- Gaza gamble. Reports of a potential deal involving Hamas disarmament and an Israeli withdrawal from Gaza offered tentative hopes of de-escalation, though significant hurdles remain before any lasting agreement can be reached.
- Buy the dip. Tech stocks rebounded strongly after this week’s sell-off, with South Korea’s KOSPI surging 18% as investors piled back into AI-linked semiconductor names.
- Yen and tonic. The yen recorded its biggest gain against the dollar in over two years following another round of intervention by authorities. USD/JPY fell up to 3% on Thursday only to bounce 2% higher after the Bank of Japan left interest rates unchanged.
- Fed ambiguity. The Fed left rates unchanged, with Chair Warsh appearing comfortable letting tighter financial conditions do some of the heavy lifting. Markets still assign roughly a two-thirds chance of a September hike.
- Warsh-ing out. A confusing Fed press conference dented policy credibility, triggering a sharp Treasury curve steepening, higher long-term borrowing costs and contributing to the US dollar index declining over 1% this week.
- Dovish tilt. The BoE’s reluctance to tighten further has prompted markets to scale back rate hike expectations, now only pricing in a 30% probability of a September hike. Sterling remained resilient though.
- Euro boost. Stronger-than-expected Eurozone data pushed euro swap rates higher, lending broad support to the euro.
Global Macro
Markets still price selective tightening
Growth momentum. US Q2 GDP rose 1.5% annualized vs 2.1% expected, a headline miss, but the composition was better: consumer spending and business investment improved, and final sales to private domestic purchasers rose 3.9%.
US PCE cools. Headline PCE fell 0.1% m/m vs -0.1% expected, while annual PCE slowed to 3.7% from 4.1%. Core PCE rose 0.1% m/m and 3.3% y/y, broadly in line with consensus and slightly cooler than May. Personal income rose 0.2% vs 0.3% expected, while spending rose 0.3% vs 0.4% expected, but real spending still advanced 0.4%, showing the consumer has not rolled over.
Fed holds. The Fed held the target range at 3.50%–3.75%, as expected, but the vote was 9–3, with Hammack, Kashkari and Logan all preferring a 25bp hike. A slightly hawkish signal from the week, with unclear path forward as Warsh reaffirms no guidance as markets will have to “play the ball, not the referee.”
BoE holds. The Bank of England held rates at 3.75%, as expected, but the 6–3 vote leaned hawkish, with three MPC members voting for a 25bp hike. As shown in the chart, markets still price selective tightening, especially where energy-driven inflation risks remain uncomfortable.
BoJ holds. The Bank of Japan left its policy rate unchanged in a widely expected move. The widening US–Japan rate differential remains one of the primary drivers sustaining USD/JPY at elevated levels.
Mexico rebounds. Mexico’s Q2 GDP surprised higher, rising 1.5% q/q vs 1.3% expected and 2.2% y/y vs 1.5% expected, the fastest quarterly pace since late 2020. The rebound was broad-based across primary, secondary and services activity.
Week ahead
Payrolls take centre stage
Jobs day looms. All eyes are on next week’s US jobs report. June’s NFP print undershot expectations significantly, adding to a softer-than-expected inflation report and reducing any immediate urgency for the Fed to raise rates. Any downside surprise in next week’s data will be closely watched by markets, although it is unlikely to materially diminish the chances of a September hike given the recent rebound in oil prices, which could keep near-term inflation elevated.
Resilience check. Final July PMI releases across the major eurozone economies, the US and the UK are due next week. The eurozone’s preliminary readings largely shrugged off concerns related to the Iran conflict, pointing to a broad-based improvement and extending a run of mostly above-consensus releases in recent months. This week’s stronger-than-expected eurozone Q2 GDP figures further reinforced the resilience of the region’s economy, beyond the improvement signalled by sentiment indicators alone.
Capex keeps rolling. The US investment cycle remains robust as businesses continue to expand capacity amid the AI boom. Core durable goods orders beat expectations in June’s preliminary release, while previous months’ figures were revised higher. Next week’s final reading is expected to confirm solid business investment momentum.
