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EUR/CHF's rally resumed last week but lost momentum again after hitting 0.9371. Initial bias is turned neutral this week for consolidations. Outlook will remain bullish as long as 0.9270 support holds. On the upside decisive break of 100% projection of 0.8979 to 0.9264 from 0.9094 at 0.9379 will carry larger bullish implications, and target 138.2% projection at 0.9488.

In the bigger picture, considering bullish divergence condition in W MACD, rise from 0.8979 medium term bottom should at least be reversing the fall from 0.9928, with prospect of developing into a medium term up trend. Firm break of 0.9394 resistance will add more credence to this case. For now risk will remain on the upside as long as 0.9094 support holds, in case of retreat.

In the long term picture, outlook will stay bearish as long as 0.9407 support turned resistance (2022 low) holds. However, firm break of 0.9407 will argue that the down trend from 1.2004 (2018 high) has completed with five waves down to 0.8979. Stronger rebound should then be seen to 38.2% retracement of 1.2004 to 0.8979 at 1.0135 in the medium term.

Our summary of recent economic events and what to expect in the weeks ahead.

Canadian Highlights

• Canadian employment jumped 75k in July, with broad-based gains across industries, pushing the unemployment rate down to 6.4% and reinforcing signs of economic resilience despite ongoing trade uncertainty.
• Strong labour market and international trade data alongside improving housing activity, suggests the economy got off to a good start to Q3, following what was likely a robust Q2.
• Policymakers are still likely to remain on hold in September given contained inflation and lingering tariff risks.

U.S. Highlights

• Stocks reached fresh all-time highs to start August as oil prices retreated on the back of reports of a potential deal to restart transit through the Strait of Hormuz.
• ISM surveys indicated that manufacturing and services activity continued to expand in July, but elevated input costs point to lingering inflation pressures.
• The labor market lost 23k jobs in July, but this was driven by an outsized decline in local government educational services, likely related to residual seasonality.

Canada – Jobs Market Starts Q3 on the Front Foot

Markets were taken for a late-week ride amid a duo of key July jobs reports in Canada and the U.S. For Canadian bond yields, the latter held sway as surprisingly soft hiring in America downwardly pressured interest rates in both countries. The benchmark Canadian 10-year yield sat at around 3.65% in the wake of both reports and remains near its high for the year. The soggy U.S. jobs report was also bad news for the U.S. dollar, which upwardly pressured the loonie, among other major currencies. For its part, oil slid this week on headlines that a U.S./Iran deal could soon be in the offing.

Unlike its U.S. counterpart, the Canadian jobs report was a near picture of wall-to-wall strength (Chart 1). Hiring surged by 75k positions in July, bolstered by the private sector and both full- and part-time positions. What's more, hiring gains were relatively broad-based across industries. Even the beleaguered manufacturing sector managed to add positions last month, although employment is still down about 2-3% since the start of the U.S./Canada trade conflict. Meanwhile the unemployment rate dipped 0.1 percentage points to 6.4% – its lowest level since 2024 – despite a rise in both the labour force and the participation rate. Hours worked advanced a firm 0.6% month-on-month, offering a solid signal for monthly GDP. One fly in the ointment from a growth perspective was that wage growth decelerated in the month.

Canada's healthy July employment gains joined preliminary housing data from local boards released this week in painting an optimistic economic growth picture at the start of Q3. Indeed, the housing data suggests that another sales gain took place last month, which would mark the 4th straight increase. These gains may have been sparked by improved affordability in Ontario.

The Bank of Canada's (BoC) expectation was that economic growth would advance 1.5% annualized in the third quarter, roughly in line with our own. However, this follows what looks to be a very strong outturn in Q2. And this week's trade report offered fresh evidence of this. Canada's merchandise trade surplus widened for the fourth straight month in June, supported by a rise in exports that continued the string of sturdy gains over the past few months. Stripping away inflation impacts, export trade volumes rose by 1% month-on-month (m/m) in June, while imports slid 1.5% m/m. For Q2 overall, goods exports were up over 20% annualized, with imports up a lesser 6% (Chart 2), implying a notable contribution to GDP from net trade.

