- Powell’s caution. The Fed Chair struck a cautious tone on further easing, stressing that the rate cut path remains uncertain as policymakers balance inflation risks against a softening labor market.
- Hawkish repricing. Markets are no longer fully pricing in two more Fed rate cuts by year-end, hence the dollar’s rebound in line with US yields to almost 1-month highs.
- Shifting narrative. Indeed, it could be argued that the USD narrative is shifting from a “rate cut casualty” to a relative growth story, echoing dynamics from President Trump’s first term.
- Fiscal tailwinds. With the drag from tariffs fading, financial conditions easing, and fiscal policy (via the “One Big Beautiful Bill”) turning supportive, U.S. growth prospects for 2026 look brighter.
- Good data is bad news. Second-quarter US GDP growth was unexpectedly revised up to 3.8%, marking the fastest pace in nearly two years. But risk assets sold off as easing bets were pared.
- Crypto slump. This is a reminder that risk appetite is fragile. While not a guaranteed signal of broader market correction, it does highlight how quickly sentiment can flip when liquidity and leverage collide.
- Business as usual. Elsewhere, as expected, the Swiss National Bank left its policy rate unchanged at 0% and refrained from labelling the franc’s strength as a “risk”.
Global Macro
US macro data defies weakening labor market
Surprising beats. All US data released this week was Dollar positive. Final Q2 GDP was revised up to 3.8% from a previous estimate of 3.3%, significantly beating the consensus forecast of 3.4%. This upward revision was driven by stronger consumer spending. Initial jobless claims fell to 218,000, far below the expected 233,000. Additionally, the US Flash Manufacturing PMI strengthened to its highest level since May 2022, while the services PMI also remained strong, although both were a little below the consensus expectations.
US Consumer remains strong. U.S. consumer spending rose more than expected in August, with inflation-adjusted outlays up 0.4% for a second straight month. Core PCE, the Fed’s preferred inflation gauge, increased 0.2% from July and 2.9% year-over-year, matching forecasts.
Sluggish PMI signals. Flash PMI surveys for the Eurozone, Germany, France, and the UK provided a mixed picture. The Eurozone’s Composite PMI edged up to a 16-month high, but this was driven by a sluggish service sector and a manufacturing sector that saw a slowdown in expansion. In contrast, Germany’s PMI readings were solid, while France’s continued to decline. The UK’s PMI data also showed signs of easing growth. Overall, the data suggested that while the Eurozone’s economy is expanding, the recovery remains sluggish.
Banxico cuts. Banco de Mexico cut its overnight rate by 25 basis points to 7.50%. This decision was in line with market expectations. This move marked the tenth consecutive rate cut, as the central bank continues its easing cycle amid a decline in inflation.
SNB holds the line. As expected, the Swiss National Bank (SNB) left its policy rate unchanged at 0%, and taking a more relaxed stance on exchange rate developments.
Underlying pressures. The monthly CPI Indicator for Australia showed persistent underlying price pressures. The data pointed to inflation remaining above the Reserve Bank of Australia’s target band, reinforcing its cautious stance on future rate cuts.
Week ahead
Jobs data reclaims the spotlight
Jobs in focus. Will this be the third Non-farm payrolls (NFP) print to show signs of improvement, now that months of utter uncertainty are behind us? Or will it mark the fifth consecutive month of job gains below the one-year average? Should the print overshoot expectations, it would almost certainly delay Fed easing and keep the dollar supported. Keep an eye on JOLTS and ADP releases too, which precede the almighty NFP report on Friday.
Inflation anchored. CPI data for key members like France and Germany, as well as the aggregate eurozone bloc, is due next week. Lagarde hailed the end of the deflationary cycle during her latest policy meeting press conference. Inflation has held steady at 2% for the third consecutive month, helped in part by a stronger euro.
Retail reality check. Germany’s retail sales will be closely watched following a disappointing drop in the Ifo indicator this week. The economy may be facing yet another year of stagnation, despite the optimism sparked by the fiscal loosening plan at the start of 2025.
Confidence on trial. Consumer confidence indicators from the European Commission are due next week. They may help complete the picture of declining manufacturing activity, alongside this month’s contraction in the July trade balance – typically a surplus for the eurozone.
