- Confidence crisis. French risk premiums are climbing as fears of government collapse and stalled reforms mount ahead of the Sept 8 vote. Investors are shunning French bonds, even favoring Italian, Spanish and Greek debt as safer bets.
- Cooking up trouble. Tensions between the Fed and the White House remain rife. Trump’s bid to oust Governor Lisa Cook sparks fresh fears of political meddling, but Cook has sued, arguing he lacks the authority to remove her.
- End of the curve. The standout market move has been the slump in 30-year Treasuries. Dollar pressure tends to follow when long-end selloffs stem from fiscal worries – not inflation – and with short-term yields steady, USD has firmed this week.
- Snooze street. Despite all the headline drama, the VIX Index, a measure of equity market volatility, dropped to its lowest level since December and has been below its 30-year average of 20 since the start of August.
- Risk on vibes. Nvidia’s weak guidance barely dented sentiment either. The S&P 500 hit its 25th record high of the year as risk appetite remains elevated on rising bets of a preemptive Fed rate cut next month.
- Greenback slide show. Despite the uptick this week, the US dollar index is on track for its seventh monthly decline of 2025, down over 2% against a basket of majors and weaker versus 88% of the global currency basket we’re tracking.
- Coming up. With ISM PMIs and nonfarm payrolls on deck next week, markets face a pivotal test, which could deepen the dollar’s slide.
Global Macro
Disconnect between inflation concerns and market sentiment
Dissonant signals. Despite rising long-end government yields driven by global inflation and fiscal concerns, equity markets remain resilient. US indexes continue climbing, with the S&P 500 recently breaking 6500 for the first time, while the VIX has stayed at its lowest levels in 2025. Even disruptive events like Lisa Cook’s dismissal and threats to Fed independence haven’t shaken market’s optimism. Markets appear increasingly tolerant of uncertainty, favoring momentum over macro risks.
PCE and other data. US PCE numbers came in line with expectations and will do little to shift any narratives regarding a September Cut. July durable goods orders decreased by 2.8%, which was less than the expected 4.0% decline. Orders excluding the volatile transportation sector actually increased by 1.1%, which was higher than the forecast of a 0.2% increase. The Conference Board’s Consumer Confidence Index for August fell to 97.4, which was better than the forecasted 96.4. Meanwhile, the labor market showed mixed signals. Initial jobless claims for the week ending August 23 unexpectedly fell to 229,000, which was lower than the expected 230,000, while continuing claims for the week prior eased to 1,954,000, which was better than the forecast of 1,966,000.
GDP. The second estimate of U.S. Q2 GDP showed a stronger-than-expected upward revision to a 3.3% annual rate. The increase was primarily driven by a sharp decrease in imports, which added more than five percentage points to growth, and an acceleration in consumer spending. However, this was partly offset by a significant drop in private investment, which points to some underlying weakness in the economy.
Inflation. Flash inflation prints out of the euro zone point to a mixed picture so far. Spain’s inflation held at a 5-month month high, Italy’s came in hotter at 1.8% whilst France’s eased to below 1%. Regional prints in Germany came in above 2% and higher than expected. Meanwhile, core consumer prices in Japan slowed for a third month.
Week ahead
NFP in focus: will the labor market deliver?
NFP in shambles pt. 2? Following the disappointing NFP report on August 1st—which showed the U.S. added only 73,000 jobs in July, alongside two substantial downward revisions for the prior months—attention now turns to any signs of improvement in the U.S. labor market. While uncertainty remains elevated, it is arguably lower than it was prior to August, when tariff levels had yet to be defined. Can the reduction in uncertainty, despite still limited, translate into a stronger hiring trend?
ISM prices paid under the spotlight The ISM Manufacturing and Prices Paid indices will build on the PCE report due Friday, August 28, offering an additional layer of insight into price pressures linked to Trump’s tariff-heavy trade agenda and the broader economic outlook.
CPI and the ECB’s next move In the eurozone, investors will be closely monitoring inflation data for cues on the timing of the ECB’s next policy move. Aggregate EU CPI figures will complement the August 28 release of inflation reports from four individual eurozone members, which broadly undershot expectations.
