- Oil’s well. A week on from Treasury buyback surprise, long-end US yields are 10-15bp lower. An 8% drop in oil prices since has likely done as much heavy lifting as the intervention itself though.
- Sanction tension. Fresh US sanctions on Iran targeted third-party trade links, with China firmly in focus. This is partly due to the fact roughly 90% of Iran’s oil goes to China.
- Canada counters. Canadian Prime Minister Mark Carney matched US President Trump’s latest tariffs and unveiled support measures for businesses caught in the crossfire of the trade war.
- Aussie rules. The Australian dollar is the week’s only G10 outperformer. Sticky inflation has revived hawkish RBA expectations, with markets now pricing almost 30bp of tightening by year-end.
- AI optimism. Nvidia’s results reinforce that the AI capex boom remains in its expansion phase, supporting chip stocks and the broader AI trade.
- Data dilemma. Mixed US data offered some support to the dollar but little clarity on September Fed policy, with markets still pricing only around 9bp of tightening.
- Jackson Hold? Markets are hoping Jackson Hole provides clarity on the Fed’s next move, with Chair Kevin Warsh under intense scrutiny on Friday.
Global Macro
Global activity firms as inflation stays uneven
US mix. US Q2 GDP held at 1.5% annualized, but consumption was revised up to 3.4% and private domestic demand to 4.2%. July core PCE held at 3.3% y/y, while real spending was flat and consumer confidence fell to 89.4 vs 90.2 expected, leaving firm underlying demand alongside softer near-term momentum.
Germany improves. German Q2 GDP was revised up to 0.3% q/q from 0.2%, beating consensus, as exports rose 2.0%. The Ifo business climate index also climbed to 88.8 vs 87.2 expected, its highest level in a year, although household consumption remained subdued and investment declined.
Australia overshoots. July CPI slowed to 3.5% y/y from 3.8%, but exceeded the 3.2% forecast, while trimmed-mean inflation remained at 3.6%. The monthly index rose 1.0%, led by housing, food and recreation, keeping pressure on the RBA despite the lower annual headline.
Asia tightens. The Bank of Korea raised rates by 25bp to 3.00%, as expected, citing stronger growth and inflation likely to remain above target. Japan’s national core CPI rose to 1.8% y/y from 1.6%, matching expectations, while the core-core measure accelerated to 1.9%, keeping the region’s policy bias tilted toward restraint.
Mexico rebounds. Final Q2 GDP rose 1.4% q/q vs 1.5% expected and 2.1% y/y vs 2.2% expected, still the strongest quarterly expansion since early 2022. June activity slipped 0.1% m/m, but early-August inflation accelerated to 3.26% y/y vs 3.2% expected, strengthening the case for Banxico to hold rates for longer.
Week ahead
Markets eye jobs and inflation
Payrolls under the microscope. All eyes will be on next week’s August US jobs report. Recent releases have disappointed, with substantial downward revisions bringing the average number of jobs added in recent months to ~20k. This has undermined much of the optimism surrounding a much stronger start to 2026.
Inflation watch. We will also be monitoring Germany’s and the eurozone’s preliminary August inflation releases. This week’s data from France and Spain showed headline inflation edging higher, with the latter exceeding expectations. The inflation backdrop appears broadly consistent with market expectations for a 25bp ECB rate hike next month.
Survey spotlight. A raft of PMI releases, including those from the US, eurozone and UK, are also due. Lingering concerns over the Middle East have so far failed to dent business sentiment, with eurozone surveys proving particularly resilient. However, key risks lie ahead in H2 that could weigh on optimism, including the US midterm elections and the UK’s Autumn Budget.
