Good morning traders from a mostly sunny 20°C Amsterdam, with more cloud expected later around IntelliTrade HQ and temperatures topping out near 22°C. Sunday coffee is on the desk, the charts are quiet, and I think the market has finally reached an interesting point. U.S. jobs weakened, inflation cooled, retail spending disappointed, and the dollar still refused to completely fall apart. That is the part I want to focus on this week.
Overall Market Sentiment:
The market starts the week balanced, but with a softer dollar bias underneath.
U.S. data have removed a lot of the pressure for another immediate Fed increase, while equities remain close to record territory. The complication is that Treasury yields are still high and Brent finished near $89 as Middle East shipping risk refuses to disappear.
So I would not call this clean risk-on. The market likes the softer Fed story, but it has not completely stopped worrying about inflation, oil or long-term borrowing costs.
Weekly Thesis:
The dominant question this week is whether dollar weakness finally becomes broad now that U.S. employment, inflation and consumption are all cooling, or whether high long-term yields and oil keep USD supported anyway.
My base case is that the dollar stays softer against currencies with their own domestic support, but does not turn into a one-way weakness story. Canada CPI, UK inflation, Fed minutes, Australian labour data and Japanese CPI should make this a much more selective FX week than a simple USD move. JPY, GBP, CAD and AUD are the currencies I think have the most interesting domestic tests.
Scenario Map:
- Base case, 55%: U.S. data remain soft enough to keep September Fed pressure contained, while oil stays in the mid-to-high $80s and long-term yields remain elevated. USD stays softer overall, but the move remains selective rather than broad across every major currency.
- Risk-on scenario, 25%: Inflation outside the U.S. behaves, Fed minutes confirm patience and global PMIs show growth holding together. Treasury yields ease, equities remain supported and cyclical currencies receive a cleaner backdrop.
- Risk-off escalation scenario, 20%: Hormuz disruption worsens, oil pushes back toward the $90s and inflation expectations rise again while global growth data weaken. Long yields stay high, equities become more fragile and defensive currencies regain attention.
What Changed Since Last Week:
U.S. retail sales fell 0.6% in July after payrolls had already turned negative, while CPI and PPI both came in mild enough to reduce September Fed expectations further.
The dollar index finished near 99.7, EUR/USD moved above 1.15 and GBP/USD reached its strongest area since May. That strengthens the softer-dollar thesis from last Sunday, but the U.S. 10-year yield still finished near 4.69% and Brent settled at $88.52.
That gap between softer U.S. data and stubbornly high long-term yields is the part that keeps me from calling this a clean trend change.
Geopolitics:
The Strait of Hormuz remains the main geopolitical link into FX and inflation. Shipping traffic is still restricted, more vessels were attacked late last week and the U.S.-Iran relationship remains stuck rather than moving toward a proper settlement.
That is why Brent finished the week near $88.50 even as global demand expectations became less convincing.
The mistake here would be assuming the oil risk disappeared because crude is no longer above $100. Europe, the UK and Japan still feel an $88 oil price very differently from Canada.
For me, physical shipping flows matter more than another weekend of political statements.
Macro Calendar:
The week ahead
- Monday, Japan GDP and Canadian CPI: Japan’s second-quarter growth numbers matter because the BOJ is already being pushed toward faster normalisation while USD/JPY sits near 160. Canada’s July CPI is equally important for CAD after the recent employment surprise gave the currency a much better domestic foundation.
- Tuesday, UK labour market: Wages and unemployment will test whether the Bank of England still has a reason to remain uncomfortable about domestic inflation. Sterling has held up well, but it needs the labour data to justify that policy support.
- Wednesday, UK CPI, Australian wages and Fed minutes: This is probably the biggest day of the week. UK inflation decides whether GBP keeps its rate advantage, Australian wages test the RBA’s inflation concern, and the Fed minutes show how divided policymakers really were before jobs, CPI, PPI and retail sales all softened.
