Dollar drifts, Kiwi sinks, and sterling stumbles.

• Dollar firmer but aimless: Modest gains likely reflect costly shorts; DXY capped at 98.50/60.

• RBNZ shakes NZD: Cut 25bp but debated 50bp; unemployment up, inflation seen as temporary.

• Fed & BoE lesson: Weak labour markets could quickly justify rate cuts.

• Euro soft: EUR/USD stuck in narrow ranges; Lagarde unlikely to move the needle.

• Sterling rally fragile: Services inflation pop driven by airfares; risks retracing lower.

USD: A quiet grind higher
The dollar has nudged higher this week, though without a clear catalyst. It may simply reflect the cost of holding dollar shorts, with one-week funding rates still above 4.00%. Hopes of progress on Ukraine haven’t materialised, despite European leaders touting a “breakthrough”. Attention will now be on whether Washington boosts support for Europe, and whether Moscow tolerates the idea of European forces entering Ukraine – a flashpoint that triggered Russia’s invasion back in 2022.

On the calendar, Fed Chair candidate Christopher Waller speaks at 17CET, though his focus is payments rather than policy. The FOMC minutes at 20CET should give more colour on July’s dissenters (Waller and Bowman), though any impact may be muted given the jobs report has since been published. A clearer steer is expected from Chair Powell at Jackson Hole on Friday. For now, we see little scope for DXY to clear 98.50/60 resistance today.

The real action is in New Zealand. The RBNZ cut by 25bp to 3.00%, but nearly opted for a larger 50bp move, with two members backing it. NZD/USD dropped 1.1% as markets shifted the expected cycle low to around 2.50%. Despite inflation brushing the top of target, the RBNZ argued that slack in the labour market (jobless rate at 5.2% vs 3.2% three years ago) means price pressures won’t stick. They also cited US trade uncertainty as a drag on policy effectiveness.

For the Fed and BoE, the takeaway is clear: if labour markets start to weaken materially, the path to cuts opens fast. That’s why we remain structurally bearish USD – and to a lesser extent GBP – into 2026.

EUR: Lagarde in the spotlight
EUR/USD is sliding in thin trading. The drift looks more like a dollar move than direct fallout from Ukraine headlines. Some risk-reduction and soft Chinese data this week may also be weighing.

Today brings July’s final eurozone CPI and remarks from President Lagarde in Geneva, though she’s unlikely to pre-commit on September. Odds of a September cut sit at just 6%, with April 2026 still seen as the first likely move. EUR/USD should stay rangebound, with 1.1590/1600 expected to hold.

A small negative: ICE won’t include EU joint debt in its sovereign indexes – not a great look for the euro’s global story.

GBP: Inflation surprise – but don’t chase it
Sterling is rallying after July services inflation came in hotter at 5.0% YoY vs 4.8% expected. At first glance, this argues against near-term BoE cuts. But much of the jump came from airfares – not a key concern for the Bank when judging persistent inflation. Food inflation, which matters more for policy, barely moved.

That means today’s CPI surprise is unlikely to change the BoE’s stance. GBP/USD could easily fade back toward 1.3470/80 later in the session.