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Canadian Highlights

• Canada’s Q2 GDP contracted 1.6% (annualized), laying bare the economics of a trade war.
• Net trade carved a hefty slice out of growth, while business investment also weakened. In contrast, other components of domestic demand held firm, with consumption surprising to the upside.
• Further rate relief from the Bank of Canada cannot be ruled out. We expect two more cuts by year-end, bringing the policy rate closer to lower bound of the Bank’s neutral range.

U.S. Highlights

President Trump is attempting to remove FOMC member Lisa Cook, sparking further concerns of Fed independence.

Real GDP growth for the second quarter was revised higher to 3.3%, with most of the upward revision stemming from stronger business investment.

Real consumer spending rose 0.3% m/m in July, thanks to a strong gain in motor vehicle sales & parts. Meanwhile, annual core PCE inflation hit a five-month high of 2.9%.

Canada – Trade War Economics Laid Bare

As summer winds down, this week’s economic calendar heated up. The headline release was Q2 GDP, offering the first hard look at how Canada’s economy coped under the weight of tariffs. The economy contracted 1.6% (q/q, annualized) — in line with both our own tracking and the Bank of Canada’s July scenario, but weaker than consensus expectations for a modest 0.7% decline (Chart 1). Markets took the news in stride: equities gained nearly 1%, 10-year yields slipped, and the Canadian dollar inched up toward US$0.73, even as the greenback strengthened elsewhere.

The numbers laid bare the economics of a trade war. Exports plunged by a whopping 27% in Q2, with autos, machinery, and travel services hit especially hard. Imports also fell, but by less than exports, leaving net trade to carve a hefty eight percentage points off growth. Thursday’s international balance of payments release foreshadowed this outcome, reporting a record-low current account deficit of $21.2 billion (Chart 2).

Business investment provided no relief. Machinery and equipment spending dropped sharply, driving the 10% quarterly decline, though structures spending rebounded thanks to a one-off import tied to an offshore oil project in Newfoundland and Labrador. A brighter spot came from residential investment, which regained some ground after its steep Q1 fall, helped by the recent surge in new home construction.

There were more positive signals elsewhere. Inventory accumulation and government spending both contributed positively to domestic demand, which excludes net exports and rose solidly in the second quarter of 2025, following a decline in the first quarter. The real surprise came from households. Personal consumption jumped: durable goods rebounded from their Q1 slump, semi-durables and non-durables posted more modest gains, and services spending recorded its strongest gain since early 2024. Some of this reflected tariff-related front-running, but it also showed consumers’ willingness to spend despite a softening job market. Whether this resilience can hold is doubtful: early retail data for July point to cooling momentum, and slower wage growth will weigh on spending in the second half of 2025 (see our Q&A).

Taken together, the data show an economy caught between trade-driven weakness and surprisingly sturdy domestic demand. The former makes the case for further monetary easing, while the latter could temper how quickly the Bank of Canada moves. With Canada’s retaliatory tariffs now lifted and trade talks resuming, uncertainty may begin to ease for businesses. Still, as Governor Macklem reminded in his remarks this week, monetary policy cannot “offset the hit to efficiency from higher tariffs and the reconfiguration of trade.” What it can do is cushion the blow. With the the current policy rate still sitting at the midpoint of the Bank’s estimated neutral range, the Q2 contraction only strengthens the case for more cuts this year. Markets are now pricing a 55% chance of a cut in September.

U.S. – President Trumps Applies Further Pressure on Fed

President Trump continued to pressure Federal Reserve officials this week, this time attempting to fire Governor Lisa Cook for alleged mortgage fraud. The situation remains influx, as Cook is contesting the President’s actions in court. But the mere threat of her removal has sparked further concerns of central bank independence, sending shorter-term yields lower. The yield curve steepened on the week, with the 30-to-2-year spread widening to its highest level since early-2022 (Chart 1). Meanwhile, equity markets largely shook off the news, as investors’ attention remained squarely focused on this week’s earnings reports, including Nvidia and several large retailers. The S&P 500 briefly hit another all-time on Thursday, but retraced on Friday and looks to end the week slightly in the red.

Turning to the economic data calendar, the Bureau of Economic Analysis released its second estimate of Q2 real GDP. Relative to the first release, economic growth was revised higher by 0.3 percentage points to 3.3%. While net trade remained a major source of growth, a good chunk of the upward revision came from stronger business investment, specifically in categories that are likely tied to AI investments. In fact, spending on ‘computers & other peripheral equipment’ and ‘software’ accounted for all the growth in business investment through the first half of 2025.

