- Flurry of trade pacts. Countries scrambled to secure last minute deals with the US before President Trump announced a slew of new tariffs, including a 10% global minimum and 15% or higher duties for countries with trade surpluses with the US. The muted market reaction suggests investors had largely priced in the move.
- First in 30 years. The Federal Reserve (Fed) held rates steady at 4.25–4.50%, but two governors dissented in favor of looser policy for the first time in more than 30 years.
- Unfazed, uncut. Chair Powell dismissed pressure from the Trump administration to cut rates, struck a hawkish tone, and refrained from offering any forward guidance. Market odds for a September cut dropped sharply – from nearly 65% to 37%.
- Steady as she goes. Elsewhere, the Bank of Canada maintained its policy rate at 2.75% as expected and the Bank of Japan held at 0.5%, but surprised markets by sharply raising its inflation forecast for 2025 to 2.7%, up from 2.2%.
- GDP inflated by trade. The US economy grew 3.0% in Q2, rebounding from a 0.5% Q1 contraction. But net trade drove the gain, as imports plunged 30.3%, reversing a surge to front-run tariffs and artificially boosting GDP by over 5 percentage points.
- Dominant dollar. US equity indices have hit a succession of record highs, but the USD is also making headlines, ending a six-month losing streak with a ~3% July gain and extending to two-month highs versus a basket of major currencies.
- Dimming euro. As the dollar surges, the euro has emerged as its primary casualty. EUR/USD has tumbled 2.6% this week – marking its steepest weekly decline since Sept 2022.
Global Macro
Hawks prevail despite pressure to cut
Unyielding. The Fed’s press release included the expected dovish signals, notably dissenting votes from Governors Bowman and Waller (first time two governors dissent since 1993), whose views are aligned with the administration and may reflect positioning to replace the Fed Chairman next year. Yet Powell’s remarks during the press conference were significantly more hawkish than anticipated. One particular comment, suggesting the Fed might now be looking through tariff-related volatility by refraining from a rate hike, caught markets off guard. Powell reiterated the Fed’s data-dependent approach heading into the September 17 meeting, warning of growing risks of inflation spikes driven by tariffs.
Payrolls. July’s U.S. jobs report overshadowed upbeat macro data this week as it signaled a weaker labor market, with nonfarm payrolls rising just 73,000, well below expectations, and a notable two-month revision that erased 258,000 previously reported gains. The unemployment rate ticked up to 4.2%, while average hourly earnings grew by 0.3%, both in line with forecasts. Markets responded swiftly: bond yields fell, with the two-year dropping 8bps to 3.87%, and swap markets now pricing in a 60% chance of a Fed rate cut in September, up from under 40% prior to the release. The U.S. Dollar weakened sharply on the news.
Central Banks. The Bank of Canada held rates at 2.75% and the Bank of Japan at 0.5%, as expected. In Canada, markets initially interpreted the press release as dovish, but concerns over core inflation prevented any shift in rate cut expectations for the September meeting. In Japan, Governor Ueda called the US-Japan deal a ‘major step forward,’ though inflation expectations for 2025 have risen. Ueda stated that the risk of falling behind the curve remains low, even as the Bank anticipates higher inflation driven by tariffs. Brazilian Central Bank (Copom) held rates at 15%, while Banco de la Republica in Colombia held steady at 9.25%.
Tariffs. Ahead of the August 1 trade deadline, South Korea secured a new trade deal, while Mexico delayed a tariff hike to 30% by 90 days. Trump hit Canada with 35%, Switzerland with 39% and India with 25%.
Week ahead
BoE in the hot seat
- Bank of England: A rate cut almost in sight. Data continues to underscore the UK’s soft macro backdrop, with markets now pricing in over a 90% probability of a 25-basis point cut next week.
- Germany’s GDP miss casts doubt on optimism. Following disappointing GDP figures showing a 0.1% contraction in the eurozone’s largest economy—driven by weak investment—upcoming industrial production data will be key to assessing whether real activity aligns with the optimistic narrative tied to fiscal loosening, as reflected in soft indicators so far.
- US jobless claims defy headwinds. Despite last week’s slight uptick; jobless claims remain lower than expected and continue to trend downward since early June—reaffirming the resilience of the US labor market amid ongoing trade-related uncertainty.
