USD slumped on Friday after Fed Chair Powell signalled that September rate cuts are on the table, saying the job market’s stability allows the Fed to “proceed carefully” while noting restrictive policy may need adjusting.
US 2-year treasury yields slid by 11bp down to 3.68%, with markets now pricing an 85% chance of a 25bp cut next month. Powell’s dovish tone, combined with political noise after Trump threatened to fire Fed Governor Cook, pushed the USD index down by 0.9%. Nevertheless, USD pared losses yesterday, despite Trump once again commenting that he will move to oust Governor Cook. Cook said she won't quit as “no cause exists” for her dismissal. Cook is likely to sue to challenge her removal and there is a belief in the markets that she can win.
*Daily move - against G10 rates at 7:00 am, 26.08.25
** Indicative rates - interbank rates at 7:00 am, 26.08.25
This week, markets will focus on the ECB’s July 23–24 meeting account for hints on policy direction, with markets not pricing in any more rate cuts for this year. Meanwhile, August sentiment indicators — particularly Germany’s Ifo survey — are expected to show that optimism is fading under pressure from US protectionist trade policies.
On Friday we've got the CPI numbers from France and Germany.
From the US this week we have second estimates of GDP for Q2 and on Friday we have core PCE, which is likely to indicate quicker pace of inflation than previously.
The EUR is weaker this morning after PM Francois Bayrou called a confidence vote for September 8th that may topple his government. UK food prices surged by 4.2% in August - the sharpest increase in a year and a half - as retailers caution that food inflation could reach 6% before year-end, further underscoring persistent stagflationary pressures within the economy..
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