July 31, 2025

“The dollar made gains for the fifth consecutive day yesterday, as Q2 GDP beat the consensus and a hawkish tone from the Fed shrank expectations for a rate cut in September. US core PCE and German CPI are the main data points today.”

Sam Cornford – Head of Trading

USD

A stronger-than-expected Q2 GDP figure and a hawkish Fed press conference fuelled another 1% jump higher for the dollar as it continued its strong week. Growth printed at 3.0% annualised in the second quarter, versus the 2.6% expected. This does not suggest that the run rate of US economic growth is anywhere near that level right now – just as the import frontloading in Q1 pushed growth into negative territory, the 30% drop in imports in Q2 lifted the Q2 number considerably. Real consumer spending grew at a 1.4% annualised rate, down from 3-4% in the second half of 2024. But it was still better than expected and trims the urgency to start cutting interest rates.

While the Fed meeting involved some acknowledgement of a slowing economy and the labour market risks, in general the FOMC remains far more concerned about keeping any tariff-related inflation surge temporary – except for Trump appointees Waller and Bowman, both of whom dissented and voted for a cut. There were no promises about a rate cut in September, and Powell actually suggested that they are looking through the inflation risks by not hiking rates. The market trimmed its bets on a September cut to just 45% and is now pricing in only one before the end of the year. Today’s main piece of data is the core PCE inflation print for June which, if the Q2 figure is anything to go by, is likely to be much hotter than originally expected.

GBP

The quiet UK calendar has been a benefit for sterling in recent days. It has still taken considerable damage versus the dollar – GBPUSD is down 2.4% since last Thursday – but it has generally outperformed the likes of EUR, CHF, and the Nordics. GBPEUR is up 1.5% this week. Focus is beginning to shift to next week’s Bank of England rate decision, where many are expecting another three-way vote split as the MPC tries to navigate both sticky inflation and mounting risks within the jobs market.

EUR

Once again, the eurozone data mattered little yesterday as a rallying dollar pushed EURUSD into the low 1.14s. While GDP growth was slightly better than expected at 0.1% quarter-on-quarter, all eyes were on the US data and the Fed, and the euro dropped more than 1.2%. It may be a similar story with today’s diary – French CPI was a touch higher than the estimate this morning and we get the German regions over the next few hours, but few are expecting these to materially move the dial on ECB pricing, which currently points to a 50% chance for one further cut this year.

Markets

Big surges on Meta and Microsoft stock are behind a powerful equity rally this morning, after their earnings surprised significantly to the upside. Apple, Amazon, MasterCard, Samsung, and Shell are among the large cap companies releasing their Q2 results today.

Main Economic Events (All Times CET)

5:00am: Bank of Japan Rate Decision
8:45am: France CPI
11:00am: Eurozone Unemployment Rate
2:00pm: Germany CPI
2:30pm: US Core PCE

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