Final sales to private domestic purchasers – the best gauge of underlying domestic demand – was raised from 1.2% to 1.9% and is now on-par with Q1’s rate of expansion. While this marks a deceleration from H2-2024 (Chart 2), it suggests the narrative of ongoing economic resilience hasn’t completely fizzled out amid ongoing trade uncertainty.

This point was further underscored in the Gross Domestic Income (GDI) figures, which accompany the second estimate of GDP and serve as an alternative measure of economic output. Real GDI rose a healthy 4.8% in Q2 – up from a flat reading in Q1. Corporate profits rose 7% annualized, despite elevated cost pressures from tariffs, while household income also continued to expand at a +5% clip.

Despite the healthy gains in income, households have become increasingly selective in their spending. Real PCE rose 0.3% month/month in July, with most of the gains coming from an increase in durable goods. Vehicle sales had a heavy hand in the uptick, as consumers appear to be pulling forward purchases to get ahead of tariff price increases which will likely materialize later this year once OEMs roll over to 2026 models. But it’s the discretionary services spending that remains weak, a theme that has played out through most of this year and something that’s unlikely to change until households have more certainty about the economic outlook.

With inflationary pressures heating up, this is unlikely to come anytime soon. Core PCE inflation rose 0.3% m/m, pushing the year-ago measures to 2.9% – a five-month high. Hotter services inflation was the major driver in last month’s uptick, something that is likely to further embolden Fed hawks. This puts next week’s employment report sharply in focus. Consensus currently expects payrolls to add 75k jobs in August. A stronger reading could push back on the odds for a September rate cut, which is currently 90% priced in.

Summary

United States: Proceed with Caution

• It was yet another busy week for the U.S. economy, and eyes are on all data prints as the FOMC's September meeting looms closer. An underlying theme in recent prints of economic data has been to proceed with caution. Amid a softening labor market, strengthening inflation, tariff uncertainty and potential changes to the FOMC, it is more difficult than usual to gauge future economic risks.
• Next week: ISM Manufacturing (Tue.), ISM Services (Thur.), Employment (Fri.)

International: Soft Spots and Strong Prints in Global GDP Data

• This week’s Q2 GDP releases highlighted diverging global growth outcomes. Canada’s GDP disappointed, while Switzerland’s Q2 GDP softened, in line with expectations. On the flip side, Sweden and India posted stronger-than-expected growth, while on the price front, Australian inflation surprised to the upside.
• Next week: China PMIs (Sun.), Australia GDP (Wed.), Japan Labor Cash Earnings (Fri.)

Interest Rate Watch: Loud Fed Headlines, Quiet Markets

• Markets showed a muted reaction to President Trump's dismissal of Federal Reserve Governor Lisa Cook this week. The effort is not expected to change the near-term course of monetary policy, but risks protracting the FOMC's ongoing battle to return inflation to its 2% target.

Credit Market Insights: Banks Report Further Tightening in Lending

• The recently released Q2 SLOOS report found that U.S. banks continued to tighten lending standards across most business and household loan categories. Demand for loans generally weakened, while lending standards remained on the tighter end of historical ranges.

Topic of the Week: The State of Agriculture

• Farmers and ranchers appear to be on solid financial ground at present, bolstered by firm livestock cash receipts, a modest reduction in expenses and increased government support from the 2025 Farm Bill. Looking ahead, a less restrictive stance of monetary policy should help reduce financing costs for agricultural borrowers.

Full report here. 

Monday, Sep 1, 2025

Tuesday, Sep 2, 2025

Wednesday, Sep 3, 2025

Thursday, Sep 4, 2025

Friday, Sep 5, 2025

We are concluding a fairly muted trading week, with participants usually taking the final trading week of August to reload their batteries before entering the volatile final four months of the year.

As a matter of fact, the session close will be essential to watch as month end flows tend to move markets quite largely.

Indecisive trading, Ukraine-Russia talks take a step back

Markets decided to consolidate on relative low-volume trading.

Action in Forex markets was almost nonexistent, with low-volatility and volumes ranges, while equities went higher step by step.

