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It’s back to the drawing board. July producer price inflation just killed this week’s market narrative. Tariff-induced inflation didn’t show up (yet) in consumer prices, but it did the more so in factory-gate prices. Both headline and core PPI rose by 0.9% M/M, beating 0.2% M/M consensus by a wide margin and sending annual PPI level respectively from 2.3% to 3.3% and from 2.6% to 3.7%; the highest levels since Q1 2025. More details showed core goods PPI rising by 0.4% M/M and services costs increasing by the most since March 2022 (1.1% M/M). The latter will feed through in the Fed’s preferred core PCE deflator and comes after core CPI earlier this week already rose somewhat more than expected. It’s the key reason by Chicago Fed Goolsbee (voter) overnight warned not to get automatically lurched into rate cuts. US money markets yesterday started contemplating for the first time the possibility of a 50 bps rate cut after Treasury Secretary Bessent’s suggestion that that should be the way forward. That door is closed now. Apart from the PPI numbers, SF Fed Daly also pushed back against such larger move as it would send a wrong, worrying, signal to the market about the strength of the labour market. The situation is different compared to a year ago when Summer payrolls reports triggered the “Sahm rule” early recession indicator (three month moving average of unemployment rate exceeding the lowest level of the past year by more than 0.5 percentage points). Currently, the Sahm metric only stands at 0.15. The US unemployment rate would have to rise by a full percentage point in August to set off similar alarm bells like last summer. Following today’s PPI numbers, it seems way less likely that markets will lean towards a 50 bps in September again even in case of disappointing activity data between now and the September FOMC meeting. Though if this week learnt something, than it’s too take nothing for granted in the current environment. Anyway, a 25 bps rate cut is the base case, with Fed Chair Powell in the position to give the nod at next week’s Kansas City Fed Jackson Hole symposium. Not ruling anything in or out will prolong the current extreme market sensitivity to US eco data with everyone eager to get the timing of the Fed’s normalization cycle right. US Treasuries underperform today with the curve bear flattening. Daily change vary between +4.9 bps (2-yr) and +1.6 bps (30-yr). German bunds shadow the move to lesser extent and in bear steepening fashion with yields currently rising by +1.3 bps (2-yr) to 2.9 bps (30-yr). The dollar finds a bid with EUR/USD returning below the 1.17 handle, currently changing hands around 1.1660. EUR/GBP today tested the neckline of a technical double top formation at 0.86. The move came somewhat counterintuitive after this morning’s Q2 GDP numbers. The headline number beat forecasts at 0.3% Q/Q (vs 0.1% consensus), but came on account of government spending (+1.2% Q/Q) with private consumption (+0.1% Q/Q) and gross fixed capital formation (-1.1% Q/Q) painting a dire picture.

News & Views

The Norwegian central bank (Norges Bank) kept its policy rate unchanged today at 4.25%. “The job of tackling inflation has not been fully completed. A restrictive monetary policy is still needed. At the same time, we do not want to restrain the economy more than needed. In June, we began a prudent easing of monetary policy, and it will likely be appropriate to continue with a cautious normalization of the policy rate ahead,” says Governor Ida Wolden Bache. She later specified that this implies one or two more 25 bps rate cuts this year. Norwegian markets expected a slightly more firm signal for the September meeting, which helped the Norwegian krone away from the EUR/NOK 12 resistance level. The overall outlook for the Norwegian economy appears to have remained broadly unchanged since the June Monetary Policy Report. Headline inflation was slightly higher while the krone weakened a little more than assumed.

Daily Pivots: (S1) 146.92; (P) 147.55; (R1) 148.00; More...