Retail reality check Retail sales in the UK will provide insight into consumer spending, a key indicator as stagnation fears may be challenged. If the data exceeds expectations, it could signal rising demand-driven inflation aligned with stronger growth prospects – further diminishing the likelihood of Bank of England rate cuts.
FX Views
Risk rewritten
USD Premia reimagined The dollar index (DXY) is up 0.5% this week, despite ongoing threats to Federal Reserve independence – such as attempts to dismiss Fed Governor Cook – and aggressive tariff measures, including a 50% levy on Indian imports. The muted dollar reaction suggests that investors have reinterpreted risk premia previously tied to dollar weakness into something more nuanced. On the trade front, markets are looking for data to confirm that tariffs are beginning to weigh on the U.S. economy. The August 1st NFP release, coupled with a ~1% drop in the index, stands as the clearest signal of that trend. Broadly, however, the U.S. economy continues to demonstrate resilience. Risks to Fed independence also appear to be largely discounted. Investors seem to have deferred this concern to 2026, when Powell is expected to be replaced by a Trump-appointed successor. Onto policy rate expectations, the Fed’s dovish tilt in late August was a key bearish driver for the dollar and will likely remain so through the rest of the year, making any upside from a stronger-than-expected PCE print today likely short-lived.
EUR Fractured union In the options market, risk reversals now hover near parity, suggesting that the bullish skew for the euro against the dollar has nearly evaporated this week. This shift follows political turmoil in France and the Netherlands, which has highlighted fractures in the bloc’s unity, as well as substantial EU concessions on trade to the US – raising concerns about the EU’s ability to confront Trump’s protectionist agenda. The France-Germany 10-year yield spread has risen above 80 basis points – levels unseen since March – after France called a confidence vote on 8 September, rattling markets. EUR/USD remains almost 1% lower week-to-date, with further downside potential, given that the bear steepening currently underway is not purely driven by credit risk perceptions but also by dampened market sentiment. At the same time, EUR/USD remains a dollar story, making these bearish risks short-lived, with euro upside expected to resume later in the fall. If PCE inflation surprises to the upside, however, it could act as a catalyst to push EUR/USD toward the 1.15 zone for now.
GBP Caution the calendar curse. Sterling has staged a modest comeback of late, helped by a run of stronger-than-expected UK data and a shift toward more hawkish Bank of England rate expectations. After sliding nearly 4% in July, GBP/USD has clawed back over 2% in August, hovering between $1.34 and $1.36 for much of the month. The rebound reflects a partial unwind of the excessive economic pessimism that had built up, but it’s too early to call a sustained recovery. GBP/USD remains the cleanest way to express near-term optimism, especially given broad dollar softness, however, GBP/EUR might also trend higher in the short term due to political risks emanating from Europe. Overall, though, while recent data has softened the bearish narrative, the pound still faces headwinds as fiscal risks loom ahead of the autumn budget. The repricing of BoE policy may offer short-term support, but if it’s driven by stubborn inflation rather than genuine growth momentum, it’s unlikely to fuel lasting gains. Moreover, seasonally, sterling tends to underperform in Q3, showing a median decline of -0.9% versus the euro over the last 10 years, and -1.1% versus the USD.
CHF Franc you very much. The Swiss franc has firmed up lately, thanks largely to political instability across the eurozone. A widening spread between French and German government bonds has stoked fears over fiscal cohesion, weighing on the euro and boosting demand for the franc as a regional safe haven. EUR/CHF has drifted lower, eyeing a retest of the key 0.93 level, while USD/CHF continues its gentle descent—testing 0.80 and down 1.5% in August. On the macro front, Swiss Q2 GDP met expectations at 0.1%, but downward revisions to Q1 suggest exporters front-loaded shipments ahead of looming US tariffs. Despite that, the Swiss National Bank is expected to hold rates steady next month, with inflation near zero and employment ticking higher. As FX markets shift away from the calm of August, the franc looks well-positioned to ride a wave of renewed global risk aversion.
