At the same time, uncertainty around the euro is increasing amid mixed statements from some politicians, undermining confidence in the region’s outlook. German Chancellor Friedrich Merz stated that Germany can no longer provide the previous level of social benefits, noting the country has been “living beyond its means” for several years, implying the need for serious structural reforms. This contrasts with previously approved infrastructure modernization plans. Among other things, the Ministry of Defense plans to reinstate conscription, which would require sharply higher spending.
In focus for European investors are S&P Global’s August manufacturing PMIs: the euro area index rose to 50.7 from 50.5, while Germany slipped to 49.8 from 49.9, with forecasts calling for no change. At 11:00 (GMT+2), July unemployment data will be released, with the jobless rate expected to hold at 6.2%. On Tuesday at 11:00 (GMT+2), August inflation figures will arrive: analysts expect core HICP to slow from 2.3% to 2.2%, with the headline rate at 2.0%.
The European Central Bank appears close to ending the current easing cycle and mainly worries about a potential resurgence in price growth amid the uncertain tariff policy of U.S. President Donald Trump. Meanwhile, Friday’s German inflation data showed core CPI rising from 1.8% to 2.1% y/y, while the monthly CPI slowed from 0.4% to 0.1%.
GBP/USD
GBP/USD is trading mixed near 1.3520 in the morning session. Market activity is moderate as U.S. exchanges are closed for Labor Day. Investors are watching developments around tariff restrictions initiated by the White House. On Friday, a U.S. appeals court upheld a lower court’s decision to strike down measures imposed under the International Emergency Economic Powers Act (IEEPA). Tariffs are not lifted yet and will remain in place at least until October 14, the deadline to file with the U.S. Supreme Court. In any case, uncertainty over tariff policy is growing while the U.S. economy shows signs of slowing. Investors also expect the Fed to resume a “dovish” tone.
According to CME FedWatch, there is an 80.0% chance of a 25 bp rate cut on September 17. Fed Chair Jerome Powell hinted at this at Jackson Hole. U.K. traders will watch July consumer credit data today: net consumer credit is expected to slow from GBP 6.76 billion to GBP 4.90 billion, and mortgage approvals may edge down from 64.17k to 64.0k. On Friday at 14:30 (GMT+2), the U.S. will release the August labor report: unemployment may tick up from 4.2% to 4.3%, average hourly earnings are seen steady at 0.3% m/m, and nonfarm payrolls could rise by 78k after 73k previously.
AUD/USD
AUD/USD shows a mixed tone in the Asian session, retesting and surpassing the August 14 local highs. Traders are cautious with U.S. markets closed for Labor Day, focusing on data from Australia and China. Australia’s S&P Global manufacturing PMI edged up to 53.0 from 52.9, while July building approvals fell 8.2% after a 12.2% rise; on an annual basis, growth slowed from 27.4% to 6.6%.
On Wednesday at 03:30 (GMT+2), Australia’s Q2 GDP is due; markets look for an acceleration from 0.2% to 0.5% q/q. In China, the manufacturing PMI rose from 49.5 to 50.5. Over the weekend, the NBS prints showed manufacturing improving from 49.3 to 49.4 versus 49.5 expected, and services/construction up from 50.1 to 50.3.
A key tailwind for AUD remains the rising odds that the Fed will turn more dovish in September—Powell openly signaled this at Jackson Hole. CME FedWatch puts the probability of a 25 bp cut on September 17 at 80.0%. Sentiment is also helped by developments around U.S. tariff policy under President Donald Trump, which faces wide criticism domestically and abroad: on Friday, a U.S. appeals court backed the earlier ruling to overturn most “retaliatory” tariffs. This does not mean restrictions will be lifted immediately, but it offers some hope they won’t be raised in the near term.
USD/JPY
The U.S. dollar is trading mixed against the yen, trying to hold above the 147.00 psychological level on expectations that the Fed will continue lowering borrowing costs. On September 17, markets price an ~80.0% chance of a 25 bp cut amid stable inflation trends and signs of slower U.S. growth. Friday’s University of Michigan survey showed 1-year inflation expectations easing from 4.9% to 4.8% and 5-year from 3.9% to 3.5%. The consumer expectations index fell from 57.2 to 55.9 and consumer sentiment from 58.6 to 58.2.
The yen is supported by the Bank of Japan’s plans for gradual policy tightening despite uneven inflation. Forecasts point to at least one 25 bp hike to 0.75% by year-end, while over 90.0% of analysts expect no change in September. Tokyo CPI slowed in August from 2.9% to 2.6% y/y, and core from 3.1% to 3.0%. However, industrial output is a concern: July production fell 1.6% after +2.1% in June (vs. –1.0% expected), and dropped 0.9% y/y after +4.4%.
XAU/USD
XAU/USD advances in the morning session, extending last week’s strong bullish trend and testing 3475.00 to the upside, marking the highest levels since April 22. Gains are fueled by increasing expectations of a Fed rate cut on September 17, as signaled by Chair Powell at Jackson Hole. Investors remain wary of political pressure on the Fed from the White House. President Donald Trump and his allies criticized Powell for delayed decisions and called for immediate cuts. Trump also announced the dismissal of Fed Governor Lisa Cook on mortgage-fraud allegations; she has sued the president. Initial hearings were held Friday, but Judge Jia Cobb did not issue a ruling.
Market activity is subdued today with U.S. exchanges closed for Labor Day. Analysts are digesting July PCE data—the Fed’s preferred inflation gauge: core PCE rose from 2.8% to 2.9% y/y as expected and held at 0.3% m/m, while headline PCE stayed at 2.6% y/y and slowed from 0.3% to 0.2% m/m. On Friday at 14:30 (GMT+2), the U.S. August jobs report is due: unemployment may edge up from 4.2% to 4.3%, average hourly earnings are seen at 0.3% m/m, and nonfarm payrolls could increase by 78k after 73k previously.