For the BoC, the jobs report was the highlight of the week. Policymakers will no doubt be encouraged by the healthy jobs print, especially considering their recent uncertainty about the durability of Canadian growth after Q2. However, for the upcoming September 2nd meeting, we still see policymakers holding the line on rates. The economy is still facing notable trade-related headwinds (especially the threat of 50% tariffs on 5% of U.S.-bound shipments on the horizon). Also, core inflation remains well-behaved and the jobs market, while improving, isn't out of the woods just yet.

Rishi Sondhi, Economist

U.S. – Stocks Hit All-Time Highs Amid Mixed Economic Data

The first week of August kicked off with stocks hitting fresh all-time highs as oil prices retreated on news of a potential near-term deal to restart transit through the Strait of Hormuz. The deal is reportedly being negotiated between Oman and Iran, but a formal agreement between all parties has yet to be announced as of the time of writing. The S&P 500 rose 3.5% on the week as oil prices fell by 10% and the U.S. 10-year Treasury yield ended the week roughly 10 basis points lower.

Higher oil prices have contributed to stronger nominal manufacturing activity in 2026, while also helping to push the ISM Manufacturing PMI to a four-year high in July. However, there are reasons to view the survey's strength with some caution. The ISM Prices Paid Index remains near a four-year high (Chart 1), indicating elevated input cost pressures across the manufacturing sector. At the same time, a portion of the improvement in the headline PMI reflects slower supplier deliveries, which the survey interprets as a sign of stronger demand, but can also be consistent with supply-chain constraints. Taken together, the survey continues to point to an expansion in manufacturing activity, though likely at a more moderate pace than implied by the headline reading.

The larger services sector also continued to expand in July according to the ISM report, with new orders and business activity both picking up. However, the report was more concerning for the Federal Reserve, as the employment index slipped back into contraction territory and the prices paid index remained elevated.

This concern was somewhat enhanced by the headline report for July employment, which showed a loss of 23k jobs. However, looking into the details, the decline was entirely driven by an outsized loss in local government educational services. This is likely driven by unaccounted for seasonality coinciding with the summer break for schools. The private sector added 30k jobs during the month, on par with the prior month trend (Chart 2). In addition, the unemployment rate ticked lower to 4.1%, consistent with a labor market that is steady overall.

Taken together, the Federal Reserve is faced with an economy that has a stable labor market, but persistent excess inflationary pressures. Among the three voting members of the FOMC that we heard from this week, Minneapolis Fed President Kashkari was the most vocal in support of policy tightening, noting he dissented in favor of a rate hike at the July meeting. Philadelphia Fed President Paulson and Governor Lisa Cook were more measured but noted that persistent inflation could require higher rates. After the employment report, odds of a rate hike in September fell from roughly 50/50 to 60% odds for no hike.

With elevated uncertainty over what policy decision will be made by the Federal Reserve at their next meeting, next week's CPI print for July is likely to be closely monitored. Consensus expectations are for an acceleration in total inflation to 3.5% year-on-year, consistent with the uptick in energy prices during the month. Currently we don't expect a rate hike in September, but if current inflation trends prove persistent, then policy action may be required.

Next week, we expect CPI to have remained temperate in July, with pressures becoming less widespread and more concentrated in specific sectors. Retail spending is expected to rise modestly, and housing activity remains under pressure amid higher mortgage rates.

In Australia, we expect the RBA to leave rates unchanged while maintaining a hawkish bias. In the U.K., we expect resilient Q2 growth, which could support a hike later in the year. In emerging markets, Brazil's inflation likely eased further, supporting gradual policy easing later this year, while India's CPI inflation is expected to tick higher.

• United States: Existing Home Sales (Tuesday), CPI (Wednesday), Retail Sales (Friday)
• G10 Economies: Reserve Bank of Australia (Tuesday), U.K. GDP (Thursday)
• Emerging Markets: Brazil CPI (Tuesday), India CPI (Wednesday)

Source: Bloomberg Finance L.P. and Wells Fargo Economics

U.S. Week Ahead

Existing Home Sales • Tuesday

We look for existing home sales to dip 2.2% in July. It is no secret that the housing market is one of the most strained sectors of the economy. Mortgage rates rose to 6.5% on average in June and have since surpassed that. Home prices also continue to rise on a year-over-year basis, especially in the Northeast and Midwest. Pending home sales fell in June and mortgage purchase applications ticked up only modestly. Applications then took a sharp turn lower in July in a nod to ongoing affordability challenges. As we have been noting, longer-term interest rates (including mortgage rates) are being propped up by a variety of factors that are unlikely to subside in the near-term.

