- Trump-Powell saga. Markets were once again rocked by concerns US President Trump was preparing to fire the Federal Reserve chair. We think a firing remains unlikely and would be challenged in the courts, but the increasing risk alone undermines credibility in the US financial system and the US dollar as a safe-haven currency.
- Risk on. In the end, risk sentiment remained upbeat though, with US equities notching fresh record highs, also brushing off President Trump’s threat of higher tariffs come Aug. 1.
- Crypto mania. Congress passed the first-ever federal law governing stablecoins, giving the industry long-sought legitimacy just as markets surge. Bitcoin has been making new all-time highs (above $120k) and regulatory clarity may help unlock the next wave of adoption.
- Recognizing resilience. Adding further fuel to the risk rally has been the slew of strong US economic data – challenging recession forecasts and reinforcing the “soft landing” as the prevailing scenario.
- Inflation flatters to deceive. Although the headline US figures largely aligned with forecasts, underlying data pointed to broadening price pressures across key categories, challenging the notion that inflation is cooling and signaling tariff impact has indeed appeared.
- US yields and dollar rise. Amidst resilient US data and inflation concerns, Fed rate cutting expectations have eased – leading to a rise in US yields and the dollar. After hitting a fresh 3-year low at the start of the month, the US dollar index has gained for two weeks running.
CPI week underscores tariff-linked inflation concerns
Modest tariff impact on inflation. This was CPI week, as inflation reports were released in major economies. In the US, the June inflation report showed headline consumer prices rising 2.7% y/y, just above the forecast, while core CPI matched expectations at 2.9%, up slightly from 2.8% in previous months. However, categories most exposed to higher import taxes, such as furniture, appliances, apparel had faster price increases during June, signaling tariff impact has indeed appeared, but very modest thus far.
Inflation surprises across key economies. June inflation came in above expectations in the UK and Canada. Canada’s data points to moderate tariff-driven pressure, most notably in furniture, apparel, and footwear, though the overall impact remains mixed. In the UK, inflation climbed to 3.6%, its highest since January 2024. In Japan, core inflation came out at 3.3%, slightly below expectations, but still above BoJ target. Inflation in the Eurozone came at 2%, as expected.
Rate cut expectations fade. Following this week’s CPI data, a July 30 Fed rate cut is effectively off the table. Futures have now priced a 54% chance of easing in September. Similar sentiment is reflected in Canada, where markets aren’t anticipating any rate cuts for the rest of the year.
Global yields jump. Fixed income repricing has pushed global yields higher, with notable moves in long-term rates. Markets are closely watching the 30-year Treasury in the US as it tests the 5% threshold once again, alongside similar upward pressure in Japan.
Resilient data bolsters soft landing view. Other US macro releases this week continued to challenge recession forecasts. Stronger-than-expected retail sales and a decline in jobless claims reinforce the soft landing as the prevailing scenario.
Week ahead
Central banks steady, sentiment shaky
- ECB steady, one cut still eyed. Markets brace for a cautious European Central Bank (ECB) amid lingering uncertainty, pricing in roughly a 1% chance of a rate cut next week, with consensus holding firm on its hawkish rhetoric. Expectations lean toward one final cut by year-end.
- PMIs to test tariff fallout. Upcoming PMI releases offer a vital pulse check on global sentiment. Upcoming data will shed light on fundamentals across Germany, France, the broader EU, the UK, and the US. With trade deals unresolved and uncertainty elevated, these prints will help gauge how economies are weathering tariff-related turbulence.
- More soft UK data could fuel BoE dovishness. The UK labour market is cooling and economic activity stalling. But persistent wage growth and sticky service inflation stoke stagflation concerns, complicating the BoE’s policy path. Will a soft retail sales print draw out more BoE doves?
- EU confidence in focus as US outperforms. EU consumer confidence (23/7) and Germany’s IFO index (25/7) will be closely watched for clues on the EU’s economic sentiment and trajectory, which increasingly contrasts with the more resilient US outlook. Such a contrast is why EUR/USD upside potential could be limited from here.
