The forex markets are trading in a clear risk-off tone today, with commodity currencies sliding and traditional havens like Yen and Swiss Franc leading the pack. Investors are wary that yesterday’s steep selloff in technology stocks could mark the start of a broader correction. NASDAQ’s retreat has stirred unease about stretched valuations in the AI sector and raised doubts over the durability of the equity rally.
The spotlight is now shifting to Fed, with a heavy slate of communication expected before Chair Jerome Powell’s appearance at Jackson Hole on Friday. Fed Governor Christopher Waller is due to speak and is widely expected to reiterate his dovish call that Fed should not delay in cutting rates to safeguard the labor market. His stance has been consistent, and there is little reason to expect a pivot.
More nuanced will be comments from Atlanta Fed President Raphael Bostic, who has maintained a more cautious position, emphasizing the persistence of inflation pressures and signaling preference for only one rate cut this year. Any hint that he is softening could shift expectations meaningfully, but markets are not anticipating a major departure from his recent tone.
The minutes of Fed’s July meeting are also due and have drawn special interest. The meeting itself resulted in no change to the policy rate, left at 4.25–4.50%. Yet, the key drama was that Governors Waller and Michelle Bowman dissented, favoring an immediate cut to avoid further labor market deterioration. This marked the first double dissent in more than three decades and highlighted the widening policy debate inside Fed. The markets will be parsing the minutes to assess how deep the division runs and whether more members leaned dovish in private.
That said, the minutes are somewhat stale—predating the revised payroll figures that signaled more softness in jobs than previously thought. This timing issue is compounded by the fact that the minutes land just two days before Fed Chair Jerome Powell’s Jackson Hole speech. Powell’s remarks, along with a slew of Fed commentary around the symposium, will likely overshadow the July record and provide a fresher signal of policy direction.
Currently fed fund futures are pricing in an 85% chance of a September cut, with odds for an October follow-up slipping below 50%.
In the currency markets, Yen is the day’s top performer so far, trailed by Swiss Franc and Euro. On the other end, Kiwi remains weakest, extending losses after the RBNZ’s dovish cut. Aussie is also soft, with risk aversion weighing heavily. Sterling’s earlier boost from hot UK CPI data has faded. Dollar and Loonie are parked in the middle of the pack.
In Europe, at the time of writing, FTSE is up 0.61%. DAX is down -0.33%. CAC is up 0.23%. UK 10-year yield is down -0.042 at 4.703. Germany 10-year yield is down -0.017 at 2.738. Earlier in Asia, Nikkei fell -1.51%. Hong Kong HSI rose 0.17%. China Shanghai SSE rose 1.04%. Singapore Strait Times rose 0.08%. Japan 10-year JGB yield rose 0.01 to 1.608.
ECB’s Lagarde: EU–US trade deal offers relief but risks still hang over sectoral tariffs
Speaking today, ECB President Christine Lagarde said growth in the Eurozone is expected to weaken in Q3 as earlier tariff-related frontloading unwinds.
A key factor is the new EU–U.S. trade deal, which implies an effective tariff rate of 12–16% on EU goods entering the U.S. Lagarde stressed it is “still close to” the June baseline scenarios, and remains below the severe scenario of tariffs exceeding 20% that staff had also considered.
Nevertheless, “uncertainty persists as sector-specific tariffs on pharmaceuticals and semiconductors remain unclear”, she added.
Lagarde confirmed ECB will incorporate the updated tariff framework into its September projections, which will help shape policy decisions in the coming months.
Eurozone CPI holds at 2%, core steady at 2.3%
Eurozone inflation dynamics showed little change in July, with headline CPI finalized at 2.0% yoy and core CPI at 2.3% yoy. Both were steady comparing to June’s readings.
Services remained the dominant driver, contributing +1.46 percentage points to annual inflation, followed by food, alcohol and tobacco at +0.63 pp. Non-energy industrial goods added a modest +0.18 pp, while energy subtracted -0.23 pp, highlighting that weak energy costs are still offsetting some domestic price persistence.
In contrast, the broader EU recorded a slight acceleration fro 2.3% yoy to 2.4% yoy. Country-level differences remain wide, with inflation near zero in Cyprus and below 1% in France, but still running above 6% in Romania.
UK CPI jumps to 3.8%, services inflation stays hot at 5%
UK inflation accelerated more than expected in July, with headline CPI rising to 3.8% yoy from 3.6% yoy, surpassing forecasts of 3.7% yoy and marking the highest level since early 2024. The biggest driver was transport costs, particularly higher airfares, which made the largest contribution to the monthly rise in annual rates.
