Dollar, Euro, Pound, Yen — Key Forex Drivers as Trade Truce Extends

Investors are focused on today’s release of July inflation data, which came in mixed. Month-over-month, the Consumer Price Index (CPI) slowed from 0.3% to 0.2%, matching forecasts. Year-over-year, CPI held steady at 2.7% versus expectations of 2.8%, while the core CPI ticked up from 0.2% to 0.3% m/m and from 2.9% to 3.1% y/y.

According to the Bureau of Labor Statistics (BLS), food prices were unchanged, while energy prices fell 1.1%. New car prices, which are sensitive to tariffs, stayed flat, but used vehicle prices rose 0.5%. This supports analysts’ hopes that inflation acceleration will be gradual rather than sharp — a scenario that could push the Federal Reserve toward starting rate cuts.

Currently, most analysts expect the Fed to ease monetary policy twice before year-end. Also notable is President Donald Trump’s extension of the “trade truce” with China for another 90 days. During this period, existing reduced tariffs — around 30% on Chinese imports and 10% on U.S. imports — will remain in place as both sides continue negotiations. This move temporarily reduces the risk of a major escalation between the world’s two largest economies and renews investor interest in the dollar.

Eurozone

The euro is gaining against the yen and the U.S. dollar but weakening against the pound.

August ZEW survey data came in weak: the economic sentiment index for the eurozone fell from 36.1 to 25.1, matching expectations. For Germany, sentiment dropped sharply from 52.7 to 34.7, well below the 39.5 forecast. The current conditions index fell from –59.5 to –68.6.

ZEW President Achim Wambach commented that European business leaders are disappointed with the EU-U.S. trade agreement. Growth prospects have worsened, especially for the chemical and pharmaceutical sectors, with further declines in machinery, metallurgy, and automotive industries. This pressure could push the European Central Bank (ECB) toward another rate cut in the autumn.

United Kingdom

The pound is strengthening against major peers — the euro, yen, and U.S. dollar.

June labor market data showed the unemployment rate holding at 4.7%. Employment rose by 238,000 versus 134,000 previously. Average earnings growth including bonuses slowed from 5.0% to 4.6%, while excluding bonuses, it remained at 5.0%.

The sector remains resilient despite global trade uncertainty. However, the pace of wage growth still exceeds the Bank of England’s target inflation rate, which could prompt policymakers to avoid further rate cuts this year — although many analysts still expect at least one adjustment in the coming months.

Japan

The yen is weakening against the euro and pound, with mixed moves against the U.S. dollar.

On Wednesday at 01:50 (GMT+2), July corporate inflation data will be released. Markets expect month-over-month growth from –0.2% to 0.2% and a year-over-year slowdown from 2.9% to 2.5%, still above the 2.0% target. If forecasts hold, it would support the scenario of at least one Bank of Japan rate hike before year-end.

Australia

The Australian dollar is falling against major peers — the U.S. dollar, pound, yen, and euro.

Today’s Reserve Bank of Australia (RBA) meeting ended with a 25 bps rate cut to 3.60% — the lowest level since April 2023. Governor Michele Bullock stated that the rate “may need to be slightly lower than it is today to maintain low inflation, stability, and job growth,” signaling possible further easing.

Officials also downgraded GDP growth expectations: the economy is now expected to expand by 1.7% this year, down from the previous 2.1% forecast.

Oil

Oil prices are declining moderately, pressured by the extension of the U.S.-China trade truce and investor anticipation of a direct meeting between U.S. President Donald Trump and Russian President Vladimir Putin on August 15 in Alaska.

Trump has postponed higher tariffs on Chinese imports for another 90 days to allow further trade negotiations, easing global trade tensions and the risk of lower energy demand. Meanwhile, the Trump-Putin meeting could lead to a compromise on the Russia-Ukraine conflict, potentially resulting in the partial lifting of sanctions on Russian exports — a move that would weigh on oil prices.

Later today at 22:30 (GMT+2), the American Petroleum Institute (API) will release its weekly report, with markets expecting a 0.9 million barrel draw in inventories. If confirmed, this could offer short-term support to oil prices.