USD

US producer prices surged by 0.9% month-on-month in July, far above the forecast of 0.2% and marking the steepest increase since June 2022. On an annual basis, the Producer Price Index rose to 3.3% from 2.4%, while the core measure climbed to 3.7% from 2.6%. The gains point to the inflationary effects of recent tariff measures and support the Federal Reserve’s cautious stance on interest rate cuts.

Goods prices advanced 0.7% (0.4% excluding food and energy), while service costs rose 1.1%, the largest monthly jump since March 2022. Airfares increased by 1% and portfolio management fees by 5.8%, highlighting uneven but persistent price pressures. This suggests either companies are absorbing costs, reducing margins, or that higher producer prices have not yet been fully passed on to consumers.

While the figures add complexity to the Fed’s decision-making, they may not be enough to prevent a modest rate reduction next month. Markets were only pricing in a 25bps cut, and softer labour market data still supports that view. The dollar index briefly strengthened on the news but remains in a broader downward trend, with today’s retail sales data now in focus. A stronger reading could support the dollar, while a weaker outcome might increase expectations for a September cut.

GBP

Sterling has reached one-month highs against the US dollar, euro, Canadian dollar and Australian dollar this week. Better-than-expected UK economic data has fuelled expectations of a more hawkish Bank of England stance, while generally positive global sentiment has also helped the pound. GBP/EUR has climbed back above €1.16 and is testing its 50-day moving average for the first time since mid-June, gaining roughly 2% over three weeks.

Interest rate differentials and subdued market volatility suggest the pound could be trading closer to €1.18–1.19, but sustained euro demand, driven partly by flows out of the US dollar, is limiting further advances. UK wage growth remains near 5% and GDP data has exceeded forecasts, with the economy expanding 0.4% in June and 0.3% for Q2. These figures have reduced the likelihood of a November rate cut, with markets now pricing just a 40% probability, although a reduction by February is fully expected.

For further gains, sterling would likely need either reduced eurozone inflows or another clear hawkish shift from the BoE. Next week’s UK inflation figures will be crucial, with persistent wage pressures making a meaningful fall in price growth necessary to sway policymakers.

EUR

The euro’s path to reclaiming early July highs near 1.17 hinges on clearer signs of a dovish shift from the Fed. While recent labour data and a softer CPI reading had boosted bets on rate cuts, the latest PPI figures challenge that assumption. The tariff-driven price rises are filtering through the supply chain and could soon affect consumers, complicating the case for aggressive easing.

EUR/USD remains volatile, moving sharply yesterday, but has posted only modest gains of around 0.3% this week. The currency’s near-term upside now depends more on consistently weaker US economic data rather than short-lived headlines. Trade-related developments in Washington have lost much of their influence, and the impact of tariffs is increasingly seen as a lasting feature of the landscape.

If today’s US retail sales disappoint, the euro could test 1.17, but without a steady run of soft US data, gains may be difficult to sustain.

Looking ahead

Attention now turns to US retail sales figures later today, which could shape near-term market direction across USD, GBP and EUR. A strong number may reinforce the dollar and delay expectations of a September rate cut, while a weak reading could support both the pound and euro. In the UK, next week’s inflation release will be closely watched, and in the eurozone, traders will continue to monitor US macro signals as the main driver for EUR/USD momentum.

Also in focus today is a landmark summit between President Donald Trump and Russian President Vladimir Putin, set to take place at Alaska’s largest military base. It marks the latest attempt by Trump to bring an end to the three-and-a-half-year conflict, a foreign policy objective that has proved among his most frustrating. Hopes for peace or a ceasefire also reduced demand for traditional geopolitical safe havens last week, such as the Swiss franc and the Japanese yen, while the euro attracted greater interest. Oil prices eased as well. Should hostilities end, the euro would likely benefit, supported by improved sentiment stemming from reduced uncertainty and a diminished risk of the conflict spreading.