Breakdown data showed broad-based strength. CPI goods inflation climbed to 2.7% yoy from 2.4% yoy, while CPI services surged to 5.0% yoy from 4.7% yoy. Meanwhile, core CPI edged up from 3.7% yoy to 3.8% yoy, topping expectations and matching the headline pace, highlighting persistent underlying pressures.
For BoE, the data poses a challenge. The uptick in both headline and core inflation risks slowing the recent easing cycle, as policymakers balance still-high inflation against weaker economic growth momentum. Markets may scale back expectations for near-term cuts if the stickiness persists.
GBP/AUD to clear 2.10, eyeing 2.16 as UK data lifts sterling, risk-off weighs on Aussie
GBP/AUD pushed higher again today, extending its rebound from 2.0420 as Sterling found fresh support from hotter-than-expected UK inflation. The data have raised fresh doubts over whether BoE can cut again in November, shifting the near-term balance toward hawkish caution.
The backdrop is significant: BoE’s most recent 25bps cut to 4.00% was already a hawkishly split 5–4 decision. Today’s inflation release strengthens the case of hawks such as Chief Economist Huw Pill, potentially swaying some of the less dovish members of the MPC. While the staunchest doves like Alan Taylor may remain unmoved, the prospect of additional cuts is now less certain.
On the other side of the cross, the Australian Dollar is undermined by a mild risk-off tone in global markets. A bruising session for technology stocks yesterday saw the NASDAQ fall sharply, denting sentiment and prompting a rotation out of higher-beta sectors. Caution extended into Asia today, where the Nikkei posted a steep pullback.
Technically, outlook is unchanged that GBP/AUD’s correction from 2.1643 should have completed with three waves down to 2.0420. Firm break of 2.1034 resistance will solidify this bullish case and target a retest on 2.1643 high first. For now, outlook will stay cautiously bullish as long as 2.0775 support holds, in case of retreat.
RBNZ cuts, opens door to more
RBNZ delivered a 25bps cut to the Official Cash Rate, lowering it to 3.00% as widely expected. A more sizeable 50bps rate cut was discussed during the meeting. Policymakers maintained an easing bias, noting that “if medium-term inflation pressures continue to ease as expected, there is scope to lower the OCR further.”
The new projections point to the OCR dropping to 2.7% by Q4 2025, then settling between 2.5% and 2.6% in 2026 before edging back toward 2.7–2.8% in 2027. This outlook effectively signals room for one additional cut this year and another in early 2026.
The Bank highlighted ongoing slack in the economy and easing domestic inflation, projecting headline inflation to return to the 2% midpoint of target by mid-2026. However, New Zealand’s recovery has stalled, with household and business spending constrained by global policy uncertainty, weaker employment, higher costs for essentials, and falling house prices.
Japan exports slump -2.6% yoy in July, U.S. auto shipments hit hard
Japan’s exports fell -2.6% yoy in July to JPY 9.36 trillion, the sharpest drop since February 2021, driven by weaker demand from its two largest markets, the U.S. and China. Exports to the U.S. slid -10.1% yoy, with auto shipments plunging -28.4% yoy, a steeper decline than June’s -26.7%. Shipments to China also contracted -3.5% yoy, though exports to Hong Kong surged nearly 18% yoy.
The latest weakness highlights how external headwinds continue to weigh on Japan’s trade sector. While Tokyo reached a deal with Washington on July 22 to reduce reciprocal tariffs to 15% from 25%, the benefits will not be reflected until the August trade data. For now, auto exports remain a key drag on overall performance.
Imports fell -7.5% yoy to JPY 9.48 trillion, leaving Japan with a JPY 118 billion deficit. In seasonally adjusted terms, exports slipped -0.2% mom, while imports rose 0.4% mom, pushing the deficit wider to JPY 303 billion.
USD/JPY Mid-Day Outlook
Daily Pivots: (S1) 147.38; (P) 147.74; (R1) 148.04; More…
USD/JPY weakens today but stays well inside range of 146.20/148.51. Intraday bias remains neutral for the moment. On the upside, break of 148.51 will indicate that the pullback from 150.90 has completed, and bring retest of this high. This will also keep the whole rise from 139.87 alive. However, firm break of 145.84 support will argue that the rebound from 139.87 has completed, and turn near term outlook bearish.
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.