FX views
Warsh a key test for FX today
USD Prove it, Kevin. The US dollar spent the week clawing back some of the losses driven by renewed concerns over US fiscal discipline and Fed credibility. The rebound suggests markets still need more bad news before fully embracing that narrative and pushing the dollar materially lower. Today’s keynote from Fed Chair Kevin Warsh at Jackson Hole will be a key test. While a hawkish Fed remains, in theory, the clearest catalyst for dollar strength, Warsh’s vague communication style has diluted the currency’s traditional yield support. With little sign that his messaging will change, the case for Fed hawkishness increasingly rests on strong macro data, which were somewhat lacking in August. A rate hike next month would go a long way toward easing investor concerns, demonstrating resolve through action rather than words. We do not expect market skepticism toward Warsh to persist indefinitely, but in the near term it risks keeping the dollar under pressure, particularly given the recent revival of debasement fears.
EUR Geopolitics vs the euro. EUR/USD consolidated in a tight 1.1650-1.17 range this week as markets awaited fresh catalysts. Fed Chair Kevin Warsh’s keynote later today could provide one. A more sustained move higher, however, depends on a September Fed hold materialising. On the euro side, the currency has struggled to benefit from ECB tightening. While much of the hawkish stance is already priced in, lingering growth concerns linked to higher energy prices continue to dose the pass-through. Recent reports that the Kremlin plans to escalate attacks in Ukraine pose an additional risk. Together with tensions in the Middle East, the geopolitical backdrop remains a headwind for the common currency. The best-case scenario for the euro would be a de-escalation on both fronts, helping to cap energy prices, alongside a continuation of the recent run of strong macroeconomic data into H2.
GBP Calm before the Autumn. Sterling’s week was notable more for what didn’t happen than what did. Despite plenty of global headlines, GBP/USD’s worst day of the month was only around -0.4% on Wednesday, underlining just how subdued volatility remains across FX markets. The pound continued to take its cues from external drivers rather than domestic developments. Early-week support came from falling oil prices and a softer dollar, helping cable remain comfortably above 1.35. Against the euro, sterling is still consolidating in the higher realms of 1.16 after July’s retreat from one-year highs above 1.18. Narrowing rate differentials have weighed slightly, though the pair is still overvalued on this front alone. Perhaps most tellingly, GBP/USD is set to finish August higher despite historically unfavourable seasonality, highlighting the importance of external forces. Looking ahead, however, the outlook becomes more challenging. UK economic data has a tendency to surprise lower heading into Q4, while scrutiny of Prime Minister Burnham’s fiscal plans is likely to intensify ahead of the Autumn Budget. That combination could make sterling’s recent resilience harder to sustain.
CHF Haven’t lost it. The Swiss franc gave back some of last week’s haven-driven gains, with USD/CHF extending its rebound from the 100-day moving average, although the pair is now approaching resistance in the upper 0.80 area. EUR/CHF has shown greater resilience, continuing to hold above its rising 21-day moving average as the broader uptrend remains intact. However, last week’s price action was a timely reminder that CHF’s safe-haven credentials remain very much alive. Renewed concerns over US fiscal sustainability and policy credibility following the Treasury buyback surprise helped revive one of the standout beneficiaries of the 2025 de-dollarisation trade. It remains too early to call a sustained franc rally though, evidenced by this week’s retracement. Nevertheless, with markets awaiting further clarity on Treasury funding plans and Fed Governor Warsh’s Jackson Hole remarks, the franc may continue to find episodic support as a haven alternative to the dollar.
CAD Loonie retreats. USD/CAD has climbed toward 1.3900, with renewed US dollar demand compounding pressure from the latest trade escalation. Washington’s 50% tariffs on selected Canadian goods and Ottawa’s planned retaliation from September 8 have revived concerns over exports, investment and business confidence, although the measures cover only about 4.2% of Canadian exports to the US and leave more than 85% of trade duty-free under CUSMA. Firm US services inflation, steady GDP growth and better headline durable goods orders have also supported the greenback, while the US-Canada two-year yield spread has widened from its recent low. The 1.3900 level now marks the immediate technical test, with a sustained break exposing 1.4000–1.4100. A reversal below 1.3760 would bring 1.3500–1.3700 back into view. Next week, attention turns to Wednesday’s Bank of Canada meeting, where markets widely expect rates to remain unchanged. The focus will be on how the latest trade escalation has altered the Bank’s outlook and reaction function. On Friday, the August labor market report will provide the next major test of Canada’s recent economic momentum and the Loonie’s recovery.
