Intro
This past week was fairly interesting and led me to alter some of our sentiment ratings (namely on the euro and Japanese yen). It’s going to be a potentially more eventful period for this week with FOUR interest rate decisions: USD, GBP, JPY and CAD.
This is a rare bunch of high-impact economic events in the space of a few days. So, be prepared and manage your risk if you have open positions on any of these markets (especially with the pound which has two other high-impact news events).
With that out of the way, let’s briefly explore our sentiment for each of the major FX currencies this week!
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (USD): Bearish
August data kept the Fed on track to ease: core CPI held at 3.1% y/y, unemployment rose to 4.3%, and economists now see a Sept cut as a near-certainty (with more likely by year-end). That mix narrows yield support and leaves the dollar vulnerable outside of risk-off spikes.
Key news to watch: interest rate decision on Wednesday.
Euro (EUR): Neutral
The ECB held the deposit rate at 2% last week (as predicted) and lifted growth forecasts, while August HICP ticked to 2.1% and core eased. This is consistent with a patient, data-dependent stance. With the Fed set to cut first and the ECB keeping options open, relative policy still gives EUR a modest floor on dips.
British Pound (GBP): Neutral
The Bank of England recently cut their interest rate by 25 bps (but likely to hold this week). This is, of course, an easing step, but one that still acknowledges sticky service inflation and firm wages.
Hiring has softened, keeping the Bank cautious about the pace of any further cuts. Such a blend caps the topside yet underpins sterling on dips.
Key news to watch: unemployment rate on Tuesday; inflation rate YoY on Wednesday; interest rate decision on Thursday
Japanese Yen (JPY): Bearish
The Bank of Japan kept policy steady but upgraded its inflation outlook (FY core now 2.7%) and left the door open to resume hikes. If the Fed cuts while the BoJ edges forward, yield differentials should compress, improving the yen’s macro balance from very weak levels.
Japan’s central bank is highly likely to keep their interest rate unchanged this week.
Key news to watch: interest rate decision on Friday.
Australian dollar (AUD): Neutral
The RBA trimmed the cash rate to 3.60% last month and flagged it can ease again as domestic data softens and China-sensitive demand remains uneven. Without a sustained upswing in commodities or China, AUD rallies look tactical rather than trend.
New Zealand dollar (NZD): Neutral
The RBNZ cut 25 bps to 3.00% last week and indicated that more easing is likely as Q2 CPI sits at 2.7% y/y and unemployment rose to 5.2%. With domestic momentum soft and the policy path tilting lower, NZD has a modest downside bias unless global risk sentiment improves.
Canadian dollar (CAD): Neutral
The BoC has held at 2.75%, inflation cooled to 1.7% y/y in July, and the latest labour report showed a sizable job loss with jobless at 7.1%, all of which keep a September cut in play. Oil provides some cushion, but CAD likely chops with USD and data rather than trending hard on its own.
Key news to watch: inflation rate YoY on Tuesday; interest rate decision on Wednesday
Swiss Franc (CHF): Bullish
The SNB cut to 0% in June, but Swiss inflation is near 0.2% y/y, and safe-haven demand remains supportive; a jump in sight deposits suggests the SNB has been smoothing FX strength, not reversing it. Expect a firm franc with occasional intervention-induced air-pockets.