Source: NAR and Wells Fargo Economics

CPI • Wednesday

Inflation was likely temperate in July. We estimate the CPI rose 0.13% in July, as lower gasoline prices offset moderate increases elsewhere. Food inflation also appears to have remained contained despite concerns that higher energy costs would push through to grocery prices. Walmart's price cuts likely helped limit some of that pass-through last month.

Excluding food and energy, we expect the core CPI to rise 0.24%, in a bounce-back from June's unexpectedly soft reading. Core goods inflation should firm, with Apple product price increases lifting consumer electronics prices even as tariff-related pressures continue to fade across other categories. Core services inflation also is likely to run somewhat firmer than in June. We look for some normalization in medical services and a smaller drag from motor vehicle insurance, although broader services inflation should continue to trend lower.

Taken together, we expect headline CPI inflation to ebb to 3.4% year-over-year in July. The report should reinforce the view that the worst of the inflationary effects from a higher-tariff regime and the conflict in the Middle East are behind us. Increases appear driven by a narrow set of categories rather than a broadening in underlying price pressures. Yet, while inflation pressures are becoming less widespread, continued strength in a handful of sectors suggests progress toward 2% is likely to remain gradual.

Source: Bloomberg Finance L.P., U.S. Department of Labor and Wells Fargo Economics

Retail Sales • Friday

Retail sales likely notched a modest increase in July as a bottoming in gas prices translates into less downward price pressure than in June. While recent consumer sentiment and labor market indicators signal a more cautious household sector, our informal channel checks with retail businesses suggest that consumers continue to spend, even if that spending is becoming more selective.

Outside gas stations where sales are heavily influenced by price movements, underlying retail spending has been continuing to expand at a moderate pace. We had been braced for some giveback in auto sales, though that category has yet to reflect the sort of pullback one might expect when household budgets are constrained by higher energy costs. Meanwhile, underlying growth in e-commerce should underpin core retail sales.

More broadly, consumers have proven remarkably resilient this year despite higher prices and a soft labor market backdrop. We continue to flag the role of elevated asset prices, a lower saving rate and increased credit usage as factors helping consumers push the game into extra innings. But without a meaningful improvement in wages, growth is apt to be more uneven in the back half of the year.

Source: U.S. Department of Commerce and Wells Fargo Economics

G10 Week Ahead

Reserve Bank of Australia • Tuesday

We expect the Reserve Bank of Australia (RBA) to hold the Cash Rate at 4.35% next week. After three hikes this year, the Board will likely allow more time for the effects of earlier tightening to materialize. However, we expect the RBA to maintain a hawkish stance as it remains focused on preventing elevated cost pressures from becoming entrenched in inflation. While recent inflation data provided some encouragement, underlying price pressures remain elevated. Q2 inflation slowed more than expected, with headline inflation at 0.6% quarter-over-quarter (from 1.4%), though underlying inflation remained elevated.

Recent RBA communications have acknowledged the limited ability of monetary policy to address supply shocks. However, officials continue to stress that with inflation still elevated and supply shocks compounding existing pressures, some moderation in demand growth may be needed to return inflation to target. Activity remains resilient and growth is expected to continue into Q3, keeping another hike in play.

While we expect a hold next week, we continue to expect an out-of-consensus 25 bps hike in September as the RBA gains greater clarity on activity and the domestic pass-through from higher energy prices. This would bring the Cash Rate to a peak of 4.60%, where we expect it to remain before a gradual easing cycle begins with a 25 bps cut in H2 2027.

Source: Bloomberg L.P. and Wells Fargo Economics

U.K. GDP • Thursday

Next week's U.K. Q2 GDP release will provide another test of whether the economy remains resilient despite tighter financial conditions, elevated global uncertainty and a changing domestic political backdrop. We expect GDP to grow 0.4% quarter-over-quarter and 1.1% year-over-year in Q2.

Growth momentum appears to have remained firm through Q2, supported in part by strategic stockpiling amid concerns over higher energy and input costs stemming from the Middle East conflict. The composition of growth will matter, as policymakers have repeatedly pointed to the growth outlook as a reason to remain on hold. As such, a broad-based, stronger-than-expected GDP print could give policymakers greater confidence that the economy can withstand tighter monetary policy.