USD/JPY recovered notably after dipping to 146.20 and intraday bias is turned neutral first. Further decline is mildly in favor as long as 148.51 resistance holds. On the downside, firm break of 146.85 support will suggest that whole rebound from 139.87 has completed at 150.90, and turn outlook bearish. Next target is 100% projection of 150.90 to 146.41 from 148.51 at 144.22. On the downside, above 148.51 will bring retest of 150.90 instead.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). Decisive break of 61.8% retracement of 158.86 to 139.87 at 151.22 will argue that it has already completed with three waves at 139.87. Larger up trend might then be ready to resume through 161.94 high. In case the corrective pattern extends with another fall, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.

Daily Pivots: (S1) 0.8028; (P) 0.8051; (R1) 0.8081; More….

USD/CHF is still bounded in range of 0.8020/8170 and intraday bias stays neutral. On the downside, break of 0.8020 will revive that case that the corrective pattern from 0.7871 has completed, and target a retest on 0.7871 low. On the upside, firm break of 0.8710 will resume the corrective from 0.7871. Intraday bias will be back on the upside for 38.2% retracement of 0.9200 to 0.7871 at 0.8379.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8475 resistance holds.

Daily Pivots: (S1) 1.3518; (P) 1.3551; (R1) 1.3610; More...

Intraday bias in GBP/USD is turned neutral first with current retreat. Some consolidations would be seen below 1.3594 temporary top. But further rally is expected as long as 1.3398 support holds. Above 1.3594 will extend the rise from 1.3140 to retest 1.3787 high.

In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.3068) holds, even in case of deep pullback.

Daily Pivots: (S1) 1.1673; (P) 1.1701; (R1) 1.1734; More...

Intraday bias in EUR/USD is turned neutral again with current retreat. Some consolidations would be seen below 1.1729. Further rise is expected as long as 1.1589 support holds. Above 1.1729 will target a retest on 1.1829 high. Firm break there will resume larger up trend to 1.1916 projection level. On the downside, however, break of 1.1589 support will delay the bullish case and extend the corrective pattern from 1.1829 with another falling leg.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will remain the favored case as long as 1.1604 support holds.

Dollar regained its footing in early US trade after much stronger-than-expected July PPI figures sharply reduced expectations for aggressive Fed easing. While a 25bps rate cut at the September FOMC meeting remains the market’s base case, the data has made a 50bps move far less likely.

Importantly, this PPI print captures only July’s data—before the August tariff escalation began impacting prices. That means upside risks to inflation could intensify over the coming months. Even if one takes the view that tariff-driven price gains are transitory, the duration of this “transition” is uncertain, making it difficult for policymakers to commit to deeper or faster cuts.

Labor market indicators offered little reason for the Fed to rush. Weekly jobless claims were steady. This stability highlights the Fed’s “luxury” of waiting for more data before making major moves, as Atlanta Fed’s Raphael Bostic noted earlier this week.

In currency markets, the Yen is holding as the day’s strongest performer. The -1.45% profit-taking pullback in the Nikkei triggered strong Yen buying, while a sharp drop in US equity futures after the PPI release further supported the safe-haven bid. Dollar ranks as the second strongest, followed by Sterling, which got an extra boost from much stronger-than-expected UK Q2 GDP data.

The UK growth figures, paired with this week’s labor data showing wage growth staying elevated despite some cooling, give the BoE little reason to deviate from its current pace of one rate cut per quarter. That policy stance, coupled with solid fundamentals, has kept Sterling well supported.

At the other end of the spectrum, risk-sensitive currencies are under pressure. Both Kiwi and Aussie are suffering from the risk sentiment turn, while Euro is among the day’s laggards, weighed down in part by a sharp selloff against Sterling. Swiss Franc and Loonie are trading in the middle of the pack.

In Europe, at the time of writing, FTSE is down -0.08%. DAX is up 0.40%. CAC is up 0.38%. UK 10-year yield is up 0.019 at 4.614. Germany 10-year yield is up 0.012 at 2.695. Earlier in Asia, Nikkei fell -1.45%. Hong Kong HSI fell -0.37%. China Shanghai SSE fell -0.46%. Singapore Strait Times fell -0.38%. Japan 10-year JGB yield rose 0.031 to 1.552.

