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Summary

United States: Dog Days of Summer

• While it was a light week on the economic data front, there was still plenty of news to digest with tariffs coming back to center stage. Elevated uncertainty is beginning to creep into economic activity, leading us to revise down our estimate for Q2 real GDP growth.
• Next week: CPI (Tue.), Retail Sales (Thu.), Housing Starts (Fri.)

International: Down Under Central Banks Take Rate Cut Time-Outs

• The Reserve Bank of Australia surprised markets by holding its policy rate steady at 3.85% this week, though its accompanying statement and comments suggest an August rate cut remains on course. The Reserve Bank of New Zealand also held rates steady at 3.25% and signaled further easing should be forthcoming. U.K. May GDP was soft, but Canadian June jobs data showed some resilience, while June inflation surprised to the upside in both Mexico and Brazil.
• Next week: China GDP (Tue.), Canada CPI (Tue.), United Kingdom CPI (Wed.)

Interest Rate Watch: FOMC Remains in Wait & See Mode, at Least for Now

• The minutes of the June 17-18 FOMC meeting indicate that the Committee likely will not cut rates at its next meeting at the end of this month. However, we think conditions will warrant a 25 bps rate cut in September.

Topic of the Week: You Get a Tariff! You Get a Tariff!

• In a flurry of tariff announcements this week, President Trump extended the pause on reciprocal rates, upped rates for some countries and brought new sector-level tariffs back into the fold. We summarize these developments and estimate the effect on the U.S. effective tariff rate.

Full report here. 

We expect it is likely too early to see a significant increase in prices due to tariffs in Canadian and U.S. inflation data for June on Tuesday.

There have been signs of tariffs raising prices for some Canadian food products, and vehicle prices have been climbing steadily since March. But, the broader impact of tariffs on prices has been limited. Canadian retaliatory tariffs announced earlier this year were measured and targeted, and in many cases, have been paused to avoid raising costs for Canadian consumers and producers.

Tariff hikes in the U.S. have been much larger and broader, but data from the U.S. Department of the Treasury suggests tariff revenues collected have lagged tariff announcements in April, but ramped up by 40% in May and another 20% in June. We expect the increases will ultimately raise consumer prices this year, but not right away with pre-tariff inventory building limiting the immediate impact.

Removal of carbon tax continues to distort Canadian CPI growth

For June, we expect a slight increase in the consumer price index to an annual 1.9% following a lower-than-expected 1.7% reading in May.

Gasoline prices edged down 0.9% from May despite a 10% jump in oil prices due to conflict in the Middle East, and were still more than 10% lower from a year ago, reflecting the removal of the consumer carbon tax in April.

Food price inflation—which picked up earlier this year due to higher costs for groceries potentially related to Canadian retaliatory tariffs on imports from the U.S. and dining out—eased slightly in May on an annual basis. We expect this softening to persist in June.

More focus on BoC measures

With tax changes significantly distorting annual price growth, the Bank of Canada’s preferred core inflation metrics (which exclude the impact of indirect tax changes) will continue to be watched closely for signs of changes in underlying trends.

We expect month-over-month increases in the trim and median measures close to the 0.2% increases posted for both in May. That would leave annual rates little changed from May and still significantly above the BoC’s 2% inflation target. Excluding food and energy, inflation is forecast to rise slightly to 2.7% from May’s 2.6%.

U.S. inflation to head higher

In the U.S., rising costs from tariffs will ultimately be paid by U.S. purchasers. But, it will likely be spread across the supply chain from transport companies to wholesalers/manufacturers/retailers with only a portion finally showing up in consumer prices.

We expect year-over-year growth in U.S. consumer prices to rise to 2.6% in June from 2.4% in May on a 0.3% monthly increase from May. We expect core (excluding food and energy products) prices to post a 0.2% increase from May and gain 2.9% from a year ago.

Week ahead data watch:

Canadian manufacturing sales likely dropped again in May, with the largest decreases observed in the petroleum and coal product subsector, the transportation equipment subsector, and the food product subsector. Part of the headline sales decline was price-related, as the IPPI (price of manufactured goods) dipped 0.5% during the month.