While recent inflation data have been encouraging, much of the improvement reflects disinflationary progress made before the conflict. The Bank of England (BoE) remains focused on the risk that higher energy prices spill over into wages and broader inflation pressures. We continue to expect the BoE to deliver one rate hike in Q4, bringing the Bank Rate to a terminal rate of 4.00%.

Source: Bloomberg Finance L.P. and Wells Fargo Economics

EM Week Ahead

Brazil CPI • Tuesday

We expect Brazil's July CPI to show a further slowdown in inflation. Headline inflation stood at 4.64% year-over-year in June, while data through mid-July point to continued easing. At its most recent meeting, the Brazilian Central Bank (BCB) also revised its 2026 inflation forecast slightly lower to 5.1% year-over-year.

Despite recent progress, the inflation outlook remains challenging. The BCB's Focus survey expectations for 2026 and 2027 remain above target at 5.0% and 4.2%, respectively. Uncertainty surrounding the domestic election cycle, the Middle East conflict and El Niño also keeps inflation risks elevated.

Against a backdrop of moderating activity, a tight labor market and persistent inflation risks, we expect the BCB to maintain a gradual easing path. We remain comfortable with our call for another 25 bps cut in Q4, most likely in October, which would bring the Selic Rate to 13.75% by year-end.

Source: Bloomberg Finance L.P. and Wells Fargo Economics

India CPI • Wednesday

We expect India's July CPI to increase further. Headline and core inflation rose to 4.38% and 4.19% year-over-year in June, respectively, placing both measures above the Reserve Bank of India's (RBI) 4% midpoint target. Producer price pressures also remain elevated, with wholesale price inflation at 9.87% year-over-year. Recent PMI surveys further support the view that firms continue to face higher fuel, labor, material and transport costs, while El Niño conditions pose an additional upside risk to food prices.

At its most recent meeting, the RBI acknowledged that inflation is expected to rise further due to supply-side pressures. Policymakers also warned that higher food, fuel and input costs could generate broader inflation pressures through second-round effects.

With inflation rising, growth steady and higher oil prices adding pressure to both the trade balance and the rupee, we continue to expect the RBI to raise rates in October. In our view, a hike would help support the currency and act as a precautionary measure to keep inflation expectations anchored.

Source: Bloomberg Finance L.P. and Wells Fargo Economics

Canadian manufacturing and wholesale sales data for June next Friday should reveal readings consistent with more real gross domestic product growth in June, capping off a solid Q2.

The BoC highlighted two-sided risks to the interest rate in their prior policy meetings – risks of cuts tied to potential downside growth surprises and hike risks due to concerns that higher energy prices from conflict in the Middle East could lead to “generalized inflation.”

Wholesale sales are estimated by Statistics Canada to have risen 2.7% following soft readings in April and May, with growth driven by stronger sales in machinery, equipment, and supplies—mirroring a surge in equipment imports from the U.S. in June.

Along with an earlier 0.4% increase in advance retail sales in June (despite lower gasoline prices) and another increase in home resales, these data suggest persistent growth momentum near the end of Q2 and that quarterly real GDP growth is likely well above our earlier tracking of 2.2% (annualized).

At the same time, Canada’s growth and labour market data have looked better after a downside surprise in Q1 gross domestic product growth.

The sustainability of Q2's economic strength remains uncertain, with the path forward highly contingent on volatile U.S. trade policy.

Still, stronger backward-looking data is encouraging after softer readings over the winter. Coupled with subdued core inflation readings this year, it also means the Bank of Canada has more room to remain in data-watching mode while maintaining current interest rates.

U.S inflation key for near-term Fed decisions

South of the border, the Federal Reserve is facing a more challenging and less balanced trade-off between growth and inflation. U.S. growth and labour markets have remained exceptionally resilient, but inflation remains worryingly high, raising the odds for the Fed to hike interest rates.

July’s Consumer Price Index report on Wednesday could be key to that decision. A lower surprise reading in June CPI’s growth was a reprieve policymakers needed to leave interest rates unchanged in July. But, one downside surprise doesn’t erase a string of hotter core inflation prints earlier this year.