US PPI surges 0.9% mom in July, undermining case for aggressive Fed easing

US producer prices surged in July, with final demand PPI jumping 0.9% mom, far exceeding expectations of a 0.2% rise and marking the sharpest monthly gain since mid-2022.

The increase was broad-based, with over three-quarters driven by final demand services, which climbed 1.1% mom, while goods prices rose 0.7% mom. The core measure excluding food, energy, and trade services climbed 0.6% mom, the largest increase since March 2022.

On an annual basis, headline PPI accelerated from 2.4% to 3.3% yoy, well above the 2.5% yoy forecast and the highest since February. PPI excluding food, energy, and trade services rose to 2.8% yoy.

The data may temper market enthusiasm for an aggressive September Fed rate cut, despite political pressure and calls from Treasury Secretary Bessent for a 50 bps move.

US initial jobless claims fall to 224k vs exp 227k

US initial jobless claims fell -3k to 224k in the week ending August 9, slightly below expectation of 227k. Four-week moving average of initial claims rose 750 to 222k.

Continuing claims fell -15k to 1953k in the week ending August 2. Four-week moving average of continuing claims rose 500 to 1951k.

Fed’s Daly: No case for 50bps urgent cut, dismisses ‘catch-up’ argument

San Francisco Fed President Mary Daly pushed back against the idea of a 50bps rate cut at the September FOMC meeting, a move strongly advocated earlier this week by Treasury Secretary Scott Bessent. In a Wall Street Journal interview, Daly said such a large cut would send an “urgency signal” that doesn’t match her view of the economy’s strength.

“I’m worried it would send an urgency signal that I don’t feel about the strength of the labor market,” she noted.

Daly stressed there’s no need to “catch up,” pointing to a still-solid job market. That's in contrast to Bessent's view that if the Fed had seen recent job market data sooner, it could have cut in June and July and now “needs to catch up.”

Eurozone industrial production falls -1.3% mom in June, broad weakness across sectors

Eurozone industrial production fell sharply by -1.3% mom in June, missing expectations of a -0.8% mom drop. The breakdown showed a mixed picture, with energy output up 2.9% mom, but declines in other categories: intermediate goods -0.2% mom, capital goods -2.2% mom, durable consumer goods -0.6% mom, and a steep -4.7% mom fall in non-durable consumer goods.

Across the EU, output slipped -1.0% mom. The largest monthly declines came from Ireland (-11.3%), Portugal (-3.6%), and Lithuania (-2.8%). On the upside, Belgium (+5.1%), France (+3.8%), Sweden (+3.8%), and Greece (+3.3%) posted notable gains

UK GDP beats forecasts with 0.3% growth in Q2, as June data delivers strong finish

UK GDP expanded 0.3% qoq in Q2, beating expectations of a 0.1% gain, though slowing sharply from Q1’s robust 0.7% pace. In output terms, growth was supported by a 0.4% qoq rise in services and a solid 1.2% qoq gain in construction, while the production sector contracted by -0.3% qoq. Real GDP per head grew 0.2% qoq over the quarter, underlining modest but broad-based expansion despite headwinds.

Some of the Q2 slowdown was likely due to front-loading in Q1, with activity pulled forward into February and March ahead of April’s stamp duty changes and US tariffs.

June posted a strong 0.4% mom rebound—double consensus, back-to-back declines in April and May. Within the monthly data, services output climbed 0.3% mom, production rose 0.7% mom, and construction gained 0.3% mom.

Australia jobs rebound with 24.5k growth in July, unemployment ticks lower

Australia’s labor market showed renewed strength in July, with employment rising by 24.5k, just shy of expectations for a 25.3k gain and a marked improvement from June’s tepid 1k increase. The headline was boosted by a sharp 60.5k jump in full-time positions, which more than offset a -35.9k drop in part-time jobs.

The unemployment rate eased from 4.3% to 4.2%, in line with forecasts, while the participation rate held steady at 67.0%. Signs of underlying resilience were also reflected in a 0.3% mom increase in total hours worked.

