Collision course
The recent rise of political interference in the U.S. is a cause for concern. While we’ve grown used to erratic trade policy and on-again, off-again threats to the Fed’s independence, the current challenge to data integrity feels like a different world entirely. And things could only get worse. The recent resignation of Governor Kugler from the FOMC board, with motivations unclear, means whoever is nominated to replace her will likely add to the dovish dissents, pushing for rate cuts.
This brings up a key question: after last week’s disappointing job report, is a September rate cut a done deal? The Fed’s dual mandate has become as complex as it can get. On one hand, following the downward payrolls revision, the three-month moving average for job growth is down to just 35,000, a steep drop from over 125,000 last month. However, the U.S. jobless rate, despite these revisions, is roughly at the same level as a year ago. Furthermore, jobless claims, after rising to 250k in early June, settled back down to 215k in July. This suggests that while the labor market is creating jobs at the lowest levels since the pandemic, the unemployment rate, which the Fed and Powell watch closely, isn’t ringing alarm bells yet.
On the other side of the equation is inflation. Chair Powell not only believes that tariffs will cause a one-time price shock, but he seems determined to prevent any second-order effects. As mentioned throughout the year, I think he wants to leave a legacy like Volcker, not Burns. He understands the mistake of labeling the 2021 inflation spike as “transitory” and knows his job is not yet done. This task is made even more complicated by the tariffs. The level of intrusiveness from the U.S. administration, which has assumed that statistics are politically biased, takes the challenge to another level.
Powell now finds himself fighting on two fronts. He’s dealing with the political pressure to cut rates, which he might have gotten used to. After his hawkish presser last week, it seemed he was clearly on top, successfully resisting the pressure. But now, what about the confidence he, the Fed, the economy, markets, and other institutions will have in macro data going forward? It’s ironic that questions about credibility and integrity are being raised at this particular moment. The downward revision to the jobs data was one of the largest in history since the 1960s, so perhaps a questioning of the methodology is warranted. But what happens now? What if the August payrolls report reaffirms that the cooling off of the economy is real? And what if goods inflation in July comes in hot, as economists expect, due to tariffs? Will that be enough to keep the administration from questioning macro statistics?
Or what if the numbers bounce back? Will we have to assume from now on that numbers are “rigged” if a person aligned with the U.S. administration is in the Bureau of Labor Statistics? It’s truly surreal to have to second-guess the integrity of upcoming U.S. data, especially at such a pivotal moment. After three consecutive years of wrong recession calls, we might finally be facing a genuine cool-down that will test the soft-landing narrative. We might finally see the “real economy,” not just the world of the Mag-7 and the AI boom with its athlete-type salaries, run into real trouble.
Back in 2019, in an interview with ABC, when he was asked about the Mueller report, President Trump said that if he had the chance, he would never fire anyone, referencing Richard Nixon’s experience and how it “didn’t work too well for him.” I’m not sure this will work for him now, and of all the missteps this year alone, this one could backfire really badly.
One thing is certain: volatility in the currency markets is coming. This start of the week has been relatively calm. After Friday’s U-turn, when the dollar gave up 1.2% of its 3.2% gains from July after the jobs report, markets have stabilized. With a relatively quiet week on the macro data front, markets will likely move sideways for now, but the calm may not last. Coming on August 12, the July CPI report is arguably the most important piece of macro data we’ll see this month.
Sentiment wobbles but euro holds firm
Last Friday’s dramatic EUR/USD rally – up over 1.5% – was a clear signal that the euro remains the go-to alternative for global investors seeking to diversify away from the dollar. The surge followed a trifecta of shocks: dismal US labour data, the firing of BLS Commissioner, and rising expectations of a Fed rate cut in September.
The world’s most traded currency pair is currently hovering near its 50-day moving average at $1.1550, after rebounding from support at $1.1377, which aligns with the 100-day average. However, Monday’s release of the August Sentix Investor Confidence Index threw cold water on bullish momentum. The index plunged to -3.7, reversing July’s +4.5, with the Current Situation sub-index falling to -13.0 and Expectations slipping to 6.03. This marked the first negative print in four months and reflected widespread disappointment over the EU–U.S. trade deal.
