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Speaking today, Richmond Fed President Thomas Barkin said recent policy developments — including a major tax bill, immigration changes, and the completion of key tariff and trade negotiations — have lifted much of the “fog” around the economic outlook. What happens next, he said, will hinge on how households respond to potential price increases from tariffs.

Barkin pointed to evidence that consumers are front-loading purchases of goods while cutting back on services, a pattern that, if sustained, could limit tariff-driven inflation. "If we see this kind of demand destruction more broadly, the inflationary impact of tariffs would be less than many anticipate," Barkin said.

If such shifts in spending occur more broadly, however, he said, "businesses will see volumes drop and margins squeezed. They will look for costs to cut. Employment could take a hit as a result".

"We may well see pressure on inflation, and we may also see pressure on unemployment, but the balance between the two is still unclear," he said. "As the visibility continues to improve, we are well positioned to adjust our policy stance as needed."

Markets

So far it’s a slow burn, rather than a big bang when it comes to the feared inflationary impact from US President Trump’s trade policy. Monthly headline and core US CPI inflation printed bang in line with expectations at respectively +0.2% M/M and +0.3% M/M. Annual reading showed a stabilization on the overall level (2.7% Y/Y) and an increase from 2.9% Y/Y to 3.1% Y/Y for the core gauge (matching highest level since January 2025). Core goods prices excluding new vehicles and used cars and trucks rose by 0.22% M/M, less than half the 0.55% M/M pace in June (highest since early 2022) which worried some about the potential tariff-impact. Categories like household furnishing (0.7% M/M), video and audio products (0.8% M/M) or apparel (0.1% M/M) all in all showed less than feared price increases. With two out of “three critical Summer CPI reports” (dixit Fed Chair Powell) out of the way, markets become more confident that the Fed will pull the policy normalization card when it meets next in September. First as the feared inflationary impact from tariffs remains modest. Second as activity and labour market data point to growing downside risks to the Fed’s maximum employment mandate. For the record, we must add that the supercore services gauge – stripping out energy, food, goods and housing-related costs; hyped throughout and in the aftermath of the pandemic – rose by 0.48% M/M (second highest in 16 months), lifting the Y/Y-measure to 3.21%. US Treasuries initially rallied with the front end of the curve outperforming. Daily changes on the US curve currently vary between -2.7 bps (2-yr) and +1.8 bps (30-yr). EUR/USD spiked from the 1.16 area to 1.1650, before pulling back to 1.1625. US stock markets opened 0.50% higher. A September 25 bps Fed rate cut is now nearly fully discounted. If activity data continue to disappoint in coming weeks, we err on the side of money markets starting to contemplate the possibility of the Fed pulling a 50 bps rate cut like they did in September of last year.

We didn’t see any specific trigger, but notice an underperformance of very long German Bunds and UK gilts (both curves bear steepening) in the aftermath of the CPI release. The German 30-yr yield adds 6 bps, taking out the 2023 & 2025 highs at 3.26% to trade at the highest level since 2011. The UK 30-yr yield goes 8.2 bps higher (5.47% vs YTD top around 5.60%).

News & Views

German ZEW investor sentiment (expectations) decreased markedly in August (34.7 from 52.7 vs 39.5 expected). The assessment of the current economic situation deteriorated as well, falling from -59.5 to -68.6 (vs -67 consensus). ZEW President Wambach said that financial market experts are disappointed about the announced EU-US trade deal. The German economy’s poor performance in the second quarter of the year played a role as well. The outlook worsened in particular for the chemical and pharmaceutical industries. Mechanical engineering, metal sectors as well as the automotive industry are also severely affected. Although initial growth estimates for the eurozone were better than those for Germany in the second quarter of 2025, these expectations have also been revised downwards for the monetary union (25.1 from 36.1).

Indian inflation (0.93% M/M) fell below the lower bound of the 2 percentage points interval around the 4% inflation target for the first time in 8 years. A continued decline in food prices which make up half of the CPI basket was responsible for the 1.55% Y/Y headline print (down from 2.1% in June). Food prices rose by 2.03% on a monthly basis, but fell by 1.76% compared with a year ago. Core inflation slowed from 4.7% Y/Y to 4.4% Y/Y and supports the case for a rate cut by the Reserve Bank of India when it meets on October 1st. Last week, the RBI held its policy rate unchanged at 5.5%, referring to a marginal rise in core inflation as part of the rationale. The central bank voted unanimously to keep its neutral policy stance while trimming the inflation forecast for fiscal 2026 3.1% from 3.7% while retaining the growth outlook at 6.5%. The Indian rupee trades near weakest levels on record (USD/INR) with stacked tariffs (direct from the US & linked to Russian oil imports) hurting sentiment.