Our base case forecast assumes price growth (outside of energy components) will remain slow enough this year to keep the Fed on the sidelines in September, and through the end of this year. We expect headline CPI will have eased to 3.3% in July from 3.5% in July, reflecting a moderation in core ex-food and gasoline CPI that we expect grew 0.2% month over month in July.

Monday, Aug 10, 2026

Tuesday, Aug 11, 2026

Wednesday, Aug 12, 2026

Thursday, Aug 13, 2026

Friday, Aug 14, 2026

In this video, we’ll explore the key economic events and market trends, shaping the financial landscape. Get ready for insights into financial markets to help you navigate the week ahead. Let’s dive in!

👉 Key topics:

✔️US Inflation Rate
The first major event is the US inflation report on 12 August. Markets currently see a 55% probability of a Federal Reserve rate hike in September, but a weaker-than-expected inflation reading could reduce those expectations and put pressure on the US dollar. June’s softer inflation data already triggered a sharp dollar decline, while some analysts expect the Fed to keep rates unchanged for now and consider cuts next year.

✔️UK GDP Data
The UK GDP report on 13 August will be closely watched by sterling traders. Markets will focus on monthly, quarterly and annual growth figures. A significant surprise in the data could increase volatility across GBP pairs, with weaker growth potentially weighing on the pound.

✔️US PPI
The US Producer Price Index, also released on 13 August, will provide further insight into inflation pressures before they reach consumers. June’s weaker-than-expected PPI and Core PPI readings pushed the dollar lower, and another soft report could strengthen expectations of easing inflation and add further pressure on the US currency.

With several high-impact releases packed into the week, disciplined risk management will remain essential. Geopolitical developments continue to influence commodity and currency markets, while economic data could generate sharp short-term price swings.

Gain insights to strengthen your trading knowledge.

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Last week, gold posted a modest July gain, which has already given buyers a significant boost this week. With prices up 6.5% since the start of the week, gold has confirmed a major technical breakout, bringing to an end the downtrend that began in February. The price rebounded from the key psychological level of $4,000 – where the correction also ended last October – and from the 61.8% retracement of the 2022–2026 rally, reinforcing the significance of the reversal signal.

The bulls also have the strength with which gold broke through the 50-day moving average earlier this week in their favour; this average had served as support for the uptrend since the start of 2025, before turning into local resistance in March. If this is not a false breakout, this line could once again act as support for the medium-term bullish trend.

That said, on weekly timeframes, the bulls still need to do some groundwork. During the latest rally, the price approached but failed to break through the 50-week moving average – an important signal line for the long-term trend. It currently stands near $4,400, whilst at $4,500, there is another potential area of resistance that reversed the trend in December and March.

All things considered, we expect an interesting battle in gold this coming week, with the struggle intensifying following the release of US CPI and PPI data. The path to 4,500 may prove relatively easy, but beyond that, we should brace ourselves for a very significant tug-of-war.

The FxPro Analyst Team

Investors can return from their summer holidays and take comfort in noting that the collapse of the ceasefire in the Middle East has not derailed global growth. The latest PMIs reflect resilient growth particularly in the US and Asia ex-China, while Europe remains the relative underperformer. Oil prices have risen during periods of escalating warfare, peaked above USD 100 on the back of the Houthi announcement of opening a second front in the Bab el-Mandeb strait, but fell again this week after news emerged that a deal between Iran and Oman to reopen the Strait of Hormuz had in principle been agreed.

We think all promising news from the Middle East should be read with great caution at this point. It is likely that any deal that has been agreed "in principle" remains subject to backroom bargaining. For now, Iran and Oman have agreed that they could reopen the strait for a 2-4-month period, and Iran would maintain significant control of the strait. The US has not given their green light to the deal, and even in the best case, traffic is unlikely to restart immediately.

Despite all the uncertainty regarding key maritime chokepoints, Brent oil price has reversed back to USD 80 per barrel, with EUR/USD also rebounding back above 1.15. Traffic via the Strait of Hormuz has fallen close to zero since mid-July. In the Bab el-Mandeb strait, traffic volumes have fallen but not collapsed despite the Houthi rebels' attacks against Saudi oil infrastructure in recent days. In the past months, China's oil imports have fallen sharply, highlighting how demand destruction plays a key role in rebalancing the crude market.