- Thursday, Australian employment: AUD gets another major domestic test immediately after wage data. The cleaner question is whether Australia still has a resilient enough labour market to justify the RBA’s relatively firm stance.
- Friday, Japanese CPI and global flash PMIs: Japan’s inflation report arrives with markets increasingly focused on a possible September BOJ move. The PMIs then give us the first broad look at August growth, hiring and pricing across Japan, Europe, the UK and the United States.
- Friday, Canadian retail sales: After Canada’s strong jobs report and Monday’s CPI, household spending completes an important week for CAD. Stronger domestic demand would make Canada’s recent resilience harder to dismiss as one good employment print.
Currency Outlooks:
🔻 USD - The policy advantage has weakened properly now
The dollar index finished Friday around 99.7, with EUR/USD near 1.1565 and GBP/USD around 1.3530.
I think this is the first week in a while where calling the dollar softer has a proper collection of U.S. data behind it.
Payrolls fell.
CPI cooled.
PPI was flat.
Retail sales dropped 0.6%.
That is very different from the earlier USD weakness that depended heavily on yen intervention or temporary moves in oil.
The Fed now has weaker hiring, milder inflation and softer consumption in front of it. Markets cut the probability of another September increase to around one-third by Friday.
That matters.
But here is the bit I would not misunderstand. The 10-year yield still finished near 4.69%. Long-term U.S. borrowing costs remain very high even though the immediate Fed argument has weakened.
The cleaner read for me is that USD risks lean toward weakness, particularly against currencies with their own policy support.
That view weakens if the Fed minutes show a committee far more worried about inflation than current market pricing suggests, or if oil rises enough to rebuild the inflation argument.
⚖️ EUR - Better environment, still not a great European story
EUR/USD finished around 1.1565, after reaching its strongest level since mid-June.
The euro has done what it needed to do while U.S. yields at the front of the curve softened. It has also avoided another major energy shock, even though Brent near $89 is hardly comfortable.
I still would not describe EUR as having a powerful domestic story.
Europe grew in the second quarter, but employment momentum has been softer and industrial conditions remain uneven. Friday’s flash PMIs are therefore useful because they can tell us whether July’s improvement survived another month of expensive energy.
Risks are balanced with a mild strength tilt while the dollar stays soft.
That improves if European PMIs hold up and oil stops climbing. It weakens if the U.S. yield advantage rebuilds or energy becomes the bigger story again.
🔺 GBP - Sterling finally has a proper domestic week
GBP/USD finished near 1.3530 after reaching 1.3560, its strongest area since May.
Sterling has been holding up because several things are working in its favour at once.
U.S. yields have become less aggressive. UK second-quarter growth came in at 0.4%. And the Bank of England still has members who are uncomfortable with inflation.
Now we get the important confirmation.
Tuesday brings wages and unemployment. Wednesday brings CPI.
If wage pressure remains firm and inflation stays sticky, the BoE’s cautious position still has a domestic reason behind it. If both cool quickly, sterling loses part of the rate advantage that helped it through the last few weeks.
My tilt remains toward relative GBP strength, but this is one of the currencies where that view can change quickly.
The mistake here would be assuming higher inflation is automatically positive for the pound. If inflation rises because of imported energy while wages and growth weaken, that becomes a much uglier combination.
🔺 CAD - Canada has more than oil behind it now
CAD enters the week with one of the more interesting combinations in G10.
The labour market surprised strongly earlier this month, unemployment fell and Brent finished Friday at $88.52. Canada now has both a domestic growth argument and a commodity cushion.
Monday’s CPI tells us whether there is also a policy argument.
June inflation was 2.8%. If underlying inflation remains contained in July, the Bank of Canada can stay relatively patient while benefiting from improving domestic activity. If inflation starts rebuilding alongside strong jobs, markets may have to reconsider how comfortable the BoC can really be.
The cleaner read for me still leans toward CAD strength.