The Consumer Price Index (CPI) rose 0.2% in July, in line with the consensus forecast in Bloomberg and a tick lower than June. On a twelve-month basis, CPI was up 2.7% (unchanged from the month prior).

• Energy costs (-1.1% m/m) more than reversed June's gain, while food prices were flat on the month as a gain in 'food away from home' (+0.3% m/m) was offset by a decline in 'food at home' (-0.1% m/m). On a year-ago basis, food prices were up 2.9%.

Excluding food and energy, core inflation rose 0.3% m/m – also in line with consensus forecast – and a tick faster than the month prior. The twelve-month change edged higher to 3.1% (from 2.9% in June).

• Services prices rose 0.4% m/m, up from June's 0.3% m/m. Primary shelter costs rose 0.3% m/m, while price growth for non-housing services were up 0.5% m/m – its strongest monthly gain since January.

  There was considerable breadth underpinning the uptick in non-housing services. Travel costs (+0.7% m/m) turned higher after five consecutive months of declines. This was due to a sharp rebound in airfares (+4.0% m/m) which more than offset declines in car rentals (-2.9% m/m) and a further pullback in hotel costs (-1.0% m/m). Meanwhile, price growth for recreational (+0.4% m/m), medical (+0.8% m/m) and other personal services (+0.6% m/m) also heated up.

Core goods prices rose 0.2% m/m, led by continued strength in home furnishings (+0.7% m/m), while most other goods categories saw more mild gains.

Key Implications

Core inflation gathered further momentum in July, rising by its fastest monthly pace since January and pushing the year-on-year measure back above 3%. Tariff passthrough continued to pressure goods prices higher with the breadth of categories now seeing price gains over the last three-months rising to 64% or the highest level since April 2023. But unlike prior months, firming goods prices were not offset by cooling services. This trend is likely to continue through year-end, keeping sustained upward pressure on core measures of inflation.

Policymakers will face some tough choices over the coming months. While inflationary pressures are heating up, the labor market has shown clear signs of weakening. With the policy rate still well in restrictive territory and inflation expectations remaining well anchored, the prudent move for the Fed is to prioritize the employment side of its dual mandate and provide some rate relief in the months ahead. We see three quarter-point cuts by year-end, bringing the policy rate down to 3.75%.

Daily Pivots: (S1) 1.1578; (P) 1.1628; (R1) 1.1665; More...

Intraday bias in EUR/USD remains neutral as range trading continues below 1.1698. Outlook is unchanged that correction from 1.1829 should have completed with three waves down to 1.1390. Above 1.1698 will bring retest of 1.1829. However, break of 1.1526 support will dampen this bullish view and bring deeper fall back to 1.1390 instead.

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.

Daily Pivots: (S1) 0.8079; (P) 0.8106; (R1) 0.8150; More….

Intraday bias in USD/CHF remains neutral for the moment. 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. On the downside, though, break of 0.8020 will revive that case that the corrective pattern has completed, and target a retest on 0.7871 low.

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) 147.58; (P) 147.91; (R1) 148.48; More...

Intraday bias in USD/JPY stays mildly on the upside for the moment. Pullback from 150.90 could have completed at 146.61 already. Further rise would be seen to retest 150.90. Firm break there will resume the whole rally from 139.87 to 151.22 fibonacci level. For now, risk will stay on the upside as long as 146.61 support holds, in case of retreat.

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) 1.3396; (P) 1.3436; (R1) 1.3473; More...

GBP/USD's rise from 1.3140 resumed after brief retreat and intraday bias is back on the upside for 1.3587 resistance. Correction from 1.3787 should have completed with three waves down to 1.3140. Firm break of 1.3587 will bring retest of 1.3787 high. On the downside, below 1.3398 minor support will turn intraday bias neutral and dampen the bullish case.

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.

Dollar came under renewed selling pressure in early US session following the release of July’s CPI report. Equity markets responded positively, with stock futures pushing higher as investors focused on the softer-than-expected headline reading, largely downplaying the firmer core figure. Market reaction suggests the report does little to disrupt expectations for the Fed to deliver its anticipated September rate cut.

Futures pricing in fed funds markets even firmed slightly for a follow-up move in October. However, the policy outlook beyond September remains highly uncertain, as the impact of recent US tariff increases is expected to start filtering into the data later in the year.