FX Views
Hawk talk, dollar walk
USD Dollar holds the line. The dollar index (DXY) hit a one-month high as investors recalibrated rate expectations in response to mixed signals from the Fed’s policy meeting. The week featured a spectrum of voices – doves, hawks, and Chair Powell himself. The key takeaway: the easing cycle is far from assured, and the recent rate cut seems more preventative than curative. The overall economy remains stable and inflation continues to edge higher, while recent upward revisions to Q2 GDP and core PCE lend credibility to hawkish concerns. Markets are currently pricing in nearly two additional cuts by year-end (39 basis points), which may be overly optimistic given the Fed’s data-dependent stance and the two remaining meetings. This suggests that any further repricing of expectations could support the dollar in the short- to medium-term, as it continues to show remarkable resilience around the 97 level – a threshold that has repeatedly held since this year’s earlier decline.
EUR Rally, retreat, repeat. The euro was buffeted by U.S. market dynamics this week, struggling to find its footing and ultimately falling more than 0.5% in a zigzag pattern. Investors initially priced in aggressive Fed easing, but sentiment shifted to a more cautious stance following stronger-than-expected U.S. data revisions. In response, the euro surged to new year-to-date highs before retreating as hawkish repricing gained traction. While the extent to which the Fed turns dovish will shape medium-term euro price action, the euro leg of the EUR/USD fundamentals has largely exhausted its supportive drivers, with the ECB having completed its easing cycle. On the data front, disappointing Ifo figures from Germany – where both the current conditions and expectations components fell short of forecasts – combined with a mixed PMI picture, including manufacturing slipping into contraction below the 50 mark, do not bode well for the currency. One of the euro’s early-year catalysts had been Germany’s relaxation of its fiscal ceiling, but that initial excitement now appears to have faded.
GBP Bearish bias. Sterling has suffered its sharpest two‑day drop against the dollar (-1.3%) since April’s tariff‑driven turmoil. The currency remains under pressure as surging UK long‑term yields clash with a resurgent greenback, buoyed by strong US data and fading Fed easing bets. From its Sept 17 peak, GBP/USD has fallen nearly 3%, leaving the pair near monthly lows after a technically bearish shooting‑star pattern. Rising gilt yields highlight investor doubts over the government’s long‑term fiscal credibility: 10‑years hit their highest since early September, while 30‑years edged back toward the 27‑year peak of 5.75%. Supply concerns remain front of mind as the BoE runs down holdings and fiscal needs stay elevated, amplified by weak demand at yesterday’s auction. Sterling’s slide alongside higher yields is a troubling signal, suggesting markets see stress rather than carry. A break below $1.34 would expose the Sept low at $1.3333, with the 200‑day EMA at $1.3254 and August’s trough at $1.3142 the next supports. With only 39 bps of cuts priced through 2026, a faster BoE easing cycle could surprise — and for now, dollar strength compounds the pressure heading into November’s budget.
CHF Status quo. As expected, the Swiss National Bank (SNB) left its policy rate unchanged at 0%, with consumer price inflation running at just 0.2% year‑on‑year in August. Despite the franc’s strength, the SNB refrained from labelling it a risk or describing it as ‘highly valued,’ language used in earlier statements. That restraint is mildly supportive for the currency, with EUR/CHF still capped below 0.94 and USD/CHF under 0.80 despite broad dollar strength. Switzerland’s low inflation is helping to stabilise the real exchange rate even as the nominal franc appreciates — a dynamic likely reassuring to policymakers. Implied volatility in franc pairs remains near historic lows, but the franc’s history of long calm spells punctuated by sharp moves suggests traders should not mistake quiet for permanence.