FX views
Dollar momentum stalls
USD Dollar bulls blink. The US dollar softened against its major peers this week. A key catalyst was a Federal Reserve meeting that failed to deliver a sufficiently hawkish message to justify heavily skewed market positioning for a hawkish policy outlook. As a result, the bar for further dollar gains proved too high. Positions unwound and the dollar edged lower. The sharpest move came in USD/JPY, where Fed-driven weakness was compounded by Japanese intervention to support the yen. The pair fell to 157.98, its lowest level since May. Today’s BoJ policy meeting offered little justification for further yen strength, despite a somewhat hawkish tone. While intervention risks remain, USD/JPY looks increasingly attractive at current levels, with the broader uptrend likely intact. Overall, the dollar’s weak performance this week appears driven primarily by position unwinding in a crowded bullish-dollar trade. As long as the conflict persists, the backdrop should remain supportive for the dollar through higher oil prices and a hawkish Fed.
EUR Tactical gains, structural doubts. EUR/USD reached its highest level since mid-June after hovering around 1.14 with little direction through most of July. The main driver was the month-end narrowing in EUR-USD rate differentials. The Fed’s July meeting failed to satisfy hawks, while stronger-than-expected eurozone GDP and inflation data reinforced the ECB’s hawkish bias. More sustainable upside in EUR/USD hinges on renewed de-escalation momentum in the Middle East. A less hawkish Fed response would provide a meaningful boost to the pair. Also, as long as oil prices remain elevated, the common currency is likely to remain weighed down by weak sentiment surrounding the growth outlook and deteriorating terms of trade. Against this backdrop, we continue to see any EUR/USD rally as tactical rather than structural. Crowded bullish-dollar positioning can still amplify euro gains when unwound, but we remain sceptical of a sustained break above 1.15 for now.
GBP Resilient, not rampant. Sterling delivered a mixed performance this week. GBP/USD rebounded around 1% towards 1.35, though the move was driven more by USD weakness than GBP strength. The Bank of England left rates unchanged at 3.75% and, while an additional MPC member voted for a hike, the updated forecasts and guidance leaned modestly dovish. Gilt yields moved lower as markets pared back some tightening expectations, but sterling proved relatively resilient, suggesting external forces remained the dominant driver. The pound outperformed commodity-linked currencies, benefiting from a sharp decline in energy prices that weighed on the NOK and CAD, but lagged higher-beta peers such as the SEK as equities rebounded. Meanwhile, GBP/EUR consolidated around 1.16, a level more consistent with prevailing rate differentials after retreating from July’s one-year highs above 1.18. Overall, the week’s price action reinforced the view that, with UK yields drifting lower and BoE expectations becoming less supportive, sterling is increasingly reliant on external drivers, particularly the dollar, global risk sentiment and energy markets, rather than domestic fundamentals at present. Looking ahead, August has a habit of biting sterling. GBP/EUR has declined in 12 of the past 20 Augusts, giving the month a 60% bearish hit rate for the pound.
CHF Favoured funder. The Swiss franc remained on the defensive this week as its status as the market’s preferred funding currency gained further traction. A rare Bloomberg source story suggested SNB insiders expect policy rates to remain unchanged at 0.00% through the end of 2027. While the SNB has yet to comment, the report aligns with expectations that Switzerland will remain stuck in a low-rate environment for years to come. The prospect of persistently low Swiss rates reinforces the negative impact of widening rate differentials on CHF, particularly when global yields rise. More importantly, it strengthens the franc’s appeal as a funding currency. Investors appear increasingly willing to fund carry trades in CHF rather than JPY, benefiting from similarly low borrowing costs while avoiding the risk of sudden Bank of Japan intervention.
CAD Lags US dollar selloff. USD/CAD has slipped toward 1.40 after spending the last month and a half above the key level and failing to sustain prices north 1.42. However, the Loonie has not fully joined the broader G10 rally after the Fed’s no-hike, no-guidance decision. The dollar selloff gave most majors room to recover, yet CAD has lagged peers, with the chart showing only a modest gain versus much stronger moves in JPY, CHF, NOK, SEK and NZD. US-Canada rate spreads still lean against a deeper USD/CAD pullback as markets keep some probability of another Fed move by the fall. Technically, USD/CAD is testing the 1.40 area and remains above key weekly moving averages, clustered between roughly 1.373 and 1.392, so the broader structure has softened but not broken. A sustained move below 1.40 would put the 1.392–1.39 zone back in focus, however the recent move is expected to consolidate short-term. The next CAD test will be simultaneous US and Canadian jobs reports next Friday.
