USD: a fourth soft print takes the dollar index below 100
The US dollar index ended the week below 100.00 at fresh lows near 99.8, closing a stretch in which four consecutive data releases undershot expectations. July inflation was the first: headline consumer prices rose 0.1% on the month for an annual rate of 3.4%, down from 3.5% in June, while the core measure eased to 2.5% — the lowest core reading since early in the year. Retail sales then missed, and the preliminary University of Michigan sentiment survey fell to 51 in August from 55.2, well short of forecasts.
The market response was concentrated in the September meeting. Traders had carried a meaningful probability of a Fed hike into the week, built on the hawkish split that emerged from the July meeting. By Friday that pricing had faded materially, and the dollar lost ground against every G10 currency on the day — most against the New Zealand dollar, which gained around 0.65%, and least against the Swiss franc at 0.10%.
Two things kept the decline orderly. Annual headline inflation at 3.4% is still well above target, which limits how far the market can push a dovish reading of a single month's data. And the Middle East continues to supply an intermittent safe-haven bid: the standoff with Iran remains unresolved and Strait of Hormuz shipping volumes have recovered only partially, leaving crude in the low $80s and longer-run inflation expectations with a floor under them.
Gold told the cleaner version of the story, closing near $4,380 an ounce and within reach of $4,400, a level reached on the combination of a weaker dollar and fading hike bets rather than on any fresh geopolitical shock.
The coming week gives the dollar no top-tier domestic data of its own, which unusually makes Wednesday's FOMC minutes the week's single decisive event. The July meeting produced a hawkish split; the minutes will show how wide it was and what conditions the hawks attached to a move. Minutes that read as a genuine and broad hawkish faction would put a September hike back on the table and reverse a good part of the week's dollar decline. Minutes that show a narrow dissent already softened by the July inflation data would confirm the market's current reading and leave the index below 100.00.
Friday's flash purchasing managers' indices across the major economies are the secondary test, and they matter mainly as a relative signal. Softer US readings against firmer European ones would extend the divergence trade that drove EUR/USD to two-month highs this week.
Oil remains the wildcard. Any deterioration in the Hormuz situation would lift crude and hand the dollar a safe-haven bid at exactly the moment its rate story has weakened — a combination that has produced sharp, short-lived reversals twice already this quarter.
EUR: two-month highs on a dollar story, with a September ECB hike fully priced
The euro finished the week in the upper 1.1500s against the US dollar, its highest since mid-June, after clearing its 100-day moving average at 1.1566 and closing within reach of 1.1600. The move was almost entirely imported. Four soft US prints — July inflation, retail sales, and a Michigan sentiment reading of 51 — did the work, and the euro's own calendar contributed little.
What the domestic data did contribute was reassurance rather than surprise. Euro area output expanded 0.4% in the second quarter, lifting the annual rate to 1.0% from an upwardly revised 0.5%. That is not a strong economy, but it is an accelerating one, and it removes the argument that the European Central Bank would need to hesitate over growth. Markets now fully price a September hike from the ECB, which gives the single currency a rate story that no longer depends on the Fed disappointing.
Against sterling the euro was little changed, trading near 0.8543 on Friday after 0.8549 on Thursday, and set to snap a three-week run of gains. Both economies grew 0.4% in the second quarter, but the direction of travel differs — the euro area accelerated while the UK slowed from 0.6% in the first quarter — and the cross has not yet moved to reflect that.
The tension worth naming is between pricing and rhetoric. A September ECB hike is fully discounted while the Bank itself has given every indication it is content to wait. That leaves the euro carrying policy expectations it has not been asked to justify.
The euro area calendar is light. Germany's ZEW survey lands on Tuesday and Friday's flash PMIs are the only genuine domestic test, which means EUR/USD stays a dollar story into Wednesday's FOMC minutes.
The PMIs carry the more interesting two-sided risk. Composite readings that hold above the 50 line and improve on the prior month would validate the September ECB pricing and give the euro a path toward 1.1600 that does not require further US weakness. Readings that slip, particularly in German manufacturing, would leave the market holding a fully priced hike against softening activity — and that is the configuration in which the euro's recent gains would be hardest to defend.
For the cross against sterling, Wednesday's UK inflation figures are the swing factor rather than anything from the euro area. UK headline inflation accelerating toward 3% would pressure EUR/GBP lower; a softer UK set would let the euro resume the run it broke this week.
GBP: three-month highs into a week that finally gives sterling its own data
Sterling reached three-month highs near 1.3560 against the US dollar on Friday, a move that followed three consecutive daily declines and came almost entirely from the selling pressure on the greenback rather than from anything domestic. The pound gained around 0.37% against the dollar on the day, placing it in the middle of the G10 pack.
The week's UK data was mixed in a way markets largely ignored. Second-quarter output grew 0.4%, a slowdown from 0.6% in the first quarter, and traders showed little reaction. Against the euro sterling was steady, with EUR/GBP near 0.8543 on Friday, and the pair looked set to snap a three-week euro advance without sterling having done much to earn the reversal.
The Bank of England is widely expected to hold. That expectation has been stable for weeks and, unlike the euro area's fully priced September hike, it is not carrying much risk of disappointment. What it does mean is that sterling has spent the past month trading almost entirely as a dollar derivative, with the domestic policy debate effectively parked.