What would weaken it? A sharp drop in crude caused by weaker global demand, or Canadian inflation and retail data showing that the strong jobs report overstated the wider economy.
⚖️ CHF - Useful insurance, but not the main weekly story
CHF enters the week without a major domestic catalyst.
The franc still has defensive support from the Middle East situation, but equities near record levels and softer Fed expectations reduce the urgency for a strong haven move.
The other issue is yield.
Even with Fed expectations cooling, Switzerland still offers far less yield than the United States. That keeps the franc’s defensive case cleaner against cyclical currencies than against USD.
Risks remain balanced.
A larger oil shock or weak global PMIs would strengthen the defensive side. A calm geopolitical week and softer global yields would make CHF less central.
🔺 JPY - 160 is now a policy question, not just an FX level
USD/JPY finished around 159.3, leaving the yen close to the 160 region again.
This is probably the currency I would be most careful about oversimplifying this week.
On one side, the yield gap is still hurting JPY. The intervention-driven move toward 155 did not hold, and that tells us how powerful the underlying rate difference remains.
On the other side, the setup is changing.
Markets are increasingly discussing a September BOJ increase. Japanese officials have already demonstrated their willingness to support the currency. U.S. Fed expectations are softer than they were before the intervention. Monday’s GDP and Friday’s inflation data now give the domestic side a chance to catch up.
My tilt leans toward JPY strength, but not because the structural problem has disappeared.
It has not.
The reason is that the risk around further yen weakness has become much worse. If USD/JPY pushes through 160 while Japanese inflation remains firm, the market has to think about both tighter BOJ policy and another round of official action.
That is a very different environment from blindly following the yield gap.
⚖️ AUD - The RBA held the line, now wages and jobs need to support it
AUD starts the week with a reasonably solid policy foundation after the RBA kept rates at 4.35% and continued warning that inflation remains too high.
That is helpful.
But Australia’s recent inflation data have already cooled somewhat, which means the RBA needs wage and labour-market evidence if it wants to keep the possibility of further tightening credible.
Wednesday and Thursday give us exactly that.
Firm wage growth combined with resilient employment would keep AUD trading more like a rate currency. Softer wages and weaker jobs would shift it back toward China and global risk sentiment very quickly.
For now, risks are balanced.
I would not overcomplicate this. AUD needs domestic confirmation this week rather than another general softer-dollar move.
🔻 NZD - The domestic rate story remains less convincing than Australia’s
NZD enters the week in a weaker domestic position than AUD.
New Zealand’s labour market has developed more slack, unemployment has risen and wage pressure has cooled. Inflation is still important, but the economy is no longer giving the RBNZ a simple reason to become more aggressive.
That means NZD is relying more heavily on external help.
A softer dollar is useful. Strong global PMIs would help. A better China story would help.
But none of those is a New Zealand-specific reason.
Risks lean toward relative weakness, especially against currencies with stronger domestic policy support. That tilt improves if U.S. yields fall significantly and Friday’s global PMIs create a broader risk-on environment.