While the global crude market is relatively calm, energy markets have more generally been under pressure during the summer. As refineries globally must operate in an environment where they struggle to access the specific qualities of crude their processes are optimised for, refining margins remain elevated. For the gas market, low inventory levels especially in central Europe imply prices will remain elevated over the coming winter as well.

Other commodity markets have also followed the developments in the Middle East. Aluminium prices have reacted to both negative and positive developments, as the Persian Gulf is a key producer region, while copper prices have trended upwards, primarily driven by the AI investment boom. Wheat prices hit their multi-year high in July, as clashes between Russia and Ukraine in the Black Sea add to the long list of geopolitical concerns.

Despite all the volatility across commodity markets, inflationary pressures eased during the summer, also for core inflation. The near-term inflation outlook continues to be driven by geopolitics, but AI-driven cost pressures are also increasingly becoming a concern. We have not made any changes to our major central bank calls during the summer. We still expect the ECB to hike in September, and the Fed to hike twice - in December and March.

Next week, we keep an eye on US price developments as both July CPI and PPI data is due. On Friday, retail sales will provide the first hard data evidence of the strength of the American consumer, and the Michigan survey will provide an even more forward-looking signal.

Full report in PDF. 

• US inflation data to guide Fed rate hike expectations.
• A hawkish BoJ summary of opinions could support the Yen.
• RBA could still sound hawkish amid sticky inflation.
• UK GDP and activity figures to shape sterling sentiment.

Dollar pulls back amid Hormuz deal hopes

The US dollar weakened against most of its major peers this week, following headlines suggesting progress in the Middle East conflict between the US and Iran. The greenback gained some ground only against the Japanese yen.

Over the previous weekend, US President Donald Trump said that negotiations with Iran about reopening the Strait of Hormuz were about to begin immediately, followed by talks on Iran's nuclear program, remarks that signaled a de-escalation in recent hostilities.

Further enhancing peace hopes, US Treasury Secretary Scott Bessent said on Tuesday that there was a strong chance about an imminent deal on reopening the Strait of Hormuz, adding that talks about ending the conflict were to follow.

Oil prices opened the week with a large negative gap on Monday and dropped another 6% on Tuesday as the prospect of an imminent reopening of the strait eased inflation fears and prompted investors to scale back their rate hike bets.

From being nearly fully priced in ahead of last week's FOMC decision, the probability of a September rate hike dropped to 58%. A quarter-point increase is not even fully penciled in for October. The chance of a rate increase in October is now hovering at around 85%.

Could US inflation data revive September Fed hike bets?

Next week, dollar traders are likely to turn their attention to Wednesday's US CPI inflation numbers for July, followed by the PPI numbers for the same month on Thursday and retail sales on Friday.

Despite the recent easing in tensions between the US and Iran and the drop in oil prices, there has been a major escalation in hostilities between the two nations in July, resulting in a strong rebound in oil prices. This means that there may be upside risks to next week's inflation data.

Indeed, the rebound in the year-on-year change in WTI crude oil suggests that, at least the headline CPI rate may have rebounded. The headline PPI rate could also inch up as higher oil prices mean more expensive imports of raw materials for producers. On top of that, the prices subindex of the ISM non-manufacturing PMI rebounded in July, further supporting the view of upside risks to the CPI and PPI numbers.

Nonetheless, even if the data help the dollar gain some ground, they are unlikely to significantly alter the broader Fed rate path outlook, especially if there is further progress in negotiations between the US and Iran. After all, the data concern a period before we got the latest headlines about a deal on reopening the Strait of Hormuz.

While the chance of a September hike could increase slightly, investors are unlikely to start pricing a second increase before year end. For the dollar to stage a strong and sustained recovery, military attacks would need to resume, dashing once again any peace hopes.

BoJ summary to reveal how willing policymakers are to hike

The yen gave back a decent portion of the gains it posted after the coordinated intervention by Japan and the US, with dollar/yen rebounding more than 1.6% from its Monday low of around 155.20.

US Secretary Bessent said he believes Bank of Japan Governor Ueda will "do what is best" for the country's economy, implying that higher interest rates are the wisest strategy as a declining yen could increase inflation risks. Combined with remarks by a former BoJ official that more intervention episodes could occur if the yen shows signs of weakness, Bessent's remarks could limit further declines in the yen.

