Markets Hold Breath Ahead of CPI – Dollar, Euro & Pound on the Edge.

  • US CPI is today’s big event and will likely steer the dollar—stronger inflation boosts USD, weaker pulls it down.

  • Equity markets are buoyed by stronger-than-expected China GDP and renewed Nvidia exports, hinting at improved US-China ties.

  • EUR/USD is in a wait-and-see mode, balancing tariff concerns with upbeat German sentiment data and a key French budget announcement.

  • GBP is under pressure as markets bet the BoE may need to cut faster than expected—labour market data later this week will be crucial.

  • Canadian CPI also in focus, with downside risks likely to accelerate the Bank of Canada’s final rate cut and weigh on the CAD.

USD: CPI Holds the Key to the Dollar’s Next Move
Currency markets kicked off the week in subdued fashion. Hints of further Russian sanctions turned out to be less severe than feared, granting Moscow a 50-day window to negotiate peace with Ukraine. Oil and gas prices dipped in response. Overnight, there were some encouraging developments: China’s Q2 GDP beat expectations slightly, and Nvidia appears set to resume exports of its H20 chips to China—suggesting a softening in US-China tensions. Equity futures are reflecting this optimism, nudging higher ahead of today’s open.

US earnings season begins today, with banks like JPMorgan, Citigroup, and Wells Fargo reporting. Expectations are for strong trading revenues to offset weaker investment banking performance.

Still, all eyes are on the June CPI print. Any surprise versus the 0.3% month-on-month consensus will likely move the dollar: higher CPI, stronger dollar—and vice versa. The market is still pricing in 16 basis points of Fed cuts for September, which we think could be priced out over time.

We’re mildly bullish on the DXY index, expecting it to potentially fill the gap at 98.35—but a lower-than-expected CPI could derail that.

Canada also releases its June CPI today. A soft read there could bring forward the final expected rate cut from the Bank of Canada and weaken the loonie. (For broader FX insights, see our July FX Talking report.)

EUR: ZEW and US CPI in the Spotlight
EUR/USD is in a holding pattern as markets weigh the implications of new trade tariffs. So far, Europe hasn’t hit back against the 30% tariffs recently announced by the US, hoping instead to negotiate them down—possibly to 10%. A failure to do so would be a clear negative for the eurozone, especially if even steeper US tariffs are floated in coming weeks.

Today’s key input for EUR/USD will be the US CPI print. Before that, though, we get German ZEW sentiment data, which should remain strong amid hopes of long-term fiscal support from Berlin.

Meanwhile, France’s fiscal challenges remain unresolved. Prime Minister François Bayrou is due to announce a major budget overhaul today, targeting €40bn in spending cuts. Keep an eye on French bond markets; failure to follow through—like in the UK—could hit both bonds and the euro.

Technically, EUR/USD is holding above 1.1650 support. Options markets suggest a daily trading range of around 59 pips. Today’s CPI could be the catalyst for more directional movement.

GBP: All Eyes on Bailey and Labour Data
EUR/GBP has quietly climbed to the 0.8700 mark—not due to fiscal concerns, but rather rate differentials. The 10-year Gilt-Bund spread is back to levels last seen in April, but it’s the short-end that’s doing the damage. The two-year EUR:GBP swap spread has narrowed to 157 basis points as traders begin to question whether the Bank of England might have to ease more quickly than previously expected.

Governor Andrew Bailey speaks tonight at the Mansion House alongside new Chancellor Rachel Reeves. Expect him to echo recent Fed messaging: rate cuts could come sooner if labour market conditions worsen.

We’ll get CPI data tomorrow, but the more pressing test comes Thursday with labour market numbers. If May’s payrolls decline of -109k holds and June shows further job losses, the pound could be in for more pain. Our longer-term view had been for EUR/GBP to climb toward 0.88 in the coming months—but with softening data, that move might come sooner than anticipated.

*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.