Good morning traders from a mostly clear 13°C Amsterdam, where it is a fresh start around IntelliTrade HQ before temperatures climb toward 25°C this afternoon. Coffee is on the desk, Brent has dropped hard again, Treasury yields are coming down with it, and the dollar is still sitting stubbornly around the same area before U.S. inflation. Today feels less like another routine data day and more like a proper test of whether the market still believes the softer Fed story.
Overall Market Sentiment:
The mood is cautiously constructive, but conviction is low.
Oil is down more than 2%, the U.S. 10-year yield has fallen toward 4.63% and Middle East tensions have eased slightly as talks around reopening the Strait of Hormuz restart. That combination removes some of the inflation pressure that was making markets uncomfortable only a few sessions ago.
But the dollar index is still around 98.9.
That is what I care about.
My actual view today is that conditions have become more favourable for another softer-dollar move, but PCE needs to give markets a reason to believe underlying inflation is genuinely cooling.
The mistake here would be looking at Brent below $87 and assuming the inflation argument is finished.
Oil has improved quickly. Core inflation has to confirm the same direction.
Geopolitics:
Iran has restarted discussions with Oman over management of the Strait of Hormuz, and markets are starting to price at least some possibility that commercial traffic could improve.
Brent has responded aggressively, falling for a third session toward the mid-$86 area.
I would not overcomplicate the geopolitical story.
There is still no full reopening agreement, and Iran continues to attach conditions to normalising traffic. So this is an improvement in expectations, not proof that the physical supply problem has disappeared.
For FX, lower oil helps Europe and Japan while reducing one of the inflation supports that had been keeping U.S. long-term yields elevated.
That matters today because PCE lands into a bond market that is already moving in the softer direction.
Macro Calendar:
Today
- Australian CPI: Inflation surprised higher in July. Consumer prices rose 1.0% month-on-month, while trimmed-mean inflation increased 0.5% and reached 3.6% year-on-year. That is an important change after last week’s weak employment report because the RBA now has softer labour data but another uncomfortable inflation number.
- U.S. GDP, 14:30 Amsterdam time: The second estimate of Q2 growth follows the initial 1.5% annualised reading. I care less about a small headline revision and more about what the report says about domestic demand, consumer spending and business investment underneath it.
- U.S. PCE inflation, 14:30 Amsterdam time: This is the main FX event. Core PCE is expected to remain around 3.3% year-on-year, with markets looking for another relatively modest monthly increase. After softer CPI and PPI, the Fed needs evidence that the improvement is showing up in its preferred inflation measure too.
- U.S. personal income and spending: These arrive with PCE and should not be ignored. Retail sales already weakened in July and consumer confidence dropped again yesterday, so household income and spending can show whether the slowdown is becoming broader.
- Nvidia earnings, after the U.S. close: This is not an FX release, but it is absolutely part of today’s macro story. AI investment has become large enough to affect manufacturing, electricity demand, corporate financing and equity sentiment. Markets now need earnings and guidance to justify the amount of capital being committed.
The rest of this week
- Thursday, U.S. jobless claims: July payrolls weakened, but layoffs have remained relatively low. Claims can tell us whether the labour market is still mainly experiencing weaker hiring rather than a more serious deterioration.
- Thursday, Jackson Hole begins: The backdrop is unusual this year. The Fed is dealing with inflation above target, softer employment and a Treasury market where long-term yields have recently traded near multi-year extremes.
- Friday, Fed Chair Kevin Warsh: This is the main policy event left this week. The important question is how Warsh balances the Fed’s inflation credibility against evidence that employment and household demand are cooling.
- Friday, U.S. consumer sentiment and Chicago activity: Inflation expectations inside the consumer survey will matter after confidence weakened earlier this week. Markets also get another August activity reading before the weekend.
Currency Outlooks:
⚖️ USD - Today needs to give the dollar genuinely new information
The dollar index is around 98.9, with EUR/USD near 1.1675, GBP/USD around 1.3645 and USD/JPY close to 159.1.
Tuesday gave us weak housing data and softer consumer confidence.
USD barely reacted.
That tells me the market already understands that parts of the U.S. economy are cooling.
So today is different.
PCE directly tests the inflation side of the Fed argument, while falling oil and lower Treasury yields have already removed some of the support the dollar had earlier this month.
The cleaner read for me is mixed with risks still leaning modestly toward weakness.
If core PCE cools and Treasury yields keep falling, the softer-dollar story becomes much cleaner again.
If inflation is mild and USD still refuses to weaken, that would tell me the recent move has become crowded and the market needs a much bigger macro change before extending it.
🔺 EUR - Lower oil is almost as useful as the softer dollar
EUR/USD is around 1.1675, holding near its strongest region in several months.