- Trade balance poised to rebound. The massive Q1 surge in consumer goods imports by US companies – aiming to front-run President Trump’s tariffs – completely reversed in Q2. According to U.S. Census Bureau data released Tuesday, advance goods imports fell to $57.7 billion in June, the lowest since September 2020. This sharp drop in imports is expected to support an improvement in the overall trade balance, assuming exports remain stable or increase.
FX views
USD levels up, EUR levels down
USD Cracking the 100 code. 100 is the almighty resistance for the dollar index (DXY), which rose just under 2% in one of the greenback’s strongest weeks since September 2022. The 100 level, previously a key support since the pandemic, now acts as a psychologically important barrier for investors. DXY pushed briefly above it on Wednesday. A more confident breakthrough would open the door for further upside. However, a softer-than-expected NFP has put a cap on gains. The dollar enters August retracting sharply after the lower payrolls data, and even though has been shielded from headline risks – such as tariffs and independence threats to the Fed – still faces hurdles to sustain such elevated levels, should these headline risks materialize (announced high tariffs being implemented or Powell’s dismissal becoming reality). Looking ahead, macroeconomic data, trade negotiations, and a potential dovish tilt by the Fed at the September meeting remain key drivers of dollar price action, as they could temper further recovery or re-establish its downward trend.
EUR The 3% dip that shook sentiment. EUR/USD fell nearly 3% this week. The downfall trigger was an EU-US trade deal perceived as disproportionately favouring the US, denting confidence in the common currency. Fuelling the decline were macroeconomic indicators highlighting a resilient US economy, alongside a hawkish Fed stance after holding rates steady. The pair now hovers near the $1.14 level, which could be easily breached if robust NFP results today further reinforce optimism about the US economy’s ability to withstand trade-related uncertainty. As a result, months-long positioning in favour of euro strength unwound, contributing to the sharp drop. Downside momentum was solidified for the pair as the MACD line, a key technical indicator used to analyse trend direction, turned negative for the first time since February 2025. Also, the 50-day moving average – a stronghold of the euro surge against the dollar this year – was breached, fuelling further downside. Short-term momentum remains bearish for EUR/USD, with both fundamental and sentiment-driven factors turning against the pair. Nevertheless, we do not rule out the possibility of EUR/USD retesting July highs later in the autumn.
GBP Pounded to grounded. In July alone, GBP/USD has plunged over 3% and under its 100-day MA for the first since late Feb to hit fresh two-month lows. This decline has mirrored the broader fall in EUR/USD, as the dollar has extended its rebound on the back of resilient US growth, elevated Treasury yields and trade optimism. Yet while GBP/USD has moved in tandem with EUR/USD, sterling has simultaneously capitalized on euro weakness, rebounding 1.3% this week against the common currency. Looking ahead, more GBP/EUR gains are plausible if global market volatility remains contained. In such an environment, the pound’s higher yield could attract renewed interest, particularly against the euro. From a technical perspective, the close above the 21-day moving average marks a key inflection point, suggesting initial momentum has shifted from bearish to bullish. €1.16 now emerges as a potential magnet for consolidation, with the €1.1550 level – aligned with the 21-day MA – acting as a critical support zone. Holding this level would be essential to sustain further gains into the €1.16s. However, a big test looming for sterling is the Bank of England’s upcoming meeting; a cut is priced in but accompanied by dovish messaging could temper the pound’s yield appeal.
CHF Trade winds weigh. The Swiss franc registered its largest weekly decline against the USD since June 2022, falling 2.3% and closing above the 50-day MA for the first time since early February, reinforcing short-term bullish sentiment. Dollar strength has been buoyed by renewed trade optimism, which also eroded support for defensive currencies. But the franc is also under pressure given Switzerland was lumbered with a 39% tariff rate. Global risk appetite remains elevated, and volatility across asset classes has stayed muted – conditions that typically dampen demand for safe-havens like the franc. Against the euro, CHF remains in consolidation mode though. Despite several attempts, the pair failed to breach its 21- and 50-week moving average resistance bands and has returned to test the 0.9300 handle, a level that has provided firm support over the past quarter. This zone remains pivotal, and any drift lower could draw attention from the Swiss National Bank to intervene.
