USD

US inflation matched forecasts in July, with headline and core CPI at 0.2% and 0.3% month-on-month. Services, particularly shelter, airfares, and recreation, drove the increase, while goods inflation eased. Household furnishings slowed to 0.4%, apparel rose just 0.1%, and video/audio equipment stayed flat.

The softer-than-feared reading pushed two-year Treasury yields down 4 basis points to 3.73%, lifting rate cut expectations for September to 90% and knocking the dollar by 0.4%. Retail sales data this week will test consumer resilience, while PPI and PCE figures later this month could reinforce the case for a cut. However, recent tariff hikes may yet lift inflation, especially as the labour market cools.

GBP

Sterling rose after UK payroll losses came in smaller than expected, supporting the Bank of England’s hawkish tone despite its recent rate cut. GBP/EUR briefly hit 1.16 before slipping back, with limited upside likely unless Thursday’s GDP data surprises positively.

Against the dollar, the pound gained over 0.6% and broke through 1.3450, now consolidating near 1.35 with 1.36 in sight. GDP and industrial production figures will guide its next move.

EUR

The euro touched a two-week high versus the dollar as the US report underpinned expectations of a dovish Fed, while the ECB is seen holding steady after President Lagarde’s recent comments.

Weakness in Germany’s ZEW survey signals softer sentiment, though further declines in Ifo and PMI data would be needed to sway ECB policy. For now, gains are largely driven by dollar weakness, with EUR/USD above its 50-day average and technical momentum pointing higher.

Looking ahead

US retail sales, PPI, and PCE will shape Fed expectations into September. UK GDP and industrial data will be key for sterling, while eurozone sentiment readings could influence ECB outlook. The dollar remains on the back foot, giving both the euro and pound a near-term edge.