The S&P 500 still reached some new all-time highs and the Dow Jones is holding above its previous record (Is a double top into work for the index? This could have big technical implications) – It isn't shocking to get timid action ahead of Non-Farm Payrolls, particularly with the current state of things in Markets.

Jerome Powell is changing his tone, the Federal Reserve's independence is getting challenged harshly, and diplomatic advances are failing: The German Chancellor Merz announced that Zelenskyy-Putin talks won't take place anytime soon.

With the past month's weak NFP report and a contradicting July PPI putting back tariff fears on the table, the path ahead is unclear yet again.

Weekly performance from different asset classes

Weekly Asset Performance, August 29, 2025 – Source: TradingView

Cryptocurrencies have seen quite a selloff this week, but this comes after a decent past week.

Nothing is too shocking here as volatility decreases and key data is expected next week.

However, some relatively weak highs have been formed, as can be seen in our past week's analysis of the Cryptocurrency Market.

Indeed, Bitcoin has formed a double top and is failing to provide much to counter its effect, while Ethereum peaked at a new all-time high on Saturday before correcting further.

Ether has better prospects than its older brother, but its performance will still be contingent on BTC's performance.

For the rest, Nasdaq and other stock indices weren’t performing much, but Nvidia earnings brought positive sentiment back.

The winners of this week are commodities, with Oil and Gold standing on top (Silver also had quite a strong performance). It seems that Powell's pivot, although not having a big influence on other Markets, helped metals get back on their 2025 bull train.

We should get a better idea if that is to continue after next week.

Always keep an eye on the US Dollar to gauge the state of other markets (a strong USD usually leads to lower demand for Metals).

The Week Ahead – US Non-Farm Employment in focus (with some other key data points)

The beginning of next week should see volumes slightly getting back due to beginning of the month and quarter positioning.

However, the entire trading planet is awaiting for Friday's Non-Farm Payrolls report, therefore trading won't be as clear before that date.

Asia Pacific Markets - Growth data for Australia with Governor Bullock and PMIs for China

China and Australia will be in focus for APAC trading next week:

China opens the week with Caixin Manufacturing PMI on Sunday evening, a key gauge of factory activity that often sets the tone for Asia (and has high influence on AUD and NZD performance)

The Services PMI on Tuesday evening will complement the picture, amid a still slowing Chinese economy (most of the recent growth has been generated from government stimuli).

Australia’s week is also packed with data – Manufacturing PMIs and Q2 GDP land on Tuesday, giving insight into growth momentum.

Later, Thursday’s Trade Balance figures and comments from the Royal Bank of Australia Governor Bullock will add spice, with markets parsing every word for future policy hints – The RBA has just about one extra cut priced in for the year.

Japan and New Zealand won't see much in terms of key data.

The Bank of Japan is the next APAC central bank to release their rate decision, with a pause mostly expected, but either way, the decision will not come before the middle of the month (September 18th).

The BoJ is trying to push back their hike (13% chance of a hike priced in for the year) and would, like US President Trump, love for the FED to cut to reduce the high interest rate differentials.

In terms of Asian Equity markets, the Nikkei and Hang Sang are both consolidating around their yearly highs in search of further momentum, while the Singapore STI, which reached a new record of 4,272 on Wednesday 13th has started to decline the past two days – is it profit-taking again or is Asian economic activity starting to get dragged by the Trump tariffs?

US, Europe and UK Markets - US NFP and Services PMIs, Eurozone Inflation and Canadian Employment

The week kicks off slowly for Markets, but really starts to pick up on Tuesday with Eurozone inflation data.

Core CPI is expected to stay soft at 2% YoY, while monthly numbers remain flat – with European inflation hanging around 2%, the European Central Bank should hold still for a while now.

A very small 10 bps cut premium is priced in for the rest of the year, but except for a sudden fundamental change, the ECB Main policy rate should stay between 2% to 2.15%.

In the UK, attention turns to Friday with Retail Sales (expected +0.4% MoM), a release that could give the Pound some direction after a quiet stretch. A weak number would reinforce the idea that consumer demand remains fragile, while a beat may push back some dovish expectations from the Bank of England.

For North America and actually for all markets, the spotlight is firmly on the US labor market.

Thursday’s ADP Employment Change will provide a first look, before Friday’s Nonfarm Payrolls report sets the tone. Markets expect around 78k jobs added – downward revised expectations after the prior month surprise revisions.

The US unemployment rate is still only at 4.2%!

