Intro
As hinted at last week, it was a fairly volatile week with several high-impact news events that unfolded. Despite interest rate holds for USD and JPY, these were the strongest currencies, with the yen increasing by almost 2% against NZD.
Thankfully, it should be quieter this week, with a slight change in our sentiment ratings for every currency (mainly with USD and CAD). Let’s explore each of them now.
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (USD): Neutral
USD has regained some distance since the start of July due to a number of factors. These include favourable US-EU trade agreements, strong GDP revisions and an interest rate hold last week.
Still, fiscal deficits, political uncertainty, and clear signs of global diversification away from USD assets can weaken the dollar at any time.
Euro (EUR): Bullish
The euro’s rally stalled mid‑week following a new U.S.–EU tariff deal. Although the European Central Bank remains steady at 2% rates and soft inflation provides flexibility, fiscal stimulus in key eurozone economies offers support amid these short-term headwinds.
British Pound (GBP): Neutral
Sterling is underpinned by sticky wage and inflation figures. The IMF’s warnings on fiscal pressure and potential new taxes add a note of caution, even as confidence in the Bank of England’s policy credibility persists.
The market sentiment for this week’s interest rate indicates a rate cut, which may move GBP out of neutral territory.
Key news to watch: Official Bank Rate on Thursday.
Japanese Yen (JPY): Neutral
Safe‑haven flows triggered by political uncertainty in Japan briefly support the yen. Yet, export woes, persistent yield differentials, and dovish Bank of Japan policy are the potential weakeners. BoJ projections suggest further gradual weakening is possible, although intervention risk remains ever‑present.
Australian dollar (AUD): Neutral
A surprise interest rate hold last week, along with soft labour data and waning Chinese demand, downplay the Aussie’s future strength. Commodity prices remain subdued, limiting any sustained upside unless macro conditions improve.
New Zealand dollar (NZD): Neutral
The New Zealand dollar has softened as global risk appetite wanes and inflation moderates. Meanwhile, New Zealand’s central bank maintains a steady tone. Export earnings offer some support, but the currency remains vulnerable to broader risk sentiment shifts and protectionist pressures.
Canadian dollar (CAD): Neutral
CAD has shown surprising resilience due to strong performance in oil prices and commodity exports. Also, the Bank of Canada’s more hawkish tone compared to the ECB or Fed gives CAD some relative appeal.
However, conservative business sentiment and weak domestic investment suggest that unless policy signals change, gains may be capped.
Key news to watch: unemployment rate on Friday.
Swiss Franc (CHF): Bullish
Despite the Swiss National Bank cutting rates into zero territory last month, the franc remains strong. This is due to safe-haven inflows, improving Swiss trade data, and Switzerland’s economic stability.
However, the SNB retains FX intervention firepower and may step in if the franc’s strength accelerates too much.