AUD Aussie inflation stays sticky. Crude oil jumped overnight after reports that President Trump is unwilling to revive the June understanding with Iran, leaving uncertainty around the Strait of Hormuz. Australia’s July inflation data came in slightly stronger than expected. Headline inflation eased to 3.5% y/y from 3.8%, but beat forecasts of 3.3%, while the trimmed mean held at 3.6%, above expectations. The figures strengthen the case for another RBA rate increase. Attention now shifts to the Q2 GDP report, with data-centre investment a key area to watch. Markets are pricing a 95% chance of a rate hike by November. AUD/USD reached a fresh three-month high. First support sits at the 21-day EMA of 0.7107, followed by the 50-day EMA at 0.7064, while resistance stands at 0.7250. AUD/JPY and AUD/CNH also traded at three-month highs, highlighting broad AUD strength.
CNH US-China truce. Beijing and Washington are discussing whether business leaders will join President Xi during his expected 24 September visit to the US, while both sides appear prepared to extend the one-year agreement reached in Busan last October. Including corporate executives would mirror President Trump’s May visit to Beijing, when leaders from Tesla, Apple, Nvidia and Boeing joined the delegation. USD/CNH remains close to a three-year low and is trading just above the recent low of 6.7128 reached on 24 August. A move above the 21-day EMA at 6.7371 could pave the way towards the 50-day EMA at 6.7574, while support stands at 6.7100. With the RSI near oversold territory, USD buyers may look to take advantage at current levels.
JPY USD/JPY nears 160 again. The Federal Reserve maintained a firm stance on inflation, while oil prices surged overnight after uncertainty surrounding the Iran situation lifted energy markets. Against this backdrop, stronger Tokyo inflation data has brought the Bank of Japan closer to achieving its target. Tokyo core inflation rose to 1.8% y/y in August, ahead of expectations for 1.7%. Excluding fresh food and fuel, inflation accelerated to 2.0% from 1.8%, pointing to firmer underlying price pressures. Wholesale inflation, which rose 7.2% in July, is also likely to filter through in the coming months. USD/JPY is at a one-week high and is trading near the key 160.00 level. The pair remains roughly 3% below its 23 July peak of 163.99, with the 100-day EMA at 159.68 and the 50-day EMA at 160.03 as near-term resistance levels to watch. Meanwhile, AUD/JPY is at a three-month high, while SGD/JPY at a one-month high, underscoring relative JPY weakness.
MXN Carry endures. USD/MXN is trading near 16.97, holding close to its strongest peso level since May 2024 despite a volatile week for EM assets. Banxico’s upgraded 2026 growth forecast to 1.5% from 1.1%, alongside inflation returning to target only by Q4 2027, supports an extended policy hold and preserves Mexico’s carry advantage. The two-year yield premium over the US remains near 339bp, while reserves have risen to $258.6bn, giving the peso a strong external cushion. Softer oil and progress toward a Hormuz shipping framework have also improved the risk backdrop, although firmer US inflation and renewed Fed tightening bets briefly pushed the pair higher. USD/MXN remains compressed between roughly 16.92 and 16.97, with 17.00 as the key resistance level. A sustained break above it would expose 17.10–17.20, while a move below 16.90 would bring 16.80 into view.
COP Carry ceiling breaks. USD/COP is trading near 3,124, rebounding almost 3% from the August 19 low of 3,038 as a shortage of dollar liquidity in Colombia overwhelms the peso’s carry advantage. COP has been the week’s weakest EM currency, even though BanRep’s 12% policy rate and a roughly 760bp long-end yield premium over the US remain highly attractive. The adjustment appears driven by local funding stress rather than a loss of sovereign market access, with government bond auctions still clearing successfully. Domestic risks have also risen after the earthquake and subsequent economic emergency decree added uncertainty around spending and an already fragile fiscal position. Technically, USD/COP is testing the 3,100–3,130 resistance zone; a sustained move above 3,130 would bring 3,200 into view, while improved dollar availability could pull the pair back toward 3,050–3,080.
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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.