Alongside payrolls, Average Hourly Earnings will be crucial to gauge wage pressures.

Less influential but released at the same time, Canadian employment data (including unemployment, currently at 6.9%) could bring extra volatility to USDCAD.

Don't forget the Canadian Trade Balance data, releasing on Thursday at 8:30 A.M.

Finally, don’t overlook PMI releases across the board – ISM Manufacturing on Tuesday, ISM Services on Thursday– all of which will feed into the global growth narrative.

For all market-moving economic releases and events, see the MarketPulse Economic Calendar. (High-tier data only)

Safe Trades and enjoy your weekend!

Next week’s labour market and international trade reports for Canada and the U.S. will again be watched closely for the impact that U.S. tariffs are having on economic activity.

A softer round of U.S. July jobs data, followed by subsequent comments from Federal Reserve Chair Powell that interest rate cuts could be warranted soon, have put a brighter than usual spotlight on the next round of U.S. labour market numbers. Our own expectation is for another softer payroll gain of 64k in August, and a tick higher in the unemployment rate to 4.3%.

Canadian job markets, on the other hand, have shown some signs of stabilizing in recent months with the unemployment rate ticking down to 6.9% in June and July from a 7.0% rate in May.

We don’t expect Canadian labour market weakness has fully run its course, and look for Canada’s unemployment rate to edge back up to 7% in August alongside minimal employment growth (+5k.) Lingering trade uncertainty still appears to be stalling hiring demand – early data on job postings from indeed.com has been edging lower into late summer – but conditions also haven’t softened enough to drive widespread layoffs.

Critically, the bulk (90%) of Canadian exports to the United States through June have remained tariff-free under an exemption for CUSMA compliant trade. Because of it, we look for Tuesday’s international trade data to show Canada maintained the lowest average effective tariff rate of major U.S. trade partners despite tariff revenues that continued to rise in July

Tariffs on the remaining 10% of Canadian exports to the U.S., concentrated in metal products, are still having a significant impact – manufacturing employment in Canada ticked higher in July but was still down nearly 40,000 from where it was at the beginning of this year.

But the bleed in the Canadian jobs market for now appears contained to the more trade-exposed sectors and has not been spreading – employment in service producing sectors was still up 146k from the end of last year in July, led by a 71k increase in wholesale and retail jobs.

Week ahead data watch:

The Canadian trade deficit likely narrowed in July from elevated levels in Q2, including a record large deficit in April as U.S. imports plunged after a surge to build inventories ahead of tariffs in Q1. Oil prices remained largely unchanged in July, after surging 10% in June. This stability is expected to have kept the energy trade balance steady during the month. A reported $2 billion import of a single large piece of machinery for Canada's offshore oil production sector in June is considered a one-off event, and imports are likely to decline as that effect unwinds.

International trade data from the U.S. Census Bureau, released at the same time as the Canadian trade data, will continue to be scrutinized for insights into the broader impact of U.S. tariffs on trading partners. Recent reports have indicated that most Canadian exports continue to access the U.S. market duty-free, thanks to exemptions for products that comply with USMCA rules of origin.

• US jobs data to steal the limelight amid worries about labour market health.
• ISM PMIs to be watched too for signs of tariff-driven price pressures.
• Eurozone flash CPI, Canadian jobs and Australian GDP data also on tap.

Will August jobs report shock again?

It’s almost one month ago that the July payrolls numbers generated not just considerable volatility in the markets but also a lot of controversy, as it offended President Trump’s record on the economy. Hence, the August report due Friday will be significant in two ways – will it point to a further deterioration in labour market conditions and will the data raise fresh questions about its accuracy following Trump’s dismissal of the head of the Bureau of Labor Statistics (BLS).

It's worth being reminded that the shock in the July report wasn’t so much the miss in the headline print (73k vs 110k expected) but the big downward revision to the May and June numbers, when the economy barely added new jobs.

The no surprise in the unemployment rate was of some relief, particularly to the Fed, which has been branded “too little, too late” by Trump. But the unemployment rate is forecast to have edged up further in August, from 4.2% to 4.3%, while the increase in nonfarm payrolls is anticipated to have remained below 100k at 78k.

An ongoing softening in the labour market would not only solidify rate cut bets for September but also revive expectations of a third 25-basis-point reduction this year. In his Jackson Hole speech, Fed Chair Powell highlighted that the risks to inflation in the near term are tilted to the upside, and employment risks are tilted to the downside.