In the UK, labor market data offered little to bridge the divide on the BoE’s Monetary Policy Committee. Payrolled employment has been declining steadily since late 2024. At the same time, wage growth remains well above pre-pandemic norms.

For BoE’s hawks, still-strong pay growth outweighs the risks of a weaker jobs market, while doves argue that continued payroll declines should take precedence. Complicating matters is the possibility that falling employment is not entirely demand-driven, but partly a response to rising labor costs. Either way, elevated wage growth remains a key contributor to domestic price pressures.

For Sterling, the figures were mildly supportive, as wage resilience keeps the case for a slower easing cycle alive. Market attention now turns to Thursday’s UK GDP release, which could add some decisive information to the BoE policy debate if growth data surprises in either direction.

Elsewhere, Aussie extended losses during the European session after RBA’s expected 25bps rate cut. Governor Michele Bullock acknowledged that “the cash rate might need to be a bit lower” to ensure low inflation and steady employment but emphasized the high degree of uncertainty and reiterated the Bank’s data-dependent approach. RBA appears in no hurry to cut again before the Q3 CPI release in late October, keeping November as the most likely timing for another move.

By the time of writing, Sterling is leading the majors, followed by Swiss Franc and Euro. Aussie sat at the bottom, ahead of Loonie and the greenback. Kiwi and Yen traded mixed in the middle.

US core CPI jumps to 3.1% in July, headline unchanged at 2.7%

July CPI figures showed headline inflation unchanged at 2.7% yoy, missing expectations for a rise to 2.8% yoy. Core CPI accelerated to 3.1% yoy from 2.9% yoy, topping the 3.0% yoy forecast. The annual energy index dropped -1.6% yoy, offsetting a 2.9% yoy rise in food prices.

Month-on-month, CPI increased 0.2% and core CPI rose 0.3%, both matching consensus. Shelter prices gained 0.2% and was the largest contributor to the monthly increase, while the food index was flat and energy prices declined -1.1%.

The pickup in core pressures may keep the Fed cautious. While markets still expect a September rate cut, the uptick in core CPI could limit the pace of policy easing beyond that meeting.

German, Eurozone ZEW sentiment slides sharply in August

German investor sentiment weakened sharply in August, with the ZEW Economic Sentiment Index falling from 52.7 to 34.7, well below expectations of 40.0. Current Situation Index deteriorated further from -59.5 to -68.6, also missing forecasts of -63.0.

For the Eurozone as a whole, ZEW Economic Sentiment Index dropped from 36.1 to 25.1, missing the expected 28.4. The Current Situation Index fell by -7 points to -31.2.

ZEW President Achim Wambach said the decline was partly due to disappointment over the recently announced EU–US trade deal and Germany’s poor Q2 performance. He noted that the chemical, pharmaceutical, mechanical engineering, metal, and automotive industries are facing particular strain, worsening the forward-looking view.

UK payrolled employment falls again by -8k, pay growth eases slightly

UK labor market data for July showed a slight deterioration in employment alongside a modest easing in pay growth. Payrolled employment fell by -8k, or -0.0% m/m, marking a -0.5% yoy drop compared to the same period last year. The number of payrolled employees has been trending lower since peaking in 2024, highlighting a gradual cooling in hiring momentum. Median monthly pay growth slowed marginally to 5.7% yoy from 5.8% yoy, while the claimant count dropped by -6.2k, sharply better than expectations of a 20.8k increase.

In the three months to June, unemployment rate held steady at 4.7%, in line with forecasts. Wage growth metrics were mixed. Average earnings including bonuses slowed from 5.0% to 4.6% yoy, falling short of expectations for 4.7%. Earnings excluding bonuses were unchanged at 5.0% yoy, matching forecasts.

RBA cuts to 3.60%, rate track points to one more this year

RBA lowered the cash rate by 25bps to 3.60% as widely expected, with the decision passed on a unanimous vote. The new forecasts signaled room for one more cut this year, two in 2026, and a hike in 2027.

Updated economic projections showed inflation forecasts unchanged, with year-end CPI at 3.0% in 2025, 3.1% in 2026, and 2.5% in 2027. Trimmed mean inflation was also left steady at 2.6% for 2025 and 2026, easing to 2.5% in 2027.

The growth outlook, however, was revised notably lower. Year-average GDP growth for 2025 was cut from 1.9% to 1.6%, and for 2026 from 2.2% to 2.1%, with 2027 projected at 2.0%.