FX Views
Dollar dances through the drama
USD Hawkish Fed fuels USD rebounds. The USD closed the week just under 1% higher. Fresh tariffs threats emerged throughout the week, but markets have largely built resistance to the rhetoric. This numbness reflects the prevailing belief that, despite the tough talk, lower tariff rates will ultimately be agreed upon. The extension of the tariff deadline to August 1st reinforces that expectation. The dollar’s primary source of strength remains a hawkish Federal Reserve. Despite continued concerns over Fed independence—especially following recent turmoil surrounding Chair Powell’s potential dismissal—the Fed is expected to maintain a wait-and-see approach. This week’s inflation data indicated that tariffs may be beginning to have an effect, though the impact remains modest. Supportive economic data also contributed to the Fed’s heightened hawkishness, and the dollar’s rebound. Strong industrial production, upbeat retail sales, and solid quarterly earnings from major US banks helped underscore the resilience of the US economy despite uncertainty.
EUR Rate differentials keep euro on defensive. EUR/USD has entered a counter-trend correction, driven, importantly, by the recent uptick in US inflation and a strong macroeconomic backdrop, which has diminished the likelihood of policy changes by the Fed in July—and perhaps even September. With markets still pricing in a 50% chance of a rate cut in September, there remains room for EUR/USD to decline further. The next key support zone lies between $1.1450 and $1.1500. While the ECB maintains its hawkish stance, markets continue to price in nearly a full 25 basis-point cut by year-end. Fundamentally, therefore, any further upside for EUR/USD is likely capped below $1.18, unless we see a repricing by the Fed in response to signs of weakening US growth. For now, a timid EU productivity relative to the US will help lock in differentials in favour of the greenback. Also, an EU-US trade deal is unlikely to have much directional impact on EUR/USD, as both currencies stand to benefit from a tariffs-reducing deal. In the near term, the euro remains at the mercy of rate differentials and US macro data, while anything EU-related appears to have secondary importance.
GBP Stagflation sinks sentiment. Sterling lagged most G10 peers this week as its recent price action reflects the unease surrounding UK stagflation fears amidst rising UK inflation and stagnant economic growth. Thus, rising yields may not be supportive for the pound in this scenario. Granted, GBP/USD bounced on renewed Trump-Fed drama, but momentum stalled at its 50-day moving average near $1.35, which appears to have flipped from support to resistance. The pair suffered a third consecutive weekly decline, down over 2% so far in July. While the broader uptrend from January’s $1.21 low remains intact, the 21-day moving average is turning lower, suggesting increased vulnerability to a deeper pullback. A test of the 100-day moving average at $1.3267 could mark a decisive shift in trend and confirm a breakdown in the 2025 rally, though $1.30 forms a solid base. In the FX options space, the picture has become murkier for sterling too. Traders have paid increasingly more for put options that bet on a lower GBP/USD, than calls that look for the sterling to strengthen, a sign that pound bearishness persists and is getting worse.
CHF Resilience faces policy crossroads. It’s been a relatively quiet week for the Swiss franc, but it remains the top-performing G10 currency against the US dollar since President Trump’s “Liberation Day” tariffs were announced. USD/CHF hit a 10-year low of 0.7871 on July 1st, but has since rebounded modestly, trading near 0.8040, up over 1.4% for the month. Switzerland, like many US trading partners, is currently negotiating to avoid a reversion to the punitive 31% tariff levels and to shield its vital pharmaceutical sector, which accounts for nearly 50% of Swiss exports. With talks at a delicate stage, Swiss authorities are constrained from taking overt steps to weaken the franc. The country is already back on the US Treasury’s Monitoring List for currency manipulation, and any aggressive FX intervention could risk a formal designation and trigger retaliatory tariffs. Despite the political backdrop, we expect the Swiss National Bank (SNB) to step in if EUR/CHF approaches the 0.9200–0.9250 zone, a level historically associated with intervention.
CNH Mixed China data weighs. China’s Q2 GDP grew 5.2% year-on-year, slightly above expectations and signaling resilience despite ongoing global headwinds. However, the growth pace slowed from Q1’s 5.4%, and nominal GDP growth was weaker, reflecting persistent deflationary pressures. June’s industrial production surprised to the upside at 6.8% year-on-year, but retail sales disappointed at 4.8%, missing forecasts and highlighting continued consumer caution. Meanwhile, USD/CNH is climbing. USD/CNH is 1% above its recent year-to-date low of 7.1501, last seen on 1 July 2025. It’s trading above its 21-day moving average of 7.1788, with eyes on the next resistance levels at 50-day EMA of 7.1930 and the key psychological handle of 7.2000 mark. Dollar buyers may see this as a window of opportunity. Market focus will center on upcoming loan prime rate decisions, which could signal broader monetary policy intentions.
