump’s pressure could backfire as Powell digs in deeper in his position.
July PCE report saw headline number print 2.6% y/y vs 2.5% y/y as expected and up from 2.3% y/y in June. Monthly number came in at 0.3% as expected (0.2805% unrounded). Core PCE ticked up to 2.8% y/y while it was expected to stay unchanged at 2.7% y/y. Monthly print also showed 0.3% increase as expected (0.2563% unrounded, barely above 0.2%). Personal spending and personal consumption both rose 0.3%.
NFP for July was a very disappointing. Headline number came in at 73k vs 110k as expected but June reading was revised from 147k to 14k! It showed almost no job gains in June! The unemployment rate ticked up to 4.2% as expected while participation rate ticked down to 62.2%. Underemployment rate rose to 7.9% form 7.7% in June. Wages came in a bit hotter at 0.3% m/m and 3.9% y/y. Private jobs added 83k while government lost 10k jobs and 73k jobs added were in healthcare. Weakness in the labor market, as can be seen from the report, pushed Trump to ramp up his attack on Chair Powell this time calling him a “MORON” and urging him to “DROP THE RATE”. Chair Powell stated that the focus is on the unemployment rate but markets sold USD hard with most pairs gaining around 150 pips in first 15 minutes after the report.
Fed Governor Kugler was not at Fed meeting due to personal reasons. She announced her resignation and will move to a teaching job at Georgetown University. Trump will have a chance to appoint new Fed Governor and thus increase his influence over Fed decisions. Two-month downward revisions amounted to 258k jobs. Trump stated that BLS chief, Erika McEntarfer, is Biden appointee stating that she has been manipulating jobs data and is the main reason for huge downward revisions. She was fired on Friday and will also be replaced by Trump appointee which will raise questions regarding validity of future data.
The yield on a 10y Treasury started the week at 4.39%, rose to 4.42% and finished the week at around 4.23%. The yield on 2y Treasury started the week at 3.92%, rose to 3.96% and finished the week at around 3.69%. Spread between 2y and 10y Treasuries started the week at 47bp and finished the week at 54bp as curve started steepening again. After weak NFP print FedWatchTool sees the probability of a 25bp rate cut at September meeting around 82%, while probability of a no cut is around 18%. S&P reached a new all time high and crossed the 6420 level on Wednesday but plunged afterwards to almost 6200.
This week we will have ISM Services PMI expected to show a small improvement.
Important news for USD:
Tuesday:
This week we will have ISM Services PMI expected to show a small improvement.
Important news for USD:
Tuesday:
- ISM Services PMI
EUR
Q2 GDP for the Eurozone managed to eek a small gain of 0.1% q/q while markets were expecting it to stay flat. After the frontrunning of tariffs helped Q1 GDP there was no such impetus to growth in second quarter. France and Spain contributed positively to the reading while Italy and Germany saw their economies contract in Q2 with latter posting three quarters of negative growth since Q2 of last year. Fiscal stimulus should help return German growth in the coming quarter.
Preliminary July CPI for the Eurozone showed no changes to the June numbers as it printed 2% y/y for the headline and 2.4% y/y for the core. Headline inflation was flat m/m. German and French reading were unchanged at 2% y/y and 1% y/y respectively. ECB consumer expectations survey showed inflation expectations for 1 year ahead dropping further and now printing 2.6% vs 2.8% previously.
GBP
Final manufacturing PMI for the month of July was revised down to 48 from 48.2 as preliminary reported. Still it represents the fourth consecutive month of improvements. The report shows that output is stabilizing while future output expectations are increasing. Employment falling at a faster rate is a cause for concern while both input and output prices remain relatively stable indicating diminished inflation pressures.
This week we will have a BoE meeting where a 25bp rate cut is priced in. Structure of votes will be closely followed as would the new projections and language of the statement that would hint at quicker pace of cuts, from current one-per-quarter, in the future.
Important news for GBP:
Thursday:
Q2 GDP for the Eurozone managed to eek a small gain of 0.1% q/q while markets were expecting it to stay flat. After the frontrunning of tariffs helped Q1 GDP there was no such impetus to growth in second quarter. France and Spain contributed positively to the reading while Italy and Germany saw their economies contract in Q2 with latter posting three quarters of negative growth since Q2 of last year. Fiscal stimulus should help return German growth in the coming quarter.