More importantly, Powell acknowledged that the balance of risks “appears to be shifting” towards the labour market. But he also pointed out that the supply of workers is slowing amid the Trump administration’s tough crackdown on migrants. This is likely contributing to the decline in new payrolls.

Thus, the unemployment rate might be a more reliable indicator of labour market strength in the current environment, and this is even before considering the recent doubts about the reliability of the payrolls survey, which Trump has claimed to be “rigged”. However, any changes to how the survey is conducted following Trump’s appointment of a new BLS commissioner will probably take some time. Another miss, therefore, could again attract some criticism from the President.

The Dollar’s surprise resilience

For the US dollar, its broader trajectory against a basket of currencies has remained unchanged despite the initial selloff post the July NFP. Unless the August numbers bolster expectations of a third cut this year, the dollar index will likely remain within its shallow uptrend.

This would especially be the case if the ISM manufacturing and services PMIs, out on Tuesday and Thursday, respectively, show that higher tariffs pushed the corresponding price indices further up.

Other US data to keep an eye on are factory orders and the JOLTS job openings on Wednesday, while the ADP employment report will see a delayed release on Thursday instead of Wednesday due to the Labor Day holiday on Monday. Meanwhile, any new tariff decisions by Trump could add to the volatility during the busy data week.

Canada hoping for US tariff reprieve

One such announcement could be about Canada. Unlike Mexico, Canada failed to win an extension on the 25% tariffs on the goods not covered by USMCA. Canada’s counter-tariffs on US imports were a major stumbling block in the negotiations and Trump hiked the levies to 35%.

However, Canadian Prime Minister Mark Carney has said the country will remove some of the retaliatory tariffs as of September 1 as a gesture of good will to the US government. Should a deal to lower Canada’s tariff rate follow in the days after, the Canadian dollar could enjoy a small rally.

Friday’s employment report will also be important for the loonie as the economy appears to be going through a bit of a soft patch at the moment. The labour market shed almost 41k jobs in July. Another drop in employment in August could lead to investors bringing forward the expected timing of the next 25-bps rate cut, which is not fully priced in until December.

Eurozone CPI to likely confirm ECB pause

Inflation in the euro area has well and truly stabilized in recent months, holding around the European Central Bank’s 2% target for almost the past year now. The flash estimate for August is out on Tuesday and expectations are that the headline rate remained unchanged at 2.0% y/y. The core readings have steadied slightly above 2.0% and even the sticky services CPI has come down substantially this year.

The one worry is wage growth, which unexpectedly jumped to 4.0% y/y in Q2. This isn’t entirely surprising, however, when considering that economic growth has been somewhat stronger than projected in spite of the trade war.

The outlook going forward, though, will probably be slightly more difficult to predict amid the uncertainty about how big an impact the higher US tariffs will have on European exports. But for the time being, the ECB is well placed to stay on pause for the foreseeable future, with the reaction in the euro to the inflation data likely being limited.

Also on the Eurozone agenda are producer prices on Wednesday, retail sales on Thursday, and quarterly employment and GDP figures on Friday. German industrial orders for July might also attract some attention on Friday.

Over in the UK, the delayed release of the July retail sales report on Friday will be the only highlight for sterling.

Aussie eyes GDP and Chinese PMIs

Moving to the Asia-Pacific region, Chinese manufacturing PMIs will be watched at the start of the week for clues about whether Trump’s tariffs are having a material impact on industrial output.

The official manufacturing gauge is due on Sunday and the S&P Global/Caixin equivalent will follow on Monday. Both PMIs printed slightly below 50 in July so a further worsening in activity in August could hit sentiment, including for the risk-sensitive Australian dollar.

As for domestic data for the aussie, traders will be monitoring GDP growth figures on Wednesday. The Australian economy likely accelerated in Q2 after a weak Q1. However, following the sharp uptick in monthly CPI in July, the GDP readings may not have such a huge bearing on RBA rate cut odds, even if they disappoint.

In Japan, updated capital expenditure data on Monday will be an indication as to whether the Q2 GDP estimate will be revised higher or lower. Household spending and earnings numbers will follow on Friday. With investors gradually upping their expectations for a year-end rate hike by the Bank of Japan, there could be a further boost if pay growth quickened in July.