CNH China’s policy patience keeps Yuan steady. The Chinese yuan remains steady following the July Politburo meeting, where policymakers refrained from announcing major new stimulus. Instead, their focus on accelerating government bond issuance and maintaining ample liquidity underscores a preference for measured support rather than aggressive intervention. Fundamentally, this stance signals confidence in the domestic economy’s resilience, despite ongoing external pressures. Technically, USD/CNH has broken key psychological resistance of 7.2000. Next key resistance will be 7.2196, followed by 7.2392. Market participants should monitor upcoming Caixin Services PMI and trade data, as any surprises could stir volatility and offer direction for the next leg in USD/CNH.
JPY USDJPY climbs past 150 for first time since early April as BoJ treads cautiously. USD/JPY gained 2% in the week of July 28th. USD/JPY has surged back above the psychological 150 level, revisiting territory last seen in early April. The pair’s rally is underpinned by a still-wide yield gap as the Bank of Japan maintains its accommodative stance despite upgrading its inflation outlook. While Governor Ueda has signaled caution, emphasizing the need for more evidence before initiating policy changes, the market remains alert for any hint of normalization. Technically, the next key resistance will be 151.84 followed by 152.46. Conversely, key support remains 21-day EMA of 147.84. Looking ahead, traders will focus on the upcoming Monetary Policy Meeting minutes and household spending data for signs of shifting sentiment. A sustained break above resistance could invite further gains, but a failure to clear this zone may lead to renewed consolidation or a test of support.
CAD End of six-month streak. USD/CAD posted its first monthly gain in six months, boosted by the US dollar’s strongest month since 2022 and Canada’s lack of trade deal or extension ahead of the August 1 deadline. The pair surged from 1.369 to 1.385 in the final week, trimming nearly 2% off its YTD gains, now at 3.8%.The yield spread between short-term US and Canadian bonds widened further after the Fed’s hawkish hold and BoC’s dovish stance, adding upside pressure on USD/CAD. A potential deal may temper the rally, but CAD remains tied to USD direction as local data has had limited effect. With six straight days of gains, USD/CAD trades above the 20-, 40-, and 60-day moving averages. The 100-day MA at 1.386 marks the next resistance, though short-term momentum appears overbought. More volatility is expected around the August 1 deadline.
AUD Aussie pressured as CPI gives RBA “green light” to cut. The Australian dollar initially eased lower on Wednesday after key inflation readings fell by more than expected, setting up a potential Reserve Bank of Australia rate cut this month. The closely watched June-quarter consumer price index (CPI) reading saw the headline annualised number fall from 2.4% last quarter to 2.1%, while the trimmed mean measure fell from 2.9% to 2.7%. The monthly CPI reading fell from 2.1% to 1.9%, below the RBA’s 2-3% target band for the first time since March 2021. Financial markets now see a 99% chance of a cut on 12 August. That said, financial markets got it wrong at the last meeting, when the RBA surprised markets and disappointed mortgage holders by holding rates steady. AUD/USD fell nearly 3% in the week of July 28th. For now, the AUD/USD has slipped into a short-term down trend and has broken 100-day EMA support of 0.6459. Next key support is at 0.6400 key handle. Traders should watch upcoming Australian building approvals and trade balance data for clues on the next move.
MXN Another 90-day tariff pause. President Trump announced a 90-day pause on increased tariffs against Mexico, keeping negotiations open. The Mexican Peso responded positively, easing from its monthly high of 18.9.
The Peso is still up 10% YTD, but rising USD demand and eroding carry could limit further upside.
On the macro front, Mexico’s GDP grew 0.1% YoY in Q2, in line with forecasts and avoiding the expected 0.6% decline, thanks in part to favorable base effects from additional working days. On a quarterly basis, GDP rose 0.7%, driven by rebounds in services and industry. Agriculture contracted 1.3% following strong gains in Q1. Seasonally adjusted annual GDP growth reached 1.2%, doubling the central bank’s forecast and suggesting the economy remains below full potential, though the output gap is narrowing more than anticipated. Domestic demand is strengthening, and trade flows have yet to reflect a significant impact from U.S. tariffs.
Banxico is widely expected to cut rates to 7.75% at next Thursday’s meeting, likely shifting to a more gradual pace of easing. After four consecutive 50-bp reductions, policymakers may opt for a 25-bp move as they weigh the risks of sticky inflation and a slower-than-hoped moderation in core price pressures.
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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.