Preliminary July CPI for the Eurozone showed no changes to the June numbers as it printed 2% y/y for the headline and 2.4% y/y for the core. Headline inflation was flat m/m. German and French reading were unchanged at 2% y/y and 1% y/y respectively. ECB consumer expectations survey showed inflation expectations for 1 year ahead dropping further and now printing 2.6% vs 2.8% previously.
GBP
Final manufacturing PMI for the month of July was revised down to 48 from 48.2 as preliminary reported. Still it represents the fourth consecutive month of improvements. The report shows that output is stabilizing while future output expectations are increasing. Employment falling at a faster rate is a cause for concern while both input and output prices remain relatively stable indicating diminished inflation pressures.
This week we will have a BoE meeting where a 25bp rate cut is priced in. Structure of votes will be closely followed as would the new projections and language of the statement that would hint at quicker pace of cuts, from current one-per-quarter, in the future.
Important news for GBP:
Thursday:
- BoE Interest Rate Decision
AUD
Q2 CPI report was very encouraging for the RBA. Headline number printed 0.7% q/q and 2.1% y/y, both lower than 0.8% q/q and 2.2% y/y as expected and down from 0.9% q/q and 2.4% y/y in the first quarter. Trimmed mean, core measure, came in at 0.6% q/q and 2.7% y/y, down from 0.7% q/q and 2.9% y/y in Q1. With inflation coming slightly weaker than expected August cut is now certain and fully priced in.
Official PMI data from China for the month of July saw declines across sectors. Manufacturing slipped to 49.3 from 49.7 in June as both new orders and new export orders declined, both in contraction, indicating weakness in both domestic and international demand. Non-manufacturing, services and construction, managed to stay in expansion with 50.1 print, down from 50.5 the previous month. New orders and new export orders also declined and are also both in contraction, while business sentiment remains at a very high level (55.8) Composite was dragged lower to 50.2 from 50.7 in June. Caixin manufacturing PMI dropped back to contraction with a 49.5 print after a 50.4 print in June while markets were expecting it to stay in expansion with a 50.3 print. Production, new export orders and employment were all down while business sentiment and surprisingly input prices rose with latter showing the first increase in five months.
NZD
Business confidence continued to improve as it printed 47.8 in July after a 46.3 print in June. Wage and profit expectations rose while pricing intentions and inflation expectations for 1 year out both dropped. Residential construction posted the biggest concern as it printed a heavy drop, lowest reading in a year.
This week we will have Q2 employment data.
Important news for NZD:
Wednesday:
Q2 CPI report was very encouraging for the RBA. Headline number printed 0.7% q/q and 2.1% y/y, both lower than 0.8% q/q and 2.2% y/y as expected and down from 0.9% q/q and 2.4% y/y in the first quarter. Trimmed mean, core measure, came in at 0.6% q/q and 2.7% y/y, down from 0.7% q/q and 2.9% y/y in Q1. With inflation coming slightly weaker than expected August cut is now certain and fully priced in.
Official PMI data from China for the month of July saw declines across sectors. Manufacturing slipped to 49.3 from 49.7 in June as both new orders and new export orders declined, both in contraction, indicating weakness in both domestic and international demand. Non-manufacturing, services and construction, managed to stay in expansion with 50.1 print, down from 50.5 the previous month. New orders and new export orders also declined and are also both in contraction, while business sentiment remains at a very high level (55.8) Composite was dragged lower to 50.2 from 50.7 in June. Caixin manufacturing PMI dropped back to contraction with a 49.5 print after a 50.4 print in June while markets were expecting it to stay in expansion with a 50.3 print. Production, new export orders and employment were all down while business sentiment and surprisingly input prices rose with latter showing the first increase in five months.
NZD
Business confidence continued to improve as it printed 47.8 in July after a 46.3 print in June. Wage and profit expectations rose while pricing intentions and inflation expectations for 1 year out both dropped. Residential construction posted the biggest concern as it printed a heavy drop, lowest reading in a year.
This week we will have Q2 employment data.
Important news for NZD:
Wednesday:
- Employment Change
- Unemployment Rate
CAD
BoC has left overnight rate unchanged at 2.75% as was widely expected. The bank refrained from giving projections about global growth due to uncertainties surrounding trade policy and instead presented two scenarios, one with an escalation and another with a de-escalation of tariffs. The statement shows that bank is concerned about growth as there is still no trade deal between US and Canada and expectations for Q2 GDP are -1.5%.
BoC Governor Macklem stated at the press conference that “if a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate”.
This week we will have July employment data.