Powell's relatively dovish stance at Jackson Hole a week ago has lingered in markets and rippled through to particularly US equity markets this week. The US outperformed European equities throughout the week, particularly due to a selloff in French banks on the back of an imminent government collapse in France. US treasury yields and Bund yields traded lower while French and peripheral bond spreads widened as French PM Bayrou is phasing a no-confidence vote, once again drawing attention to the French troubles passing sufficient public savings.

President Trump's attempt to fire Fed Governor Cook on the basis of mortgage fraud created some short-term US headwinds in both bond and FX markets but corrected as markets are likely anticipating that Cook can win her legal challenge and be reinstated. The Fed has stated that Cook's status remains unchanged unless a court rules otherwise before the 16-17 September FOMC meeting.

On the data front, the US Conference Board's consumer survey contained some worrying information for the Fed, with inflation expectations picking up again in August, mirroring a similar shift in the Michigan survey. Consumer sentiment declined modestly, and a rising number of consumers perceive jobs as 'hard to get'.

In Europe, IFO data confirmed the stagnation reality in Europe's biggest economy as the current assessment index declined slightly. The expectations index on the other hand increased to its highest level in 3½ years not least on the back of a relatively bright outlook in manufacturing, adding to last week's more upbeat German PMIs. French and Spanish inflation was a bit lower than expected in August, while German inflation was a bit higher. Largely, it points towards unchanged headline inflation in the euro area at the 2.0% target. Euro area bank lending came to a two-year high in July, indicating looser monetary policy is feeding through, and supporting our expectation that the ECB is done cutting rates for now.

We kick off next week with PMIs from China, the official measure already on Sunday. The manufacturing sector disappointed in July and we look for a small comeback. We have a ton of interesting US data coming up, including ISM. Three US labour market reports will be the main attractions, though, and given all the fuzz about the BLS, the ADP report will probably gather some extra attention. For the NFP-report, we expect 80k new jobs, unchanged unemployment rate at 4.2% and average hourly earnings growth of 0.3%. We will also look out for July wage data from Japan, where stronger wage growth is a prerequisite for further rate hikes from the Bank of Japan. July retail sales came in surprisingly weak this week, as particularly food inflation continues to weigh heavy on consumers' purchasing power. On our own continent, we will zoom in on the August inflation data for the entire euro area. We also get unemployment data.

Full report in PDF. 

Markets

The Fed’s preferred inflation measure (PCE deflator) showed no surprises in July. The headline index increased by 0.2% M/M and stabilized at 2.6% Y/Y. The core PCE deflator rose by 0.3% M/M with the annual number printing at 2.9% from 2.8%. Core PCE deflation is sticky between 2.6% Y/Y and 3% Y/Y since December 2023. Just like in the July CPI inflation report, services inflation (0.4% M/M) added most weight to deflators with goods’ costs – closely watched for tariff-related inflation – even declining. Today’s deflators vindicate Fed chair Powell’s dovish pivot at Jackson Hole with risks of a permanent increase in price levels decreasing as time passes by. If any, US Treasuries trade a tad softer after the release, which was accompanied by strong – but in line with consensus – personal spending data (+0.5% M/M), pointing at resilient demand in the US economy. The US yield curve bear steepens with yields rising by up to 3 bps at the very long end of the curve. US investors enjoy a long weekend now with markets closed on Monday for Labor Day Holiday. Afterwards, activity (traded volumes) traditionally pick-up, leaving scope for further (dovish) repositioning if data warrant so. With manufacturing ISM on Tuesday, JOLTS jobs report on Wednesday, ADP employment change and services ISM on Thursday and payrolls on Friday there are plenty of possible drivers. With the Fed steering towards a gradual, 25 bps, rate cut in September, anything that comes close to a deteriorating US labour market could be a trigger to repositioning for three instead of two Fed rate cuts this year. The legal battle between US President Trump and Fed governor Cook remains a wildcard.

National European inflation numbers left no trace on trading neither. A small upward surprise in Germany was compensated for by lower than expected Italian and Spanish numbers. Tuesday’s EMU outcome will thus be very close to the current consensus (0.1% M/M and 2% Y/Y for headline; 2.2% Y/Y for core) and implies that current ECB policy is in a good place. EMU money market still add a 1/3 possibility to an additional ECB rate cut before year-end, but that’s not our base scenario. Consumer inflation expectations stayed unchanged for the year-ahead at 2.6% in July, but ticked up from 2.4% to 2.5% on a 3-yr horizon. The EMU eco agenda is very light next week apart from the inflation number. German yields gain up to 1.7 bps (10-yr) today. EUR/USD is stuck within an extremely tight range today (1.1650-1.1690).

