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This week gives forex traders a breather from central bank drama, shifting the spotlight to inflation and growth data instead. The dollar’s still standing strong despite some mixed signals, while the yen keeps drawing buyers thanks to its safe-haven status.

With U.S. tariffs set to kick in August 1, traders are already jockeying for position ahead of what could be the next market mover.

How are major currencies faring, and what’s coming up next?

Important Disclaimer: This analysis is provided for informational purposes only and does not constitute investment advice. The views expressed here are our opinion based on available market data and could be incorrect or invalidated quickly as news/data develops. Foreign exchange trading carries significant risks and is not suitable for all investors, portfolios or trading styles. Market conditions can change rapidly, and past performance is not indicative of future results. Ultimately, trade execution and risk management are the sole responsibility of each individual trader, and the management and outcome of any trading decisions rests entirely with the individual.

Market Environment Overview

Key Developments Discussed in FX Weekly Recap

  • Trump’s aggressive tariff escalation created significant market turbulence, with safe-haven flows initially supporting USD before “tariff fatigue” set in
  • The RBA delivered a surprise by holding rates steady at 3.85% when markets had priced in a 25bp cut
  • FOMC minutes revealed only “a couple” of members favored a July cut, though several officials subsequently hinted at potential easing
  • The tariff deadline was extended (for the third time) to August 1, with Trump noting it’s “not 100% firm”
  • Risk sentiment improved late in the week despite ongoing trade uncertainties

Central Bank Actions & Commentary

  • Federal Reserve: Governor Waller suggested 3-4 cuts possible in 2025, while Daly indicated it may be time to adjust rates given the economy is “in a good place”
  • RBA: Governor Bullock emphasized wanting to see quarterly CPI data before easing, maintaining a “cautious, gradual stance”
  • RBNZ: Held rates at 3.25% as expected, with markets now pricing February cuts
  • BOJ: Officials continued to signal potential policy normalization, though tariff pressures complicated the outlook
  • ECB: After cutting to 2.00% in June, Lagarde said further easing would need a clear deterioration in global conditions

Notable Economic Releases

  • U.S. jobless claims came in at 227k vs 245k forecast, showing continued labor market resilience
  • UK GDP unexpectedly contracted 0.1% in May, raising recession concerns
  • Canada surprised with 83.1k jobs added vs 10k expected, unemployment dropping to 6.9%
  • Japan PPI growth slowed to 2.9% y/y, the weakest since August 2024

Risk Events & Market Reactions

  • Initial panic over BRICS tariff threats gave way to relief as deadlines were extended
  • Strong Canadian employment data triggered a sharp CAD reversal despite the 35% tariff announcement
  • EU-US trade deal optimism provided intermittent support for risk assets

Currency Analysis & Rankings

The following scores and ranking are based on recent economic, geopolitical, policy and broad risk sentiment developments, influencing our purely fundamental bias on each currency.

Price action and technical analysis are not considered. This can be helpful for adding conviction to your own analysis, but as always, do your own due diligence as every trader is ultimately responsible for their own trades.

For more in-depth information on each currency, visit the FX Weekly Recaps.

1. U.S. Dollar (USD) – Score: 7.9/10

Monetary Policy (3.9/5.0): Mixed Fed signals with dovish tilt emerging

Risk Impact (2.8/3.5): Safe-haven demand offset by rate cut expectations

Fundamentals (1.2/1.5): Solid jobs data but inflation concerns easing

Key drivers: DXY battle at 97.70 resistance, tariff impacts on inflation, Fed division

2. Swiss Franc (CHF) – Score: 7.2/10

Monetary Policy (3.5/5.0): SNB maintains relatively stable stance

Risk Impact (2.8/3.5): Classic safe-haven performance during tariff turbulence

Fundamentals (0.9/1.5): Consumer confidence improving but limited domestic catalysts

Key Drivers: Safe-haven flows, global uncertainty, regional stability

3. Australian Dollar (AUD) Score: 7.1/10

Monetary Policy (3.6/5.0): RBA’s surprise hold signals more hawkish stance than market expectations

Risk Impact (2.3/3.5): Last week’s strongest performer, but vulnerable to China and trade concerns

Fundamentals (1.2/1.5): Business confidence improved, though China’s deflation risks remain

Key Drivers: RBA hawkish surprise, commodity price stability, China trade dynamics

4. Canadian Dollar (CAD) – Score: 7.0/10

Monetary Policy (3.4/5.0): Strong employment data reduced immediate BOC rate cut expectations

Risk Impact (2.5/3.5): Resilient despite 35% tariff threat

Fundamentals (1.1/1.5): Spectacular jobs data offsetting trade concerns

Key Drivers: Employment strength, USMCA exemptions, commodity prices

5. Euro (EUR) – Score: 6.5/10

Monetary Policy (3.2/5.0): ECB maintaining dovish bias amid growth concerns

Risk Impact (2.4/3.5): Caught between trade deal hopes and growth fears

Fundamentals (0.9/1.5): Mixed data with German yields suggesting reduced easing bets

Key Drivers: US-EU trade negotiations, ECB policy expectations, regional growth

6. New Zealand Dollar (NZD) – Score: 5.8/10

Monetary Policy (2.8/5.0): RBNZ cut expectations remain elevated

Risk Impact (2.2/3.5): High sensitivity to global risk sentiment

Fundamentals (0.8/1.5): Business indicators weakening, external pressures mounting