CAD New monthly high. According to Statistics Canada, the Canadian economy showed a modest rebound in July 2025, with real Gross Domestic Product (GDP) growing 0.2% month-over-month, marking its first expansion in four months. Although the news has slightly helped ease the pressure on the USD/CAD, net short positioning has returned, and a widening U.S.-Canada yield differential has also helped pushed the USD/CAD closer toward its 200-day simple moving average (SMA) at 1.40. September has offered little support for the Canadian dollar. Recent data has reinforced expectations of a stagnant economy and aligned with the Bank of Canada’s (BoC) view that downside risks have increased. Last week’s dual policy updates from the Fed and the BoC further exposed the Canadian dollar to U.S. dollar strength. The divergence in positioning and central bank tone, with a more dovish BoC and a more hawkish Fed, coupled with hawkish ‘Fedspeak’ this week, helped push the USD/CAD to a monthly high of 1.395. Although the pair is technically overbought in the short term, only a significant upside surprise in Canadian macro data could prevent the USD/CAD from breaking back above 1.40. Also, US macro data hasn’t been of help for the Loonie, as it’s surprised to the upside. While next week’s Canadian manufacturing PMI will be closely watched, the primary focus will be Friday’s U.S. payrolls report, which could confirm the dollar’s recent momentum.
AUD Inflation surprises higher. Australia’s August CPI surprised to the upside, with headline inflation rising to 3.0% y/y and underlying CPI at 3.4% y/y. The trimmed mean eased slightly to 2.6%, still above the RBA’s target range, underscoring persistent price pressures even as some volatile items were excluded. This inflation uptick has kept rate hike expectations alive, supporting the AUD in the near term. Market is currently pricing in no rate hike from RBA this week. Still, AUD/USD slipped below short-term support levels of 21-day EMA of 0.6580, and 50-day EMA 0.6551, with the next line of defense at the 100-day EMA of 0.6512. Focus now shifts to building approvals, the RBA’s rate decision, and trade balance figures.
CNH Three-week high. Renewed high-level contacts between the US and China, including the planned Xi-Trump APEC meeting and the visit of senior US lawmakers, have eased some geopolitical tensions. Both sides signaled willingness to cooperate, especially on trade and broader economic issues. This backdrop has helped to steady sentiment around the yuan, even as USD/CNH trades at a three-week high. The next key resistance lies at 50-day EMA of 7.1485 and 100-day EMA of 7.1724. Initial support is seen at 21-day EMA of 7.1308 and 7.1100, with a break below these levels required for a more meaningful pullback. Attention now turns to China’s composite, manufacturing, and non-manufacturing PMIs, along with the Caixin releases.
JPY Two-month high. The BoJ remains cautious, with July meeting minutes emphasizing uncertainties from US tariffs and the global outlook. While Japan’s economy has shown moderate improvement, the Bank is in no hurry to alter policy, awaiting clearer evidence on inflation and external risks. August’s services PPI undershot expectations, reinforcing this patient stance. USD/JPY is nearing a two-month high and is approaching the psychological 150.00 mark, with a break above 150.88–151.62 needed to re-ignite a positive trend. The next key support levels are at 21-day EMA of 148.02 and 50-day EMA of 147.56. Markets will watch industrial production, Tankan indexes, and the au Jibun Bank Services PMI.
MXN Banxico cuts, Peso struggles. Banxico’s Governing Board cut its overnight rate by 25 basis points to 7.50%, marking a tenth consecutive reduction and the lowest level in three years. The move, widely expected by markets, reflects the central bank’s confidence in the disinflationary trend and its intent to support Mexico’s slowing economy, despite a recent uptick in core inflation. The decision wasn’t unanimous, one board member voted to hold, underscoring ongoing debate over the pace of monetary normalization amid global and domestic uncertainties.
The rate cut trajectory is also shaped by the interest rate differential between Mexico and the U.S., currently at 325 basis points and approaching its historical low of 250. This spread is key to peso stability. Previous meeting minutes show board members emphasizing Mexico’s “relative position.” One noted that despite the narrowing gap, the peso remains resilient due to a competitive volatility-adjusted differential. Another saw room for further easing but urged caution, as rates near neutral and market volatility could shift the relative advantage.
In the lead-up to the decision, the Mexican peso saw renewed volatility, rebounding from a year low of 18.2 to around 18.5, driven by stronger U.S. data, some nervousness coming back to global markets and dollar strength. This highlights the peso’s sensitivity beyond domestic monetary policy to external sentiment and its relative performance against the dollar.
Looking ahead, domestic data releases include unemployment, manufacturing PMI, and gross fixed investment. However, the key macro event will be Friday’s U.S. nonfarm payrolls report, which could further influence market dynamics.
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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.