News & Views

The Indian rupee plunged to a record low against the US dollar. While Q2 GDP numbers today printed a better than expected 7.8% y/y, forward-looking investors fear the economic impact of president Trump’s international trade policy on future growth. USD/INR pierced through the 88 barrier following the US administration’s decision to double the 25% import levy to 50%, penalizing India for its purchases of Russian oil. The tariffs would have the biggest impact on India’s labor-intensive industries such as textiles and jewelry, putting a lot of jobs at risk. The 50% tariff also puts the country at the disadvantage compared to US-exporting peers such as Japan (15%), Vietnam (20%) or China (30%). Indeed, the rupee today also tanked to a historical low against the Chinese yuan.

Polish inflation in August eased a tad more than anticipated. Prices dropped 0.1% on a monthly basis, lowering the yearly outcome to 2.8% from 3.1%. It’s the slowest pace since June 2024 and is considered to be low enough for the central bank to reduce the policy rate again to 4.75% from 5% at next week’s meeting. Details are lacking with the statistical office in Poland’s statement only revealing that the m/m drop mainly came on the account of fuels for personal transport equipment (-1.9% m/m). Food and non-alcoholic beverages eased 0.1% while prices for electricity, gas and other fuel rose by 0.1%. KBC Economics’ estimate for core inflation (to be officially released September 16) stands at 3.4% y/y. Today’s numbers had little impact on the Polish zloty. EUR/PLN is moving directionless within a symmetrical triangle since mid-April and is currently trading around 4.266.

Gold is trading above $3,400 again at the end of the week. The upper limit of the trading range, within which the price has been fluctuating since April, is close to $3,430. Jerome Powell’s signals about a rate cut, unprecedented pressure from the White House on the Fed, and the continuing high level of geopolitical risks have brought the price back to this level. Washington’s introduction of 50% tariffs against India risks further deepening the divide between the West and the East, as well as the associated processes of de-dollarisation and diversification of gold and foreign exchange reserves by central banks in favour of precious metals.

For the first time since 1996, central banks hold more gold (about 25%) than US government bonds (about 20%) in their gold and foreign exchange reserves. For comparison, between 2008 and 2015, this ratio fluctuated between 10% and 30%, respectively.

Gold bulls are drawing strength from the dynamics of the US yield curve. Yields on 2- and 10-year Treasuries are falling. The market is painting a stagflationary backdrop, which is the best food for gold bugs.

Gold’s ability to break through the resistance zone above $3,430 will be an important signal of the market’s readiness to return to a rally after four months of tug-of-war. But it is worth being cautious with early bullish bets at these levels. Formally, there is now a greater chance of another pullback to the lower end of the range at $3,300-3,315.

At the same time, investors should remember that whichever way the breakout occurs, the subsequent movement could be very strong, given how long the gold market has been gathering strength while remaining in a sideways trend.

Markets just received the report for the much-anticipated Core PCE, which came exactly as expected – The month-over-month Core release came at 0.3 % vs 0.3% expectations.

All data components are once again exactly as expected, Core PCE is calculated from already released data, so not surprising to get accurate expectations.

This brings the y/y total to 2.6% for the headline and 2.9% for the Core.

Canada released their own GDP data which came at -0.1%, a miss on the already weak 0.1% m/m expectations.

Annualized, the Canadian GDP is at -1.6%!

Canada is still awaiting for a proper relaunch of their slowing economy, and the Loonie that was strenghtening these past few days is giving up some of this strength. Canadian PM Carney and US President Trump are however getting back to better ground.

Let's see how it plays out for the two North-American neighbors.

Spot live reactions to the Dollar Index and USDCAD just below

Dollar Index 30m Chart – Rising but the report didn't change much

Dollar Index 30m Chart, August 29, 2025 – Source: TradingView

The Dollar is rising slowly but will be stepping against the 30m 200-MA around 98.17, still evolving in a range within the 98.00 handle.

USDCAD 30m Chart

USDCAD 30m Chart, August 29, 2025 – Source: TradingView

The Loonie is losing some steam after the data. The pair is still evolving in a downward channel.

You can access our latest analysis of the pair right here.

Safe trades!