August 13, 2025

“Some relatively soft inflation data in the US helped to build the case for a Federal Reserve rate cut in September, and the dollar unwound its gains from Monday. The next big events are US PPI inflation and UK GDP tomorrow.”

Tim Hallinan – Trading Director

USD

A lack of tariff-driven inflation and Trump’s threats to allow a lawsuit against Chair Powell were fuel for a weaker dollar yesterday. Headline July CPI held at 2.7% rather than picking up to 2.8% as expected, and the tariff-exposed sectors failed to produce any evidence of an inflationary spike – appliances even fell 0.9% month-on-month, and clothing increased by only 0.1%. If inflation is increasingly less likely to become persistently higher, that removes the final roadblock for Fed cuts. The market is almost fully pricing a September cut, alongside a solid probability that two more come in October and December. Meanwhile, fears about the Fed’s independence – and Powell’s job – resurfaced after a Truth Social post in which Trump mentioned a potential lawsuit against the chairman, providing markets will another reason to sell the dollar. Today, we hear from Barkin, Goolsbee, and Bostic from the Fed, and next up on the data calendar is PPI inflation tomorrow.

GBP

Sterling climbed to its highest level in more than two weeks against the dollar yesterday on the back of the better-than-expected labour market data and some broad dollar weakness. The pound could be due some further strength if the job losses can stabilise and the focus shifts back to the Bank of England’s inflation challenge. Tomorrow morning’s Q2 GDP data is a big growth test here – the consensus is looking for only 0.1% growth in the second quarter.

EUR

The euro continues to be dragged around by developments in the US, and it was dollar weakness rather than any domestic euro strength that pushed EURUSD towards the highs it touched last week. The ZEW data was disappointing, with both the current situation and the expectations indexes softening even more than was expected after the US-EU trade deal sparked concerns about European exporters. Today we get some final inflation figures from Germany and Spain, but investors will have their eyes on the US-Russia talks on Friday and next week’s PMIs.

Markets

A weaker-than-expected inflation print and rising bets on a September rate cut helped to lift US stocks yesterday, with the S&P 500 and the Nasdaq both gaining more than 0.5%.

Main Economic Events (All Times CET)

1:50am: Japan PPI Inflation
8:30am: Norway Consumer Confidence

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