The USD holds steady, oil prices are weaker, equity markets are down, and US yields rise as investors cut risk-on sentiment. The USD Index has slipped nearly 2% in August as growing bets on Fed rate cuts and concerns over the Fed’s independence weigh on sentiment. Traders now focus on upcoming core PCE inflation data, which could prove pivotal in shaping expectations for the Fed’s next policy move. Equity markets declined as traders trimmed risk ahead of Friday’s US inflation report, which could challenge expectations for how quickly the Fed may cut rates. S&P 500 futures dropped 0.3% after reaching a record high, while Nasdaq 100 futures fell 0.4%. Dell declined by over 5% due to slowing AI server sales. European shares slid 0.5%, with French markets under renewed political uncertainty. “With attention shifting toward softening labour data, anything short of a major upside surprise is unlikely to derail expectations for a September cut, followed by another by year-end,” wrote Ipek Ozkardeskaya, an analyst at Swissquote Bank. “However, there is no guarantee that inflation will remain contained.” Elsewhere, oil prices come under further selling pressure amid waning hopes for an end to the war in Ukraine. Bitcoin prices tumble 1.9%, gold and silver prices also eased heading into the key US inflation report. In focus today are the German CPI, CAD GDP, US Core Personal Consumption Expenditures - Price Index, Michigan Consumer Expectations & Consumer Sentiment Index, which will help direct the direction of the currency market.
In the news. Trump hits small packages with fresh tariffs as duty-free exemption ends. The Thai court sacks PM Paetongtarn Shinawatra for ethics violations. Lula authorizes retaliation process against Trump's tariffs. UK lenders slump as Reeves faces renewed calls for bank tax. Canada & India appoint new envoys to each other's countries in a sign of improving ties. TD Bank and CIBC results echo those of peers, buoyed by lower credit-loss provisions. Stand up to Trump on Big Tech, says EU antitrust chief. Macron's options narrow as his prime minister is on the brink. Fed's Cook sues Trump over his attempt to fire her, court hearing set for today.
In currency markets. The Indian rupee tumbles past 88 to an all-time low due to the US tariff hit, while the central bank intervenes. G10 currency markets are sidelined ahead of today's key US inflation report. CNY is flat, while Asian currencies eased by 0.2% on average against the USD. Trading currencies are mixed, with the ZAR weakening by 0.4%, while MXN, JPY & PLN ease by 0.2%. KWD, CHF, AUD, NZD, DKK, and CZK remain flat against the USD.
In commodity markets. Oil prices weakened by 0.8%. Natural Gas & Copper Prices strengthened by 0.8%. Gold and Wheat prices fell 0.25%. Silver & Soybean prices eased by 0.5% against the USD.
CAD remains steady, hovering around 1.3750 ahead of a busy day of data releases, including the key Core PCE report, a preferred gauge of inflation by the Fed, as well as Canadian GDP. A softer Core PCE would reinforce Fed rate-cut bets, weakening the USD and supporting CAD. Domestically, a stronger GDP would strengthen the case for the BoC to delay cutting rates, giving the loonie further support. In contrast, weak growth would fuel expectations of an earlier BoC easing cycle.
EUR/CAD is likely to hold above 1.6000, with the ECB’s firmer stance versus the BoC’s dovish bias and upcoming Canadian GDP data set to determine whether the pair drifts higher.
EUR will be driven by German inflation and the month-over-month Core PCE, with easing US inflation reinforcing expectations for Fed rate cuts. At the same time, firmer Eurozone prices support the ECB, leaving the pair caught between the two policy paths. Domestically, German data showed mixed signals, with unemployment unexpectedly dipping, but retail sales slumped 1.5% and consumer sentiment weakened, while falling import prices pointed to softer inflation pressures. In France, Q2 GDP growth was confirmed at 0.3%, driven by stronger exports, while Spain's inflation rate held steady at 2.7%. All eyes will be on the US Core PCE to provide direction to the euro.
GBPEUR holds near 1.16, but the risk tilts slightly in favour of the euro as German inflation comes in firmer, reinforcing ECB hawkishness and limiting sterling’s upside despite steady UK data.
GBP slipped below 1.3500 against the US Dollar on Friday after a three-day rally, underperforming peers as the greenback firmed ahead of July’s PCE inflation data. Fed’s Waller added to the cautious tone, noting he would support rate cuts at the September policy meeting. On August 7, the Bank of England cut rates by 25 basis points to 4% in a narrow 5-4 vote. Markets now expect the BoE’s next rate cut in November 2025, likely lowering the Bank Rate from 4% to 3.75%. Further easing is anticipated in early 2026, as policymakers remain cautious amid persistent inflation.
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