FX Morning Brief: Inflation in Focus, Geopolitics in the Background.

  • USD supported by profit-taking, tariff pause, and tempered geopolitical expectations ahead of CPI.

  • Above-consensus 0.4% MoM core CPI could lift USD short-term but labour market remains the bigger Fed driver.

  • RBA cuts 25bp; AUD dips but medium-term outlook remains constructive.

  • EUR sentiment data (ZEW) expected to weaken; strong US CPI could push EUR/USD toward 1.150.

  • UK jobs data slightly better than expected; supports GBP short term but BoE easing bias remains.

USD: Expecting a 0.4% MoM Core CPI
The dollar is holding steady ahead of today’s US CPI release, partly due to profit-taking from crowded USD short positions and partly thanks to President Trump’s decision to extend the China tariff pause by another 90 days. His comments on Friday’s meeting with Putin — framing it as a “feel-out session” with limited expectations — may also have tempered earlier market optimism for a quick geopolitical breakthrough.

We’ll be watching closely for further headlines — including Trump’s call with Zelenskyy tomorrow — but for now, US data remains the key driver for the dollar. We’re expecting a 0.4% MoM core CPI print, above the 0.3% consensus, which would lift YoY core inflation from 2.9% to 3.1% and headline inflation from 2.7% to 2.9%.

A hotter print could give the dollar a short-term lift by pushing markets to price in less than 20bp of Fed easing in September. That said, we believe labour market trends carry more weight than inflation in shaping Fed policy, given consensus views that tariff-related price pressures are temporary. Even with a strong CPI number, further labour market weakness could still justify a September cut — limiting the scope for a sustained USD rally. Today also brings the NFIB Small Business Optimism Index and July’s Federal budget figures.

Elsewhere, the RBA delivered a 25bp rate cut as expected. The AUD slipped slightly as markets viewed the central bank’s lower growth and inflation forecasts as dovish. However, Governor Michele Bullock left forward guidance open and data-driven, and with easing expectations already stretched, we remain constructive on AUD over the coming months.

EUR: ZEW Sentiment & Ukraine Headlines in Play
Today’s German ZEW survey for August will provide an early read on eurozone sentiment following the US-EU trade deal. Consensus points to declines in both the current situation index (from -59.5 to -67) and expectations index (from 52.7 to 39.5).

The ECB factors activity surveys into its assessments, and if ZEW weakness is followed by softer IFO and PMI data, we could see a re-emergence of dovish voices in September. For now, however, August is light on ECB commentary, and inflation remains subdued. In the near term, EUR/USD could drift below 1.16 on strong US CPI, with a potential test of 1.150 if Friday’s Putin-Trump talks fail to deliver progress.

GBP: Labour Market Holding Up Better Than Feared
July’s UK labour data surprised slightly to the upside, with payrolls down just 8k — the best monthly result since January — and June’s figure revised to -26k (from -41k). This aligns with recent hiring surveys suggesting tentative recovery.

While the labour market is cooler than earlier this year and lagging other major economies, there’s no urgent pressure on the BoE to accelerate rate cuts. We still expect a November cut, though stronger jobs or inflation data could push it back. Sterling is firmer this morning on the upbeat jobs read, and EUR/GBP may test 0.860 in the coming days before rebounding toward 0.870 later in the summer in line with our BoE outlook.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.