August 07, 2025

“The dollar continues to weaken following last week’s deeply disappointing jobs report, with Fed speakers beginning to sound the alarm on the economy. Today is all about the Bank of England, where policymakers have the difficult challenge of navigating both sticky inflation and a weak jobs market.”

Tim Hallinan – Trading Director

USD

The dollar index weakened broadly yesterday and has extended its post-payroll losses to 2.2% this morning. A couple of factors were behind this fresh depreciation. First, the tone among Fed officials involved increasing concern about the state of the jobs market. Kashkari argued that the Fed needs to respond to the slowing economy, and Cook referred to the downward job revisions as ‘typical of turning points’. Both Kashkari and Daly leaned towards at least two rate cuts before the end of the year (the market is pricing in a 40% chance of a third). Second, optimism rose around a Ukraine truce as Trump announced that he would arrange meetings with Putin and then Zelenskyy, touting progress made in talks in Moscow yesterday. Today we get some jobless claims data and a speech from the Fed’s Bostic. We may also get an announcement for an interim Fed governor to replace the outgoing Kugler on a temporary basis over the next few days.

GBP

Sterling has gained 0.7% against the dollar this week as we head into today’s Bank of England rate decision. The theme we can expect today is one of split opinion – policymakers need to face the dreaded dilemma of picking between keeping rates restrictive to pull down inflation (last at 3.6%) and cutting rates to support the increasingly weak labour market. The consensus is for a 2-5-2 vote split between hold rates at 4.25%, cutting by 25bps, and cutting by 50bps. There is plenty of scope for a surprise there, particularly if the ‘core’ of the MPC starts to sound the alarm on jobs.

EUR

The euro was the best performing G10 currency yesterday, with its edge likely coming from the positive news about Ukraine. German industrial production data this morning was poor, sinking 1.9% month-on-month in June and weakening the prospect of some stronger summer growth. That has done little to slow the euro’s gains, however. Elsewhere in Europe, the franc continues to suffer on EURCHF after the Swiss President failed to come home from Washington with a trade deal, and Swedish inflation came in a touch lower than expected at 3.0% this morning.

Markets

Stocks ticked higher yesterday alongside most G10 FX as Fed rate cut bets grew higher.

Main Economic Events (All Times CET)

8:00am: Sweden CPIF Inflation
9:00am: Switzerland Unemployment Rate
1:00pm: Bank of England Rate Decision
2:30pm: US Jobless Claims

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