Important news for CAD:BoC has left overnight rate unchanged at 2.75% as was widely expected. The bank refrained from giving projections about global growth due to uncertainties surrounding trade policy and instead presented two scenarios, one with an escalation and another with a de-escalation of tariffs. The statement shows that bank is concerned about growth as there is still no trade deal between US and Canada and expectations for Q2 GDP are -1.5%.
BoC Governor Macklem stated at the press conference that “if a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate”.
This week we will have July employment data.
Friday:
- Employment Change
- Unemployment Rate
JPY
BoJ has left rate unchanged at 0.50% as was widely expected. Inflation forecast was lifted, also as expected, as it now shows core CPI, that is ex fresh food component, median at 2.7% for 2025 compared to 2.2% previously. 2026 is seen at 1.8% vs 1.7% previously while 2027 is at 2% vs 1.9% previously. Core-core CPI, ex fresh food, energy component, median is seen at 2.8% vs 2.3% for 2025, 1.9% vs 1.8% for 2026 while for 2027 it stays at 2%. They have raised its growth forecast for 2025 to 0.6% from 0.5% previously. The report shows that underlying inflation still remains below target but it is expected to gradually pick up and reach target in H2 of 2025 through 2027. Risks surrounding economic outlook are tilted to the downside while risks surrounding inflation are seen as broadly balanced. The bank warns that high uncertainties could lead to companies cutting costs which could in turn lead to lower wage growth which would weaken demand pull inflation. BoJ is refusing to pre-commit to rate hikes as it stays in data-dependent mode. If the economy develops as anticipated we could expect rate hikes to come in late Q4 of 2025 or early 2026.
BoJ Governor Ueda praised, at the press conference, trade deal with the US as a great progress as it will reduce uncertainties surrounding economic outlook and increase likelihood of reaching bank’s outlook. He reiterated data-dependent approach and clarified that inflation data is not the only factor that will influence future monetary policy decisions. Ueda mentioned multiple times that underlying inflation is stalling but it is expected to gradually pick up. So far it is still not hitting 2% target on a sustainable basis. There were no signs that BoJ is resolute to hike interest rates but there were indications that situation in the economy is improving which will lead to rate hikes.
CHF
SNB total sight deposits for the week ending July 25 came in at CHF474.7bn vs CHF475.3bn the previous week. The number shows a small pull back, is it just a breather before it continues surging towards the half trillion mark or we have reached the upper limit remains to be seen in the coming weeks.
This week we will have July inflation data.
Important news for CHF:
Monday:
BoJ has left rate unchanged at 0.50% as was widely expected. Inflation forecast was lifted, also as expected, as it now shows core CPI, that is ex fresh food component, median at 2.7% for 2025 compared to 2.2% previously. 2026 is seen at 1.8% vs 1.7% previously while 2027 is at 2% vs 1.9% previously. Core-core CPI, ex fresh food, energy component, median is seen at 2.8% vs 2.3% for 2025, 1.9% vs 1.8% for 2026 while for 2027 it stays at 2%. They have raised its growth forecast for 2025 to 0.6% from 0.5% previously. The report shows that underlying inflation still remains below target but it is expected to gradually pick up and reach target in H2 of 2025 through 2027. Risks surrounding economic outlook are tilted to the downside while risks surrounding inflation are seen as broadly balanced. The bank warns that high uncertainties could lead to companies cutting costs which could in turn lead to lower wage growth which would weaken demand pull inflation. BoJ is refusing to pre-commit to rate hikes as it stays in data-dependent mode. If the economy develops as anticipated we could expect rate hikes to come in late Q4 of 2025 or early 2026.
BoJ Governor Ueda praised, at the press conference, trade deal with the US as a great progress as it will reduce uncertainties surrounding economic outlook and increase likelihood of reaching bank’s outlook. He reiterated data-dependent approach and clarified that inflation data is not the only factor that will influence future monetary policy decisions. Ueda mentioned multiple times that underlying inflation is stalling but it is expected to gradually pick up. So far it is still not hitting 2% target on a sustainable basis. There were no signs that BoJ is resolute to hike interest rates but there were indications that situation in the economy is improving which will lead to rate hikes.
CHF
SNB total sight deposits for the week ending July 25 came in at CHF474.7bn vs CHF475.3bn the previous week. The number shows a small pull back, is it just a breather before it continues surging towards the half trillion mark or we have reached the upper limit remains to be seen in the coming weeks.
This week we will have July inflation data.
Important news for CHF:
Monday:
- CPI