The euro has been developing a better story.
German growth was revised higher yesterday, business confidence improved and recent euro-area activity data have looked healthier than they did earlier this summer.
Now oil is helping too.
Brent falling from above $94 toward $86 in only a few sessions is meaningful for Europe. Lower imported energy costs reduce pressure on households, manufacturers and the ECB.
That matters because expensive oil was probably the biggest weakness in the recent EUR argument.
Risks lean toward relative strength while European activity improves, oil remains contained and U.S. yields stay below last week’s extremes.
🔺 GBP - Inflation expectations keep the BoE cautious
GBP/USD is around 1.3645, still holding close to recent multi-month highs.
The UK does not have a major release today, but there was an interesting inflation development yesterday.
Household inflation expectations moved higher again in August.
That matters because recent wage and services inflation data had been calming down, which was gradually weakening the argument for a more restrictive Bank of England.
Rising inflation expectations complicate that story.
The cleaner read for me remains mildly constructive for GBP. Growth has held up reasonably well and the BoE still has more inflation sensitivity than several other central banks.
Lower oil would help because it reduces the risk that imported energy inflation becomes an even bigger problem.
⚖️ CAD - Trade tension still outweighs the oil relationship
USD/CAD is around 1.3840, with CAD slightly firmer this morning despite another large decline in crude.
That is interesting in itself.
Canada formally responded to new U.S. tariffs yesterday, escalating a dispute that threatens one of the world’s most integrated trade relationships.
Normally I would expect Brent dropping toward $86 to create another obvious problem for CAD.
Instead, the currency has stabilised.
The cleaner read remains mixed.
Recent Canadian employment data are decent, but trade uncertainty is now the dominant domestic risk. Oil still matters, but I would not reduce CAD to a crude-price story while tariffs are changing the growth outlook at the same time.
⚖️ CHF - Haven demand cools as oil and geopolitical pressure ease
CHF has lost some of the immediate defensive argument this morning.
Oil is falling, Hormuz negotiations have restarted and global risk sentiment is calmer than it was last week.
That reduces the urgency for haven demand.
At the same time, lower U.S. yields weaken one of the dollar’s advantages against the franc.
Those two forces mostly cancel each other out for me.
Risks are balanced.
CHF becomes more interesting again if PCE destabilises the bond market or Jackson Hole creates another round of uncertainty around U.S. policy credibility.
🔺 JPY - Falling U.S. yields finally help, but 159 is still stubborn
USD/JPY is around 159.1.
Japan received another inflation signal this morning, with corporate services prices rising 3.6% year-on-year in July.
That is useful for the BOJ because services inflation is closer to the domestic wage-and-demand story than imported energy alone.
Markets are also increasingly expecting another BOJ policy move in September.
Now U.S. yields are finally helping.
The 10-year Treasury yield has fallen toward 4.63% as oil drops, narrowing some of the pressure that has kept JPY weak despite intervention and higher Japanese rates.
Risks lean modestly toward JPY strength.
But the mistake here would be pretending the yield gap has disappeared. USD/JPY sitting above 159 tells us it clearly has not.
🔺 AUD - Hot inflation changes yesterday’s conversation
AUD/USD is around 0.7170, firming after this morning’s Australian CPI report.
This is probably the cleanest currency-specific change today.
Last week’s employment report was weak enough to make the RBA look more patient. Jobs fell, unemployment rose and hours worked declined.
Today inflation pushed back.
Headline prices rose 1.0% in July and trimmed-mean inflation reached 3.6% annually.
That gives the RBA a much more uncomfortable combination.
The labour market is cooling, but inflation is not behaving well enough for policymakers to relax.
Risks lean toward relative AUD strength because the possibility of further RBA restriction has become more credible again.
The mistake would be forgetting the jobs report entirely. The RBA now has conflicting data, not an easy inflation-only decision.
⚖️ NZD - Next week’s RBNZ decision is starting to dominate
NZD/USD is around 0.5960, slightly softer this morning.
Markets are increasingly focused on next Wednesday’s RBNZ meeting, where another increase is widely expected.
That gives NZD some rate support.
The domestic economy remains the complication.
Unemployment is elevated, wage pressure has cooled and New Zealand carries more labour-market slack than Australia. That makes further restriction harder to absorb.
The cleaner read for me is balanced.
NZD has policy support approaching next week, but Australia’s hot CPI gives AUD the stronger immediate domestic inflation story.