Relative Strength Index (RSI) readings suggest EUR/USD remains in neutral territory, with bulls hesitant to commit. A decisive break above $1.1600 could open the path toward $1.1700, but conviction is lacking amid mixed macro signals.
Meanwhile, Switzerland is grappling with a trade shock of its own. The U.S. slapped a 39% tariff on Swiss exports last week, blindsiding officials who had expected a 10% rate following months of negotiations. The move followed a reportedly tense phone call between President Trump and Swiss President Karin Keller-Sutter, and has sparked fears of recession, especially in export-heavy sectors like luxury goods and engineering.
Swiss CPI remains near 0% year-on-year, and the tariffs are expected to deepen disinflationary pressures. EUR/CHF has begun to march higher in response, but any last-minute deal before the August 8 deadline could reverse that move. A sustained rally in EUR/CHF likely hinges on confirmation that the ECB’s easing cycle is complete – something markets may not know for certain until 2026.
No deal, no growth
Following intense negotiations, Canadian Minister for Canada-U.S. Trade, Dominic LeBlanc, left Washington last week without a deal. This has resulted in a new 35% tariff on Canadian exports to the U.S., effective last Friday, which adds to existing tariffs on key sectors like aluminum, steel, and autos.
Despite this new measure, a significant portion of trade remains unaffected. According to the U.S. Census Bureau, approximately 90% of Canadian exports to the U.S. crossed the border duty-free in May, largely thanks to the CUSMA/USMCA trade deal. While markets now anticipate that some tariffs will be paid, there is hope that ongoing negotiations will result in a more moderate and strategically scoped agreement, benefiting both nations. Ultimately, Canadians are seeking clarity and an end to the trade policy uncertainty that has dampened economic growth.
The impact of this uncertainty is reflected in Canada’s recent economic performance. The last monthly GDP report showed a 0.1% decline in May, driven by a contraction in mining and oil and gas extraction, though partially offset by gains in manufacturing. The services sector remained flat, with growth in real estate and transportation offset by declines in retail and public administration. However, advanced data suggests a potential slight increase in June, which could lead to a flat second quarter for 2025.
In currency markets, the USD/CAD pair has started the week with relative calm following a weak U.S. jobs report. The pair could be consolidating around the 1.38 level, trading within a narrow range between 1.374 and 1.384, near its medium-term moving average. The most important data point for Canada this week, will be the job report, where markets are expecting the economy to have created 10,000 jobs in July and the unemployment rate tick up again to 7%.
Traders dial back GBP bearish bets
Risk reversals are a measure used in currency options markets to gauge sentiment. They compare the price of put options (bets on a currency falling) to call options (bets on it rising). If puts are more expensive than calls, it signals bearish sentiment; if calls are pricier, it suggests bullish expectations.
Ahead of Thursday’s Bank of England rate decision, where a quarter-point cut to 4% is widely expected, options traders have pared back short-term bearish bets on the British pound. One-week GBP/USD risk reversals edged up to 0.15% in favour of puts, while one-month risk reversals rose to 0.34%, both nearing parity and marking the least bearish positioning since July 25. This shift reflects a more balanced outlook, as traders anticipate a cautious BoE stance amid sticky inflation (3.6%) and rising unemployment (4.7%). While a cut this week is almost certain, economists are divided on the path ahead: some expect one or two more cuts this year, potentially bringing rates to 3.75% by December, while others believe this could be the final move in the current cycle.
In the spot market, GBP/USD is hovering just below $1.33, rebounding from last week’s low of $1.3142 amid a revived “sell America” theme that has weakened the dollar. However, the pair is struggling to break above its 100-day moving average, while the 21-day moving average remains downward-sloping – signalling lingering technical resistance and a cautious outlook.
GBP/EUR is grappling with the €1.15 handle, currently trading around €1.1495—a cent below its 5-year average and three cents beneath its 2024–2025 average of €1.18. With rate differentials increasingly favouring the euro and volatility likely to support the liquid common currency, the outlook for sterling remains pressured. Unless UK growth surprises to the upside or inflation proves stickier than expected, sterling may struggle to regain ground against the euro in the coming months.
The Pound struggles to recover
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: August 4-8
All times are in ET
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.ve a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