JPY Under pressure before election. Japan’s return to a trade surplus in June was underwhelming, with the headline figure missing expectations as exports contracted for a second month. Weak external demand, particularly from the US and China, continues to weigh on Japan’s export sector, while modest import growth hints at some domestic resilience. The looming threat of new US tariffs adds further uncertainty, especially with political risks ahead of the Upper House election on Sunday, July 20th. USD/JPY technical analysis reveals a consolidation pattern between the 139–141 support zone and the 149–150 resistance zone, following the significant decline in 2025. USD/JPY is currently trading above its 50-day EMA at 145.78, 21-day EMA at 146.48, and 100-day EMA at 146.51. Concerns about potential intervention persist at higher levels. The upcoming release of the Jibun Bank Services PMI will provide insights into Japan’s service sector vitality, while Tokyo core CPI data will offer early glimpses of inflation trends.
CAD Upward Pressure. June’s inflation data shows moderate upward pressure from tariffs, especially in furniture, clothing, and footwear. Still, the overall impact remains uneven. These effects may take time to fully materialize, as industries and supply chains gradually adjust to shifting global trade conditions. On the tariff front, there’s another key North American deadline besides August 1. Trade negotiation teams from Canada and the U.S. are aiming to finalize a draft trade deal by July 21, but based on recent remarks from PM Carney, it’s likely we’ll have to wait until month-end. After climbing above its 20- and 40-day moving averages, the USD/CAD tested resistance at the 60-day moving average, closing the week near 1.375 without a clear breakout. The pair remains under upward pressure, driven by resurgence in dollar demand as short USD positions unwind. On the weekly chart, momentum is evident with two straight weeks of gains, rising from 1.359 to a peak of 1.377, just shy of firm resistance at the 100-week moving average of 1.378. Looking ahead, Thursday’s retail sales data for May stands out as the key macro release, likely offering additional insight into the broader economic landscape.
AUD AUD weakens on disappointing jobs print. Australia’s unemployment rate climbed to 4.30% in June from 4.10% in May, marking a significant deterioration in labor market conditions. While employment managed a modest rebound, the underlying dynamics revealed concerning trends with full-time positions declining as part-time work increased. The disappointing jobs data, combined with easing inflation pressures, strengthens the case for August rate cut, which is currently fully priced in. AUD/USD is 6% below its high of 0.6942, last seen on September 30, 2024. From a technical perspective, AUD/USD is currently trading above its 50-day EMA support at 0.6490. The next key resistance is at the 21-day EMA of 0.6525, while the next key support is at the 100-day EMA of 0.6447. Looking ahead, the upcoming RBA meeting minutes will provide crucial insights into policymakers’ assessment of economic conditions.
MXN Carry still favors the Peso. USD/MXN surged toward 18.9, its highest level in July, after lingering near its strongest valuation in almost a year. Most emerging-market currencies weakened earlier this week under pressure from a strengthening dollar, as traders reassessed the Fed’s rate outlook and the potential inflationary effects of Trump’s trade war. While markets have largely shrugged off the threat of 30% tariffs on Mexican and European goods, the risks remain for the Peso and broader Latin American currencies.
In the region, diverging monetary policy rates have opened carry opportunities and enabled risk diversification in local currency debt, especially at a time when Emerging Markets have drawn strong investor appetite.
Supporting the Peso’s recent momentum were minutes from the Bank of Mexico’s June meeting, which signaled limited room for further aggressive easing following a cumulative 325 basis-point cut since early 2024. Although rate cuts are still on the table, the central bank seems to prefer more gradual moves of 25 basis points, given inflation’s stubborn climb above target.
The USD/MXN remains under pressure, with the Peso trading below its short-term moving averages while probing resistance near 18.8. Next Tuesday’s release of May retail sales will be the week’s main macro event, offering fresh insight into domestic consumption trends and potential signals for monetary policy direction.
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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.
