US
USD is trading heavy while equity markets continue to edge higher as Fed officials are sounding more dovish and global economic activity is resilient. Rate differentials point to further USD weakness.
Fed Governor Lisa Cook called the July jobs report “concerning” and said the sizable downward revisions to jobs gains in May and June, “are somewhat typical of turning points” in the economy.
San Francisco Fed President Mary Daly (FOMC non-voter): “The labor market has softened. And I would see additional slowing as unwelcome…All this means that we will likely need to adjust policy in the coming months.”
Minneapolis Fed President Neel Kashkari (2026 voter): “The economy is slowing…In the near term it may become appropriate to start adjusting the federal funds rate.”
Today, Atlanta Fed President Raphael Bostic (non-FOMC voter) speaks on monetary policy (10:00am New York, 3:00pm London). Fed funds futures virtually fully price-in a 25bps cut to 4.00-4.25% at the next September 17 meeting. By year-end, Fed funds futures imply 50bps of easing and 40% odds of an additional 25bps cut.
US Q2 non-farm productivity data is up next (8:30am New York, 1:30pm London). Productivity (GDP/hours worked) is expected at 2.0% SAAR vs. -1.5% in Q1, which would be in line with the post-war average of 2.1%. An AI-driven productivity boom remains a key upside risk to our downbeat US growth outlook. Stronger output without price pressure could shift the narrative fast and support a firmer USD.
The New York Fed July inflation expectations survey will also be in focus (11:00am New York, 4:00pm London). Encouragingly, inflation expectations are contained and leaves room for the Fed to ease policy.
UK
GBP is firmer versus USD but weaker against EUR. In our view, stagflation headwind in the UK threatens further GBP depreciation versus EUR. The Bank of England (BOE) policy rate decision (7:00am New York, 12:00pm London) and Governor Andrew Bailey’s press conference half an hour later take the spotlight today.
The BOE is widely expected to cut the policy rate 25bps to 4.00% and reiterate its guidance for “a gradual and careful approach” to further rate cuts. UK real GDP contracted in April and May, but stubbornly high UK underlying inflation will keep the BOE cautious. The focus will be on the Monetary Policy Committee (MPC) vote split, and Monetary Policy Report (MRP).
At the last June 19 meeting, the MPC voted by a majority of 6-3 to keep rates on hold. Taylor, Dhingra, and Ramsden preferred to reduce the Bank Rate by 25bps. Economists surveyed by Bloomberg predict a three-way split this time around: 5 for 25bps cut, 2 for hold, and 2 for 50bps cut. An even split between no change and a 50bps cut would support the BOE’s cautious easing message and leave GBP broadly unaffected.
The MPR will include fresh economic projections and a formal review of the past year’s quantitative tightening (QT). The BOE is expected to flag that it plans to slow the pace at which it shrinks its bond holdings. Between October 2024 to September 2025, the BOE will have reduced its holdings of gilts by £100bn to £558 bn. Maintaining the current £100bn pace of gilt runoff over the next 12-month period risk pushing long-term gilt yields higher, as a smaller volume of maturing bonds mean the BOE must sell a record £51bn of gilts.
SWEDEN
USD/SEK is a little lower while SEK is mixed on the crosses. Sweden July CPI print undershot consensus but is tracking above the Riksbank’s projection. As a result, the Riksbank is unlikely to slash the policy rate by more than the swaps curve imply which is SEK supportive. Over the next 12 months, the swaps market price-in one 25bps cut and the policy rate to bottom at 1.75%.
In July, the policy relevant CPIF rose 0.2pts to an 18-month high at 3.0% y/y (consensus: 3.1%, Riksbank: 2.5%) while CPIF ex-energy dipped -0.2pts to 3.1% y/y (consensus: 3.2%, Riksbank: 2.8%). The next Riksbank policy decision is on August 20, and interest rate futures price-in less than 20% odds of a cut.
CHINA
USD/CNH is stable under key resistance at 7.2000. China’s July trade report shows exporters racing to front-load ahead of the August 12 US-China tariff deal deadline. Export growth overshot expectation at 7.2% y/y (consensus: 5.6%) vs. 5.9% in June. The boom in exports was driven by the ASEAN region (+13.5% YTD from a year ago), a key area for reshipment to the US, and the European Union (+7% YTD from a year ago). Exports to the US fell -12.6% YTD from a year ago. Meanwhile, China imports unexpectedly rebounded 4.1% (consensus: -1.0%) vs. 1.1% in June and hint at a fragile recovery in domestic demand.
In our view, three major structural constraints prevent any meaningful effort to increase the role consumption plays in China’s economy: low household income levels, high precautionary savings, and high levels of household debt. As such, China will continue to lean heavily on infrastructure to hit its growth target. This is good for commodity prices but bad for China’s long-term economic health.