We look for Canadian housing starts to come in at 255,000 units in June, down about 9% from the prior month. This decline partially offsets the surge observed at the beginning of this quarter.

We expect the Canadian core wholesale sales to decrease by 0.4% in May, in line with StatsCan’s early indicator, and this was driven by lower sales in the machinery, equipment, and supplies subsector.

U.S. retail sales are expected to have increased by 0.2% in June after dropping 0.9% in May. Higher gasoline prices likely boosted sales at gasoline stations, but unit auto sales edged lower again after an almost 9% drop in May.

A modest recovery in U.S. industrial production is expected for June (+0.2%), bouncing back after a 0.2% decline in May. While the ISM manufacturing index improved during the month, it remained below 50. We anticipate slight improvement in manufacturing (excluding autos) sector output.

Monday, Jul 14, 2025

Tuesday, Jul 15, 2025

Wednesday, Jul 16, 2025

Thursday, Jul 17, 2025

Friday, Jul 18, 2025

• Dollar attracts safe haven flows amid trade anxiety.
• US inflation data could shake July Fed cut probability.
• UK, Canadian and Japanese CPI numbers also on tap.
• Weak Chinese growth may increase calls for more stimulus.

Dollar reacts differently to tariff concerns now

The dollar has held very well against its major peers this week, although it is still down since April 2, when US President Turmp announced reciprocal tariffs against all the US’s main trading partners, before postponing them and keeping only a 10% base duty.

Although the 90-day delay, which was supposed to expire on Wednesday, was extended until August 1, Trump said this week that he would impose a 25% tariff on goods from Japan and South Korea, while he threatened Brazil with a 50% levy, and other partners with lower rates. This allowed the US dollar to stay strong due to safe-haven inflows.

This marks a shift in how the dollar responds to tariff-related anxiety. Back in April, it was hurt due to fears about a recession. Now, it is benefiting as a safe haven, while upside risks to inflation are adding further momentum. A few weeks ago, investors were penciling in 65bps worth of rate cuts by the Fed, with the probability of a July reduction rising as a couple of policymakers expressed clear support for such a move, while Fed Chair Powell did not rule it out when testifying before Congress.

Nonetheless, following the better-than-expected jobs data for June and Trump’s fresh tariff-related threats, the probability of a July cut dropped to 5%, while markets now price in 50bps of easing this year - fully alighned with the Fed's latest dot plot.

Inflation cooling could revive July Fed cut bets

Next week, investors will keep their gaze locked on tariff-related headlines, but they will also have to evaluate the US CPI data for June. According to the ISM PMIs, prices in the manufacturing sector accelerated somewhat, but the non-manufacturing prices subindex slid notably. Given that the manufacturing sector accounts for only 10% of US GDP, the risks to CPI appear tilted to the downside. A slowdown in inflation may allow some market participants to reopen the door to the possibility of a July rate cut, which in turn could end the latest recovery in the US dollar.

The US PPI numbers for June will be released on Wednesday, while on Thursday, retail sales data for the same month will be released. The preliminary University of Michigan consumer sentiment survey for July on Friday could also attract special attention as it includes the closely watched 1-year inflation expectations print. The year-over-year rate of that metric surged to 6.6% in May, but it slipped to 5% in June. Further cooling could add credence to the idea that the upside risks to inflation are not that prominent and may allow the dollar to retreat a bit more.

UK CPI data awaited as BoE seen cutting in August

Speaking of inflation, the UK will also release its CPI numbers for June on Wednesday. At its latest decision, the Bank of England held interest rates unchanged, but the outcome was slightly more dovish than expected. Six out of nine policymakers voted to hold interest rates unchanged, with the remaining three opting for a 25bps reduction.

The Bank noted that GDP growth remained weak and that the labor market has continued to loosen, leading to clearer signs that a margin of slack has appeared. This led investors to add to their rate cut bets, now assigning a nearly 77% chance of a 25bps reduction at the upcoming meeting, in August. Another one is fully priced in by the end of the year.