Cross-Asset Wrap:
- 🪙 Gold: Gold finished Friday around $4,370 to $4,380 per ounce, supported by a weaker dollar after softer U.S. inflation and retail data, while remaining close to recent multi-month highs. Fed expectations and real yields remain the main macro drivers, with Middle East uncertainty providing secondary support. Watch whether the Fed minutes and Friday PMIs can pull the U.S. 10-year yield meaningfully below last week’s 4.69% close. [USD] [REAL YIELDS] [FED]
- 🥈 Silver: XAG/USD ended Friday around $64.70, after trading in a broad $63.50 to $65.70 daily range and extending a second weekly advance. Softer U.S. rate expectations support the monetary side, while technology demand and the global manufacturing outlook remain important for its industrial side. Watch Australia’s labour data and Friday’s global PMIs for confirmation that growth can hold up as rates stay restrictive. [USD] [YIELDS] [INDUSTRIAL DEMAND]
- 🛢 Oil (Brent): Brent settled Friday at $88.52 per barrel, up roughly 1.7% on the day as attacks on shipping and stalled U.S.-Iran diplomacy rebuilt part of the supply premium. Restricted Hormuz traffic is supporting crude, while weaker global demand expectations continue preventing a return to July’s $100-plus levels. Watch physical tanker traffic and whether the diplomatic deadlock produces further disruption. [SUPPLY] [GEOPOLITICS] [INFLATION]
- 📈 Stocks: The S&P 500 finished Friday at 7,785.76, down around 0.2% on the session but still sitting close to record territory, while the Nasdaq closed near 26,729. Softer Fed expectations and strong earnings remain supportive, but elevated long-term yields and expensive technology valuations keep the market sensitive to growth disappointments. Watch whether Friday’s global PMIs preserve the soft-landing story or make weaker U.S. consumption look more concerning. [FED] [YIELDS] [GROWTH]
- ₿ Crypto: Bitcoin is trading around $63,000 this Sunday, holding close to Friday’s area but still responding much less aggressively than gold or equities to softer Fed expectations. Lower near-term rate pressure helps liquidity, while elevated real yields and weaker crypto-specific momentum remain constraints. Watch whether the Fed minutes and global PMIs finally create a larger shift in real yields and broader risk appetite. [LIQUIDITY] [REAL YIELDS] [RISK]
The main thing I care about this week is not whether the dollar index falls another half percent.
It is whether USD weakness becomes broad.
That is different.
Last week gave the market almost everything it needed to reduce Fed expectations.
Employment weakened.
Consumer inflation was mild.
Producer prices were flat.
Retail sales fell.
If you looked at those four things alone, you could make a fairly simple argument that the dollar should be under more pressure.
But the 10-year yield is still near 4.7%.
That tells me the market is separating the Fed from the wider U.S. bond story.
Short-term policy expectations are cooling. Long-term investors are still asking harder questions about inflation, fiscal risk, energy prices and how much compensation they need to hold U.S. debt.
That matters for FX.
The dollar can lose Fed support without losing its entire yield advantage.
This is where traders can get trapped.
The mistake would be looking at softer U.S. data and assuming every major currency should strengthen equally against USD.
GBP has labour and inflation data this week.
CAD has CPI after a very strong jobs report.
JPY has GDP, inflation, BOJ expectations and intervention risk all sitting around the 160 area.
AUD has wages and employment after an RBA meeting that kept the inflation door open.
NZD does not have that same domestic support.
Those differences matter more now.
I would not overcomplicate the Fed minutes either.
They describe a meeting that happened before payrolls fell, before CPI and PPI cooled, and before retail sales disappointed. So I care less about whether the document sounds technically hawkish or dovish and more about what policymakers were worried about before the data changed.
If inflation concern was already fading inside the committee, the recent numbers strengthen that position.
If the committee was deeply worried about tariffs, energy and inflation persistence, markets may realise the hurdle for another increase is not as high as current pricing suggests.
My actual view is that USD risks lean softer into the week, but I expect the weakness to remain selective.
GBP and CAD have useful domestic support.
JPY has a much stronger policy and intervention story around it than the current price suggests.
AUD has a chance to strengthen its case if wages and employment remain resilient.
EUR can benefit from a softer dollar, but still needs oil and European growth to cooperate.
And NZD remains the currency where the domestic foundation looks less convincing.
The thing that would break my base case is oil.
If Brent pushes back into the $90s because Hormuz disruption gets worse, the entire inflation discussion becomes more uncomfortable again. Europe and Japan take the import hit. U.S. long-term yields can stay elevated. Central banks get less room to relax.
That is why I keep coming back to the same distinction.
The Fed story has softened.
The inflation story has improved.
The dollar’s policy support has weakened.
But the wider macro system has not completely followed.
This week tells us whether it finally does.
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This is general, educational macro and FX commentary. It is not investment advice and not a trading signal.
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