The strong full-time hiring points to ongoing momentum in higher-quality job creation, which could temper any immediate RBA shift toward further easing as policymakers weigh domestic strength against global uncertainties.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1673; (P) 1.1701; (R1) 1.1734; More...

Intraday bias in EUR/USD is turned neutral again with current retreat. Some consolidations would be seen below 1.1729. Further rise is expected as long as 1.1589 support holds. Above 1.1729 will target a retest on 1.1829 high. Firm break there will resume larger up trend to 1.1916 projection level. On the downside, however, break of 1.1589 support will delay the bullish case and extend the corrective pattern from 1.1829 with another falling leg.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will remain the favored case as long as 1.1604 support holds.

US initial jobless claims fell -3k to 224k in the week ending August 9, slightly below expectation of 227k. Four-week moving average of initial claims rose 750 to 222k.

Continuing claims fell -15k to 1953k in the week ending August 2. Four-week moving average of continuing claims rose 500 to 1951k.

Full US jobless claims release here.

US producer prices surged in July, with final demand PPI jumping 0.9% mom, far exceeding expectations of a 0.2% rise and marking the sharpest monthly gain since mid-2022.

The increase was broad-based, with over three-quarters driven by final demand services, which climbed 1.1% mom, while goods prices rose 0.7% mom. The core measure excluding food, energy, and trade services climbed 0.6% mom, the largest increase since March 2022.

On an annual basis, headline PPI accelerated from 2.4% to 3.3% yoy, well above the 2.5% yoy forecast and the highest since February. PPI excluding food, energy, and trade services rose to 2.8% yoy.

The data may temper market enthusiasm for an aggressive September Fed rate cut, despite political pressure and calls from Treasury Secretary Bessent for a 50 bps move.

Full US PPI release here.

• GBP/JPY stalls weekly rally near 200 level on Bessent’s BoJ criticism.
• Long-term range intact; more sellers waiting below 20-day SMA.

GBP/JPY turned red after seven consecutive green days as the yen recouped some ground following comments from the US Treasury Secretary Steve Bessent, who criticized the Bank of Japan’s stance on inflation, calling for higher interest rates. A historic make-or-break meeting between the US and Russian leaders on Friday may have shifted some funds towards the safe-haven yen too.

Technically, the pullback emerged near the 200 psychological level and the top of a long-term range in place since October 2024, which also capped gains in July. This raises the risk of a retracement in the coming sessions, particularly as the stochastic oscillator is turning lower.

However, the RSI remains comfortably above its 50 neutral level, suggesting that the bears may not gain full control unless the 20-day simple moving average (SMA) at 198.20 breaks. A drop below that point could stretch towards the tentative support trendline seen at 196.00-196.50. Additional weakness from there could re-test August’s low near 195.00, before signaling a potential bearish trend reversal and bringing the 200-day SMA at 193.70 into view.

If buyers regain momentum and push the price back above the one-year high of 200.27, the next resistance could appear around 202, followed by the 203.50 barrier.

In summary, GBP/JPY could enter a corrective phase after a weekly rally to a fresh one-year high. The next bearish leg may unfold if the price falls below the 20-day SMA at 198.20.

• US CPI for July in line with expectations – headline +0.2% m/m, core +0.3% m/m; annual rates at 2.7% and 3.1% respectively.
• Wall Street rallies, dollar softens – major indices post solid gains, US Treasury yields fall; markets almost fully price a 25bp Fed cut in September.
• No signs of tariff-driven inflation – businesses still absorbing higher costs in margins, with demand constraints limiting price hikes.
• Trump steps up pressure on the Fed – calls for swift rate cuts, threatens to sue Powell; growing number of FOMC members favour a more dovish stance.
• EUR/USD uptrend intact – next target at 1.18, with a break above opening the way towards 1.20–1.23.