Although the BoE expects inflation to continue accelerating to 3.7% y/y this year due to higher energy prices and some regulatory price increases, such as water utility bills, the Bank noted that the risks to inflation remain two-sided. Thus, even if the data reveals some acceleration, rate cut bets are unlikely to vanish. Perhaps traders will decide to take a few basis points off the table, but nothing too dramatic. On the other hand, a notable slowdown could give another green light to policymakers to lower interest rates in August, likely weighing on the British pound.

The UK employment report for May will be coming out on Thursday and will provide more information about whether the labor market is indeed cooling or not.
Canadian and Japanese inflation figures also on tap

More CPI data is on deck next week, with releases from Canada on Tuesday and Japan on Thursday. Getting the ball rolling with Canada, the BoC is expected to deliver one more quarter-point rate reduction this year, and with headline inflation already dropping to 1.7% in June, a very strong acceleration may be needed for the cut to be pushed into 2026. As for Japan, sticky inflation may allow yen traders to start reconsidering the likelihood of a BoJ rate hike before the turn of the year instead of the first quarter of 2026.

China releases trade and growth data amid trade uncertainty

China will also be in the spotlight. On Monday, the world’s second largest economy will release trade data for June, while on Tuesday, the GDP for Q2 will be released alongside industrial production, retail sales and the unemployment rate, all for June.

The latest inflation data revealed that producer prices fell at a faster pace in June than in May, with deflation deepening to its worst level in almost two years. Although consumer prices accelerated for the first time in five months, the improvement was marginal, with the broader picture increasing pressure on Chinese policymakers to introduce more stimulatory measures.

Despite China's agreement with the US to pursue further trade talks, lingering uncertainty over global trade is dampening local demand, and should next week’s data corroborate the notion that the Chinese economy is struggling, the People’s Bank of China may need to cut rates further later this year. Such expectations could weigh on the aussie and kiwi, as China is the main trading partner of both Australia and New Zealand.

Aussie traders will have to digest Australia’s employment report for June, which is scheduled to be released during the Asian session on Wednesday.

Earnings season begins

Equity traders will be busier next week as the Q2 earnings season will kick off, with the big banks reporting on Tuesday and Wednesday. That said, the spotlight is likely to fall on Netflix, which announces results on Thursday. With the streaming giant’s stock hitting record highs around ten days ago, results may need to be astounding for the stock to stretch its prevailing uptrend.

Market Overview

The crypto market capitalisation is at $3.66 trillion, having jumped 5.7% in the last 24 hours and approaching the record high of $3.72 trillion set in December. Risk appetite in the stock markets and Bitcoin’s record highs have drawn a wider range of altcoins into the rally, which have begun to catch up with the flagship.

Bitcoin exceeded the $118K mark for the first time in history, thanks to capital inflows into specialised exchange-traded funds and demand from companies accumulating cryptocurrency. BTCUSD was supported by improved global risk appetite. In the short term, the chances of the bulls continuing the rally look high, with a technical growth target above 135,000.

Old altcoins are being revived in light of the first cryptocurrency’s recent successes. Ethereum exceeded the $3,000 level at one point on Friday morning, above which it was last in early February. If we consider its past dynamics as a roadmap, the next areas of consolidation appear to be $3,300 and $4,000.

News Background

There is an active redistribution of roles in the digital asset market. Back in 2020, miners, offshore funds and anonymous wallets owned 95% of the bitcoins in circulation. As a result, a 2-9% increase in supply led to fluctuations in BTCUSD of 64-74%. Currently, about a quarter of tokens have passed into the hands of institutional investors. The movement of cryptocurrency is becoming more limited.

The inflow into spot Bitcoin ETFs in the US continues for the sixth trading session in a row, and for 21 of the last 22 days. According to SoSoValue, net inflows into spot BTC ETFs soared to $1.18 billion on 10 July, the highest in history. Total inflows since the approval of Bitcoin ETFs in January 2024 have increased to $51.34 billion, exceeding the $51 billion mark for the first time in history.