Cross-Asset Wrap:
- 🪙 Gold: Gold is trading around $4,645 to $4,655, holding close to its highest area in more than three months despite a small pullback this morning. Dollar uncertainty and lower Treasury yields remain supportive, while the absolute level of real yields is still high enough to limit the move. Watch whether core PCE confirms the recent inflation improvement and allows real yields to fall further. [USD] [REAL YIELDS] [PCE]
- 🥈 Silver: XAG/USD is trading around $69.00 to $69.20, up modestly and continuing to hold close to recent highs alongside gold. Lower U.S. yields support the monetary side, while improving European manufacturing helps the industrial-demand argument despite uneven global growth. Watch whether Nvidia’s results reinforce confidence in technology and infrastructure investment. [USD] [YIELDS] [INDUSTRIAL DEMAND]
- 🛢 Oil (Brent): Brent is trading around $86.40 to $86.70 per barrel, down more than 2% today and falling for a third consecutive session after recently trading above $94. Renewed Iran-Oman discussions around Hormuz are reducing the supply premium, although there is still no complete agreement to normalise commercial shipping. Watch actual tanker traffic because market optimism has moved faster than the physical situation. [SUPPLY] [GEOPOLITICS] [INFLATION]
- 📈 Stocks: Asian equities are mixed, with the broader regional index slightly positive, Japan’s Nikkei down around 0.4% and Nasdaq futures down roughly 0.5% ahead of Nvidia. Tuesday’s Wall Street session was firmer as lower oil and Treasury yields helped technology shares recover, with the S&P 500 gaining around 0.3% and the Nasdaq roughly 0.7%. Watch Nvidia guidance because financing costs and AI earnings expectations are now tied closely together. [NVIDIA] [YIELDS] [RISK]
- ₿ Crypto: Bitcoin is trading around $78,800, up modestly this morning and roughly 25% higher so far this month. Dollar uncertainty and improved liquidity expectations remain supportive, while lower Treasury yields reduce one of the biggest macro headwinds for higher-volatility assets. Watch whether PCE pushes real yields lower and whether Bitcoin’s recent strength survives tonight’s Nvidia-driven equity volatility. [LIQUIDITY] [REAL YIELDS] [RISK]
The main thing I care about today is that oil has finally started helping the bond market instead of hurting it.
Brent was above $94 last week.
This morning it is around $86.
The 10-year Treasury yield has moved down toward 4.63%.
That changes the environment before PCE.
For most of August, the Fed had a problem.
Employment was weakening.
Inflation data were improving.
But oil and long-term yields were staying high enough that financial conditions remained uncomfortable anyway.
Today, part of that tension has eased.
Now PCE gets a cleaner test.
If core inflation also behaves, markets can say the improvement is no longer just a CPI story.
Consumer inflation cooled.
Producer inflation cooled.
Oil has pulled back.
And the Fed’s preferred measure is also moving in the right direction.
That would make the case for patience much easier to understand.
But this is the part I would not misunderstand.
Core PCE around 3.3% is still nowhere near 2%.
The Fed does not have an inflation victory.
It has evidence that the direction may finally be improving again.
That is very different.
Australia gave us a perfect example this morning of why central banks cannot become too comfortable.
Last week, employment weakened and the RBA suddenly looked like it had more room to wait.
Today inflation surprised higher.
Same economy.
Completely different policy pressure.
That is what happens when the inflation process is still unstable.
I also think Nvidia matters more tonight than some FX traders will want to admit.
The U.S. economy has become unusually dependent on technology investment holding up.
AI infrastructure is supporting manufacturing.
It is driving enormous capital expenditure.
It is influencing corporate borrowing.
And technology valuations have helped keep household wealth elevated even while consumer confidence has weakened.
So if Nvidia confirms that demand remains strong, it supports one of the healthier parts of the U.S. economy.
If the outlook disappoints, markets have to think harder about what is left when housing, employment and consumer confidence are already softer.
That feeds straight back into yields and the dollar.
My actual view today is fairly simple.
USD risks still lean modestly toward weakness.
Oil is lower.
Treasury yields are lower.
U.S. growth data have softened.
The immediate Fed argument is less aggressive than it was a month ago.
But today has to confirm the inflation side.
EUR has a better European growth story and now gets help from cheaper oil.
GBP still has a decent relative policy foundation.
AUD has received a genuine domestic boost from hotter inflation.
JPY finally has lower U.S. yields working in the right direction.
CAD remains trapped inside a trade dispute that matters more than the daily move in crude.
And NZD is already shifting toward next week’s RBNZ decision.
The mistake here would be assuming PCE only matters because one number might come in slightly above or below expectations.
What matters is whether inflation, oil and yields finally start telling the same story.
For the first time in a while, they have a chance to.
Want to turn this market context into a trading plan?
Check today’s Currency Strength Meter and Economic Calendar inside IntelliTrade Pro.
This is general, educational macro and FX commentary. It is not investment advice and not a trading signal.
Need help decoding this article? Get our free Macro Decoder ebook when signing up to our newsletter using the sign up button below! No spam, just value.