Market reaction to inflation data – Wall Street rallies, dollar softens

July’s US inflation data came in line with expectations for headline CPI and slightly higher on the core measure, but markets interpreted the release as supportive of a more accommodative Federal Reserve. On 12 August, Wall Street indices closed the session with notable gains, reflecting increased investor optimism over the economic outlook and interest rate prospects. The US dollar weakened against major currencies, while US Treasury yields declined. Fed Funds Futures almost fully priced in a 25bp rate cut in September, with markets also increasing bets on further easing before year-end.

The Fed’s dual mandate is shifting further towards prioritising maximum employment, a stance echoed by a growing number of Federal Open Market Committee (FOMC) members. The upcoming Jackson Hole symposium, due at the end of next week, will offer Chair Jerome Powell an opportunity to adjust the policy narrative. Historically, the Central Bankers’ Symposium in the Rocky Mountains has often marked turning points in US monetary policy.

Slower consumer price growth

In July 2025, headline CPI rose by 0.2% m/m compared with 0.3% in June, while the annual rate held steady at 2.7%, in line with forecasts. Core inflation edged up to 0.3% m/m and 3.1% y/y from 0.2% and 2.9% respectively, modestly exceeding expectations on the yearly reading.

Price breakdown – energy falls, food flat

Energy prices fell by 1.1% m/m, while food prices were unchanged. In core goods (excluding vehicles), price growth slowed to +0.2% m/m from +0.55% in June. Increases were seen in furniture (+0.9%), used cars (+0.5%), sporting goods (+0.4%) and clothing (+0.1%). Household appliance prices unexpectedly declined by 0.9%.

Seasonal gains in services

Airfares rose by 4% m/m, while medical services costs increased by 0.7%, largely due to dental services. Shelter costs rose only modestly, by 0.2%.

No tariff-driven inflation pressure

The absence of signs of rising inflationary pressure following President Trump’s tariff measures suggests that businesses are absorbing higher costs in their margins rather than passing them on to consumers. This is supported by the latest NFIB survey, which showed the share of small firms planning price hikes in the next three months falling to 28% from 32%, pointing to demand-side constraints.

Inflation and Fed policy outlook

Analysts see little risk of inflation breaching 4% y/y this autumn, with growing odds of a decline below 2% by the end of 2026. The data reinforce expectations for a 25bp Fed rate cut in September, followed by another in December. Fed Funds Futures are currently pricing in 26bp of easing at the 17 September FOMC meeting and a total of 63bp by year-end.

Market pricing of the US interest rate path based on Fed Funds Futures, source: Bloomberg

Trump steps up pressure on Powell

President Donald Trump has intensified his calls for swift rate cuts, even suggesting he might sue Fed Chair Jerome Powell, accusing him of incompetence in overseeing building renovations at the central bank.

FOMC members’ comments

Thomas Barkin noted that the balance of risks for the labour market and inflation remains unclear, and that the Fed is well positioned to respond appropriately. Stephen Miran, a new Board Governor appointed by Trump, stated that there is no evidence of tariff-driven inflation, adding that rent increases are partly linked to illegal immigration. Jeff Schmid argued that while growth remains solid, inflation is still too high, warranting a moderately restrictive stance. He added, however, that he would be prepared to change his view should demand weaken materially.

What next for the dollar?

In the week ending 5 August, net short USD positions fell sharply by $4.3bn – the fourth consecutive weekly reduction. The net short now stands at $7bn, down from a local peak of $18.6bn in early July.

It is worth noting that these figures are lagging indicators and do not yet reflect the most recent moves in FX markets. The unwinding of short positions was visible in EUR/USD’s July pullback, although the latest disappointing non-farm payrolls data reignited selling pressure on the dollar. The uptrend in the pair remains technically intact, and August’s inflation figures have only strengthened the likelihood of further gains. The next upside target for EUR/USD is 1.18, with a break above this level opening the way towards 1.20–1.23.

Chart of the main currency pair EUR/USD, daily data, source: TradingView