CAD Jaws snapping shut. The yield differential between two-year U.S. and Canadian government notes has been a dominant theme for the Canadian dollar over the past year. For the better part of the last 10 months, this spread has consistently held above 100 basis points (bps), keeping the Loonie on its back foot. The recent narrowing of this spread to 93 bps is therefore a notable shift, marking the first break below this key threshold in almost a year. This has been a crucial factor in the CAD’s move lower this week, dropping it below the 1.38 level against the USD, and suggesting a potential change in the long-standing currency dynamic. After reaching a high of 1.386 this week amid low volatility, the CAD has eased to 1.374, consolidating near its 50-day moving average of 1.373 and trading just below its 2-year average of 1.378. With a shortened week ahead due to Labor Day in both the US and Canada next Monday, market attention will turn to Friday’s job reports from both countries.
AUD Inflation surprise fuels uncertainty, AUD/USD on two-week high. Australia’s July CPI surged to 2.8% y/y, sharply higher than June and above expectations, as broad-based price pressures in housing, food, and services returned inflation to its highest in a year. An end to energy rebates fueled gains. The trimmed mean also climbed, suggesting underlying momentum. While the RBA’s earlier rate cut and dovish stance had markets positioned for further easing, this inflation print may force policymakers to pause and reassess, complicating the short-term outlook. AUD/USD has reached two-week high. Technically, strong key support for the pair is at 21-day EMA of 0.6499. AUD/USD next key resistance remains at 0.6600 followed by 0.6680–0.6720. The pair is likely to stay range-bound until a catalyst emerges, with upcoming data on building approvals, GDP, and trade balance in sharp focus for clues on growth and RBA policy direction.
CNH Industrial profits stabilize, Yuan hits near ten-month high. China’s industrial profit contraction eased in July, falling just 1.5% y/y—the slowest since the recent downturn began. While government measures appear to be cushioning the decline, profit margins remain squeezed as factory-gate prices have stayed negative for nearly three years. USD/CNH has reached near ten-month low, with RSI at oversold levels. The next key resistance lies at 21-day EMA of 7.1673, followed by 50-day EMA of 7.1788. Conversely, next key support lies at 7.1000, if breached, may create tailwind for rising China equities market. Looking ahead, traders will monitor a slew of PMI releases—including composite, manufacturing, and services—for signs of improved business confidence and to gauge whether stabilization in profits can translate into a more durable recovery.
JPY BoJ data vigilance keeps Yen in tight range. BoJ board member Nakagawa emphasized the importance of upcoming data, particularly the September Tankan, for policy decisions, noting risks from global trade uncertainties and wage dynamics. Expectations for further BoJ tightening remain muted unless strong evidence emerges of wage-driven inflation. USD/JPY is holding above 100-day EMA of 146.99 support. The next key resistance will be 21-day EMA of 147.46 and remains capped below the 149.13 area. Price action suggests a consolidative phase, with markets hesitant to chase moves without fresh guidance. Focus turns to upcoming capital spending, services PMI, and household spending for further cues on the economy and the BoJ’s likely next steps.
MXN Low volatility. Despite the positive domestic inflation news and a clear path for Banxico to continue easing, the Mexican peso’s recent muted performance reflects a market more focused on external, geopolitical factors. The currency’s price action is currently being dictated by the US Dollar, the political noise in the U.S., and the uncertainty surrounding the Federal Reserve. During most of 2025, while Banxico’s policy is guided by domestic fundamentals, the peso’s year-to-date performance has been significantly more influenced by global monetary policy expectations, high-yield carry and market sentiment around emerging markets. The currency’s near-term trajectory will thus remain tethered to the evolving narrative in Washington, overshadowing domestic data.
Throughout August, the Mexican peso has displayed remarkable stability and low volatility, largely holding its ground against the US dollar. While many major currencies experienced notable swings, the peso’s movements were subdued, losing only a marginal 0.5% against the dollar for the month. This resilience has allowed the peso to maintain its status as a top performer, preserving its significant year-to-date gains and staying near its 2025 yearly low. Alongside the Brazilian real, the peso has led gains among Latin American currencies, underscoring its appeal to investors seeking higher yields in the region.
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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.