Key Drivers: Dairy prices, global risk sentiment, RBNZ easing expectations

7. British Pound (GBP) – Score: 5.5/10

Monetary Policy (2.7/5.0): August cut expectations growing on weak growth data

Risk Impact (2.0/3.5): Fiscal concerns and growth fears weighing heavily

Fundamentals (0.8/1.5): GDP contraction confirming economic weakness

Key Drivers: Gilt yield surge, fiscal sustainability, recession risks

8. Japanese Yen (JPY) – Score: 5.2/10

Monetary Policy (2.5/5.0): BOJ normalization hopes fading on growth concerns

Risk Impact (2.0/3.5): Safe-haven status undermined by trade conflicts

Fundamentals (0.7/1.5): Slowing inflation momentum, political uncertainty

Key Drivers: US-Japan trade tensions, BOJ policy uncertainty, fiscal concerns

Key Themes to Watch

1. Inflation Trajectory

Tuesday’s U.S. CPI data will be crucial in determining whether the Fed can proceed with rate cuts despite tariff pressures. With inflation releases also due from Canada, UK, Euro Area, and Japan, markets will reassess the global monetary policy landscape and potential for synchronized easing versus divergent paths.

2. Tariff Implementation and Trade Negotiations

The August 1st deadline looms large despite Trump’s “not 100% firm” caveat. Focus will be on any progress in bilateral negotiations, particularly with the EU and Japan, and whether exemptions similar to Canada’s USMCA provisions might emerge for other trading partners.

3. Central Bank Divergence

The Fed’s hawkish pause stands in contrast to the ECB’s easing bias and BOE cut expectations, while the BOJ remains sidelined by weak inflation. The RBA and RBNZ are also holding rates steady for now, with both signaling a cautious approach and wanting more inflation data before considering cuts. With policy paths diverging across the board, these differences are likely to shape major FX moves through the summer.

4. Fiscal Sustainability Concerns

The UK’s dramatic gilt yield surge highlights growing market focus on fiscal dynamics. With several economies running large deficits amid slowing growth, any signs of fiscal stress could create currency-specific pressure points, particularly for GBP and JPY.

5. Employment Resilience vs Growth Momentum

The contrast between strong jobs data (US, Canada) and weakening growth indicators (UK, China concerns) creates a complex backdrop. Markets will watch whether employment strength can sustain consumer spending or if leading indicators pointing to slowdown prove prescient.

Looking Ahead: July 14 – 18, 2025

Key Economic Data Releases

Monday, July 14

  • China Trade Balance (early release possible)
  • Japan Machinery Orders

Tuesday, July 15

  • Canada CPI (12:30pm GMT) – Critical for BoC policy outlook
  • U.S. CPI Data (12:30pm GMT) – Market moving inflation print

Wednesday, July 16

  • UK CPI (6:00am GMT) – Key for August BOE decision
  • U.S. Core PPI/PPI (12:30pm GMT) – Secondary inflation gauge
  • New Zealand CPI (potential early release)

Thursday, July 17

  • Australia Employment Data (1:30am GMT) – RBA policy implications
  • U.S. Retail Sales (12:30pm GMT) – Consumer strength gauge
  • U.S. Initial Jobless Claims – Labor market pulse
  • ECB Meeting Minutes – Policy insights
  • Japan CPI – BOJ policy considerations

Friday, July 18

  • China GDP Q2 – Global growth implications
  • China Retail Sales & Industrial Production – Activity indicators
  • UK Retail Sales
  • Canada Retail Sales
  • University of Michigan Consumer Sentiment

Central Bank Events

  • Multiple Fed officials scheduled throughout the week
  • BOE’s Bailey speaking Tuesday could provide August meeting guidance
  • ECB officials at various European forums
  • BoJ Deputy Governor appearances possible given trade tensions

Political Events

  • U.S.-EU trade negotiations ongoing (Brussels meetings rumored)
  • G20 Finance Ministers virtual meeting (Wednesday)
  • UK Parliament debates on fiscal policy
  • Japan Upper House election campaign continues (July 20 vote)

Market Scenarios

Base Case (60% probability)

  • U.S. CPI comes in line or slightly below expectations, keeping September Fed cut hopes alive
  • Trade tensions remain elevated but no new major escalations before August 1
  • USD gradually weakens as rate differentials narrow, supporting risk assets
  • Commodity currencies find a floor but struggle to rally significantly

Risk Scenario (25% probability)

  • Hot U.S. inflation data forces Fed to maintain hawkish stance
  • Trade negotiations break down with new tariff announcements
  • Flight to quality supports USD, CHF, with sharp selloff in AUD, NZD, emerging markets
  • Equity markets correct 3-5%, supporting traditional havens

Upside Scenario (15% probability)

  • Breakthrough in US-EU trade talks with framework agreement
  • Soft global inflation data accelerates central bank easing expectations
  • Commodity currencies lead broad rally as growth optimism returns
  • JPY underperforms significantly as carry trades rebuild

Remember to manage risk appropriately given the multiple high-impact events this week, with proper position sizing and clear exit strategies. Trade plans should account for potential gaps in liquidity around data releases and central bank decisions.

Note: This analysis is based on current market conditions and subject to change with new developments. Always conduct your own research and risk assessment before making trading decisions.