On Monday, the Summary of Opinions from the latest BoJ decision will be released, and should it reveal that officials are increasingly leaning towards raising interest rates in coming months, the yen is likely to stage another recovery. In other words, dollar/yen could drop again.

However, with 90bps worth of BoJ increases being priced in by the end of 2027, it may be hard to envision the BoJ turning even more hawkish and dollar/yen dropping below 155.00, especially with PM Takaichi opposing rate hikes and having the ability to tilt the scales to the dovish side through future appointments of doves within the Board.

Will the RBA sound hawkish enough to support the Aussie?

The Reserve Bank of Australia will announce its monetary policy decision on Tuesday. At its latest gathering in June, the Bank decided to keep interest rates unchanged after three quarter-point increases earlier in the year. That said, officials noted that inflation was still too high and that they remained prepared to raise rates again if needed to bring inflation under control.

Since then, the employment data beat estimates, revealing a strong 76.3k jobs growth in June, the largest increase since April 2025, giving the necessary freedom for policymakers to focus on inflation and raise interest rates further should it be deemed necessary.

However, the CPI figures came in below expectations, with the headline rate for Q2 dropping to 3.9% year-on-year from 4.1%, and the monthly y/y rate sliding to 3.8% from 4.0%. That said, the trimmed mean and weighted mean rates both ticked up to 3.6% from 3.5%.

Despite the slowdown in headline prints, all metrics remain above the upper bound of the RBA's target range of 2-3%, allowing investors to continue penciling in a decent 50% chance of another rate hike by the end of the year. Therefore, should RBA policymakers repeat their willingness to further raise borrowing costs to tame inflation, even in the midst of progress in US-Iran relations, the aussie is likely to receive another boost.

UK data awaited amid strong November BoE hike bets

In the UK, the preliminary GDP for Q2 is coming out on Thursday, alongside the industrial and manufacturing production rates for June, as well as the trade data for the same month.

At its latest meeting, the BoE kept interest rates unchanged, but three members voted to raise interest rates by 25bps. Although the Committee acknowledged that inflation pressures have eased, they emphasized that upside risks have increased amid renewed geopolitical tensions and energy market uncertainty.

Although the market expects the Bank to remain sidelined in September as well, there is a strong 65% chance of a quarter-point hike in November, and this after the latest slide in oil prices amid Middle East peace hopes. Thus, strong data may encourage market participants to increase their November hike bets, thereby helping the pound to gain more ground.

• Nonfarm payrolls declined by 23k in July, well below the Bloomberg consensus forecast calling for a gain of 80k. The prior two months were revised lower by a total of 103k – pushing the three-month average down to 20k (from 77k in June).
• Government hiring contracted by a sizeable 53k – largely driven by a sharp pullback in local government hiring.
• Meanwhile, private sector hiring looked less dire – adding 30k new positions.  The bulk of the gains were concentrated in health care & social assistance (+22.6k) and construction (+22k). Retail trade (-19.4k), financial services (-14k) and leisure & hospitality (-40k) all recorded job losses.
• In the household survey, the unemployment rate declined for a second consecutive month – falling to a thirteen-month low of 4.1%. However, the pullback was due to another decline in the labor force (-264k). The labor force participation rate fell by another tick and currently sits at 61.4% – its lowest level since February 2021.
• Average hourly earnings rose by 0.1% month-on-month (m/m), pushing the year-ago measure to a five-year low of 3.2%.

Key Implications

• Overall, this was a soft report, but perhaps not as dire as suggested by the headline payrolls print. The sharp decline in local government hiring is unlikely to be repeated next month, while some of the pullback in leisure & hospitality could be related to giveback following stronger hiring ahead of the World Cup. Moreover, the large downward revisions to prior months reinforce our view that hiring earlier in the year had been overstated. After the revisions, monthly payroll gains are now running closer to the breakeven rate.
• This morning's softer employment report helped to quiet the noise of a September rate hike. Treasury yields across the curve were lower following the release, with Fed futures now only pricing in 10 basis points of hikes for September. The focus now shifts to next week's CPI report, where we expect a milder print to provide further reassurance that the effects of the supply shocks are fading, reinforcing our view that the Fed is likely to remain on hold.