The prospect of continued Fed rate cuts will weigh on the US dollar
The Federal Reserve left its rates unchanged at 4.50% at its 30 July meeting, though the decision revealed a split within the committee. The growing divergence among FOMC members suggests the Fed is edging closer to cutting rates in the coming months, potentially acting as a catalyst for the next phase of USD weakness.
USD: Hawkish Powell awaits inflation data before cutting interest rates
The Jackson Hole Symposium is the main event from a policy perspective, and we do not anticipate any significant announcements given Powell’s recent statements. There are a further two US CPI reports to be published ahead of the September FOMC meeting.
EUR: The bar to further ECB easing is high
The ECB kept its rates on hold at its July meeting, and it did not commit to further rate cuts. The publication of German IFO data and industrial production activity will be closely watched. Inflation data are unlikely to be market moving.
JPY: Few signs of looming appreciation risks
The US–Japan trade agreement has removed uncertainty for investors, suggesting they are unlikely to buy the JPY in the coming weeks. They still maintain a large, long JPY position, and the cost of carry and lack of downward momentum means that a short squeeze remains possible.
CNY: Increasing optimism on the Chinese yuan
US–China trade talks are likely to continue, meaning the US will extend its tariff deadline. The USD/CNY is expected to remain within recent ranges, with downside risks.
GBP: Bank of England in a bind
Unemployment data on 12 August will be closely watched. If the data show a continued worsening in payrolled employee figures, markets should move to price in an October rate cut. The GBP/USD has only modest downside risks, given plenty has been priced in and it has already moved substantially.
CHF: The broader outlook points to additional USD/CHF weakness
Headline risks will focus on US tariffs on Swiss imports – though we note that US trade is only a small component of Switzerland’s overall trade surplus – suggesting that the wider USD/CHF downward trend will persist.