BTC Markets calls the achievement a ‘turning point in the institutionalisation of the asset.’ Retail investors do not drive growth; rather, they drive stable demand from asset managers, corporations, and platforms for wealthy clients.

CryptoQuant notes a jump in the ‘Coinbase premium,’ reflecting growing demand from American investors. After Strategy demonstrated a successful BTC accumulation strategy, many other companies followed suit.

Daily Pivots: (S1) 1.1659; (P) 1.1705; (R1) 1.1746; More...

EUR/USD is still extending correction from 1.1829 and intraday bias stays neutral. Strong support is expected from 1.1630 resistance turned support to bring rebound. On the upside, firm break of 1.1829 will resume the rise from 1.0176 and target 61.8% projection of 1.0176 to 1.1572 from 1.1064 at 1.1927. However, sustained break of 1.1630 will bring deeper fall to 55 D EMA (now at 1.1459) 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 now remain the favored case as long as 1.1604 support holds.

Daily Pivots: (S1) 1.3534; (P) 1.3577; (R1) 1.3620; More...

Intraday bias in GBP/USD remains neutral for the moment. Corrective pullback from 1.3787 could extend lower. But downside is expected to be contained by 1.3369 support to bring rebound. On the upside, above 1.3680 minor resistance will bring retest of 1.3787. Firm break of 1.3787 will resume larger up trend to 100% projection of 1.2099 to 1.3206 from 1.3138 at 1.3813.

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 1.2985) holds, even in case of deep pullback.

Daily Pivots: (S1) 0.7930; (P) 0.7959; (R1) 0.7998; More….

Intraday bias in USD/CHF stays neutral and outlook is unchanged. Corrective pattern from 0.7871 could extend higher. But upside should be limited by 0.8054 support turned resistance to bring another fall. Below 0.7871 will extend the larger down trend to 61.8% projection of 0.9200 to 0.8038 from 0.8475 at 0.7757. Firm break there will pave the way to 100% projection at 0.7313 next.

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) 145.74; (P) 146.27; (R1) 146.77; More...

Outlook in USD/JPY remains unchanged as range trading continues. Intraday bias stays neutral. On the upside, firm break of 148.01 resistance will resume the rise from 139.87 to 61.8% retracement of 158.86 to 139.87 at 151.22. However, break of 142.66 will bring deeper fall back to retest 139.87 low.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). There is no clear sign that the pattern has completed yet. But still, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.

Surprise! Canada's economy generated 83k new jobs in June (+0.4% month/month), much better than the consensus expectation for a flat reading. However, the gains were driven by a 70K gain in part-time positions.

The unemployment rate fell one tick to 6.9% after trending upwards for three months. Despite the labour force continuing to grow faster than we had expected (+0.3% m/m), employment gains outpaced it.

Looking by sector, wholesale and retail trade led the way, gaining 34k jobs (+1.1% m/m), followed by gains in health care and social assistance (17k, +0.6% m/m). Notably, manufacturing gained 10.5k jobs, although, employment there is still down 1.4% versus a year ago. Most other industries gained jobs, with agriculture (-12.5k, -2.6% m/m), and "other" services standing out with losses (-8.5k, -1.1% m/m).

Wage growth cooled in June. Average hourly wages rose 3.2% versus a year ago, down from 3.4% in May.

Key Implications

Canada's labour market bucked its weakening trend in June. The unemployment rate fell, and most sectors saw job gains. However, one month isn't going to turn the page on what is a much cooler labour market relative to a year ago. With President Trump making new threats for a higher 35% tariff rate on Canadian goods just last night, certainty for many Canadian businesses doesn't appear to be improving any time soon.

The Bank of Canada gets its next kick at the can on July 30th . Today's jobs report is another tick in the resilience tally, but next Tuesday's June inflation report is likely to be the bigger factor in the Bank's deliberations, given recent hotter-than-expected inflation readings. We think a strong argument for further rate cuts remains in Canada, we'll soon see if the BoC agrees.