The forecasts are based on interest rate assumptions of 3.4% in 2025, 2.9% in 2026, and 3.1% in 2027 — implying scope for one more cut this year, two in 2026, followed a hike in 2027.

In its statement, RBA noted that uncertainty in the global economy remains elevated. While recent developments have brought “a little more clarity” on the scope of US tariffs and the policy responses from other countries, the Bank expects that “more extreme outcomes are likely to be avoided.”

Even so, trade policy uncertainty is still expected to weigh on global activity and inflation, with the risk that households and firms delay spending until there is greater clarity. The RBA said these effects will likely continue to drag on the Australian economy “for a period”.

NAB survey shows rising Australian business confidence, pockets of inflation pressure

Australia’s NAB Business Confidence index rose from 5 to 7 in July, and moving just above the long-run average of 5. NAB noted that confidence has been trending higher despite elevated global uncertainty.

Business Conditions slipped from 7 to 5, with weakness seen across all subcomponents. Trading conditions fell from 14 to 11, profitability from 4 to 2, and employment from 4 to 1. While the pullback follows strong gains in June, NAB noted conditions have retained much of last month’s improvement.

Price indicators highlighted ongoing inflationary pressures in pockets of the economy. Labor cost growth accelerated from 1.3% to 2.1% in quarterly equivalent terms. Purchase costs edged up from 1.3% to 1.5%. Final product price growth strengthened from 0.5% to 0.9%, and retail price growth climbed from 0.5% to 1.1%.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3396; (P) 1.3436; (R1) 1.3473; More...

GBP/USD's rise from 1.3140 resumed after brief retreat and intraday bias is back on the upside for 1.3587 resistance. Correction from 1.3787 should have completed with three waves down to 1.3140. Firm break of 1.3587 will bring retest of 1.3787 high. On the downside, below 1.3398 minor support will turn intraday bias neutral and dampen the bullish case.

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.

July CPI figures showed headline inflation unchanged at 2.7% yoy, missing expectations for a rise to 2.8% yoy. Core CPI accelerated to 3.1% yoy from 2.9% yoy, topping the 3.0% yoy forecast. The annual energy index dropped -1.6% yoy, offsetting a 2.9% yoy rise in food prices.

Month-on-month, CPI increased 0.2% and core CPI rose 0.3%, both matching consensus. Shelter prices gained 0.2% and was the largest contributor to the monthly increase, while the food index was flat and energy prices declined -1.1%.

The pickup in core pressures may keep the Fed cautious. While markets still expect a September rate cut, the uptick in core CPI could limit the pace of policy easing beyond that meeting.

Full US CPI release here.

The British pound is in positive territory on Tuesday. In the European session, GBP/USD is trading at 1.3461, up 0.22% on the day. The pound has jumped 1.9% in August and touched a high of 1.3476 on Monday, its highest level since July 25.

Job openings drop, wage growth steady

The UK labor market continues to cool. Job openings fell by 5.8% across most industries and the nunber of payrolled employeees also declined. However, the slowdown was not as bad as expected and didn't boost the unemployment rate, which remained at 4.7%.

The labor market is feeling the effect of higher employer national insurance contributions and a rise in the minimum wage, as employers continue to cut back on hiring.

The Bank of England has been cautious in its rate path and last week's cut was only the second this year. The split vote at the rate meeting reflects the conundrum that Bank policymakers face regarding rates - the UK economy is weak and the labor market is slowing, but inflation has been moving higher. The Bank is expected to cut rates again in November but that will depend on the employment and inflation numbers.

US inflation expected to hit to 2.8%

The US releases the July inflation report later today. Inflation is is expected to inch higher to 2.8% y/y, up from 2.7% y/y in June. This would mark a third straight acceleration and the highest inflation level since February. Core CPI is also expected to accelerate to 3.0%, up from 2.9%.

Monthly, CPI is projected to ease to 0.2% from 0.3%. Core CPI is projected to rise to 0.3% from 0.2%.

Today's inflation report could shift market expectations for the September Fed meeting but a Fed cut will likely remain on track. The markets have currently priced in the likelihood of a rate cut at 84%, according to FedWatch's CME.

GBP/USD Technical

• GBP/USD has pushed above resistance at 1.3436 and is testing 1.3453. Next, there is resistance at 1.3487
• 1.3402 and 1.3385 are providing support

GBPUSD 4-Hour Chart, Aug. 12, 2025