AUD AUD/USD at one-month high. Renewed hostilities between the US and Iran kept nerves high, though oil slipped as traders weighed the strikes against steady supply and talks. The dollar lost ground, with shorter-term US rates easing and the yen’s surge forcing investors out of dollars. That did most of the work for the Aussie. The RBA flagged that the jobs market still looks tight, and that gloomier households have not yet cut back on spending. Officials also want to stop expectations of higher prices from taking root, and gave nothing away on August. Technically, initial support for AUD/USD lies at 50-day EMA of 0.7005, followed by 21-day EMA of 0.6985. Conversely, next key resistance lies at psychological handle of 0.7100.
CNH Weak data, resilient yuan. Chinese factories and services both shrank in July. The main factory gauge slipped to 49.2 from 50.3, well short of the 50.1 the market looked for, while the services reading fell to 49.0 from 50.6. The combined measure dropped to 49.3, pointing to a slower start to the quarter and building the case for more support from Beijing. Even so, the yuan has held firm. The divergence between the US-China 10-year yield differential and USD/CNY has widened, and we do not expect it to close quickly. USD/CNH still sits close to a three-year low. A push above the 21-day EMA at 6.7716 opens the way towards the 50-day EMA at 6.7851, while support sits at 6.7400.
JPY Intervention drives yen rebound. Japan stepped in on Thursday to defend the yen ahead of the BoJ, and US authorities checked yen prices with dealers around the same time. The yen jumped as much as 3.3% against the dollar in New York trade and sat near 160 by Friday morning in Asia. The BoJ then held rates at 1%, so the tone mattered more than the decision. Households and firms both expect prices to keep rising, and the bank lifted its FY2027 core inflation forecast to 2.4% from 2.3%, with the 2% goal now reached in the second half of FY2026-27. Washington helped, calling the yen far too cheap and welcoming its recovery. USD/JPY was the worst performer in G10 basket, down nearly 2% for the week of July 27th. Following the intervention-led selloff, the 160.00 area becomes the first key support zone. We see the 50-day EMA of 161.45, followed by 21-day EMA around 162.27 as the next key level of resistance.
MXN Peso breaks stronger. USD/MXN has fallen toward 17.34, its lowest level in more than a month, as the peso rallied with risk assets after the Fed held rates and avoided fresh guidance. Mexico’s macro backdrop helped the move: Q2 GDP rose 1.5% q/q vs 1.4% expected and 2.2% y/y vs 1.6% expected, while the June trade surplus widened to about $4.09bn as exports hit a record and rose 34.4% y/y. The latest rebound was broad-based, noting gains across industry, services and agriculture, helped partly by World Cup-related activity, although growth may moderate as that temporary lift fades. Technically, USD/MXN is now below key short-term moving averages while the 200-day at 17.66 remains well above spot. A sustained break below 17.32 would put the 17.20–17.25 zone back in view. Next week, Banxico meets on Thursday, where is largely expected to hold at 6.5%, but inflation outlook will be highly scrutinized by markets.
COP Breaks out. USD/COP has collapsed toward 3,112, as the Colombian peso leads the post-Fed rally across LatAm FX. The COP is up around 2.7% since the Fed meeting, ahead of BRL, CLP, MXN and PEN, while the DXY is down about 1.5%. The move reflects a clean mix of broad dollar weakness, high carry, improving EM risk appetite and strong momentum already embedded in the peso, which is now up roughly 21% year to date. Technically, USD/COP is deeply below every major moving average: the 20-day at 3,256, 50-day at 3,442, 100-day at 3,559 and 200-day at 3,662, confirming a powerful downtrend but also a stretched setup. Near-term support sits around 3,085–3,100, while any rebound would first need to reclaim 3,250–3,260 to suggest more than a brief correction. The peso still has the strongest momentum in the region, but the size of the move means mean-reversion risk is building if the dollar stabilizes or investors start trimming crowded LatAm carry exposure.
Have a question? [email protected]
*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.