That is the position from which the pound enters a considerably busier week — one where a domestic surprise would land on a currency already at a three-month high, with positioning built on external drivers rather than on any conviction about the UK itself.
The UK delivers a full slate: labour market figures on Tuesday, July inflation on Wednesday, and retail sales on Friday. Wednesday is the one that matters. Headline consumer price inflation is expected to accelerate toward 3%, and the print will settle whether the Bank's hold is comfortable or contested.
Both outcomes are live. Inflation at or above 3% would complicate the Bank of England's path and could hand sterling fresh support, since a market that has priced a serene hold would have to reconsider the pace of any eventual easing. A softer set of numbers would give the pound its first real domestic drag in weeks and would expose how much of the move to 1.3560 was borrowed from the dollar's decline.
Tuesday's labour market report frames the inflation print. Wage growth that remains firm alongside a soft headline CPI would keep the Bank cautious and blunt the downside; a labour market that is cooling on both counts would make a soft inflation print considerably more consequential for the currency. Friday's retail sales and flash PMIs close the week.
JPY: half the intervention gains gone, with the yen back toward 160
The yen weakened around 1% over the week, finishing in the low 159.00s against the US dollar and near the 160 level that has kept traders alert. That is a striking result in a week when the greenback lost ground against every other G10 currency, and it says more about the yen than about the dollar.
The context is the joint action of early August. Japan and the United States confirmed they had both intervened to support the currency — the first such coordinated move in decades — with Japan estimated to have sold as much as $58.97 billion on the Thursday and a suspected follow-up the day after. The dollar fell about 1% to 156.34 yen on the Monday after the announcement. Less than two weeks later, the yen has given back roughly half of what the operation bought.
The absence of a second round explains most of it. Authorities have not returned to the market since the initial action, and speculators have taken that silence as permission to rebuild short yen positions. Intervention without follow-through establishes a level rather than a floor, and the market has spent the past week testing which of the two Tokyo intends.
The underlying arithmetic has not changed either. The rate differential that produced the yen's weakness in the first place remains in place, and a softer US dollar has not been enough to offset it — which is why the yen was the only major currency to lose ground against the greenback on the week.
Japan's own calendar is busier than usual. Second-quarter GDP opens the week on Sunday, expected at 0.5% on the quarter, with national inflation figures following later in the week.
The inflation print is the one with two live sides. A firm reading would strengthen the case for the Bank of Japan to move and would give the yen a domestic reason to recover that intervention alone cannot supply. A soft reading would confirm that the policy gap stays wide and would take the currency back toward 160, where the question becomes whether authorities act again rather than what the data said.
The intervention threshold is the week's real uncertainty. Every session closer to 160 raises the probability of a second operation and lowers the market's confidence that the first one meant anything. Traders will watch the pace of the move as much as the level: a slow grind toward 160 is more likely to be tolerated than a sharp one.
Wednesday's FOMC minutes matter here too. A hawkish read would widen the differential again and put the yen under pressure at precisely the level authorities have signalled they care about.
CAD: a third weekly gain on strong jobs and firmer crude
The Canadian dollar strengthened to around 1.3872 against the US dollar on Friday, a gain of roughly 0.4% on the day and an eight-week high, marking a third consecutive weekly advance. Unlike most of its G10 peers this week, the loonie had genuine domestic support behind the move.
Canadian employment rose by 75,100 in July, far exceeding expectations, and the economy is estimated to have expanded at a 3.4% annualised pace in the second quarter — well above the Bank of Canada's own 2.5% forecast. Both prints narrowed the yield differential against the United States, which had done most of the work pushing the currency weaker through the first half of the year.
Crude supplied the second leg. West Texas Intermediate traded near $82 a barrel and ended the week firmer after a choppy stretch, with the Strait of Hormuz situation keeping a floor under prices even as the waterway was formally declared open. For a currency whose terms of trade move with energy, a stable $80-plus crude price is a materially different backdrop from the one that prevailed in the second quarter.
The week was not one-directional. The Canadian dollar pulled back from a two-month peak early in the week as the greenback briefly rebounded, before the run of soft US data resumed and carried the pair lower again. That pattern — domestic strength holding the currency up, US data determining the timing — has been the shape of the loonie's advance all month.
The external calendar dominates. Wednesday's FOMC minutes are the week's principal risk, and the two-sided case is straightforward: minutes that revive September hike expectations would widen the differential the Canadian data has been closing, while a dovish read would extend a rally that has already run three weeks.
Oil is the second variable and the less predictable one. Hormuz traffic remains far below pre-conflict levels, and any further disruption would lift crude and the Canadian dollar together. A genuine normalisation of shipping volumes would do the opposite, removing the risk premium that has held crude in the low $80s.
Friday's flash PMIs across the major economies close the week and matter mainly for what they say about global demand. With the domestic data calendar offering less than the external one, the loonie's direction into next weekend will likely be set in Washington rather than Ottawa.
CHF: the weakest G10 currency of the quarter finds no help in a falling dollar
The Swiss franc gained around 0.10% against the US dollar on Friday — the smallest advance of any G10 currency on a day when the greenback fell across the board. That understatement captures the franc's quarter: it has been the weakest major currency of the past three months, and a dollar in retreat has not changed that.
Policy explains most of it. The Swiss National Bank holds its policy rate at 0.00% and projects only modest inflation, and Swiss consumer prices rose just 0.4% on the year in July. With every other major central bank either raising rates or debating when to, the franc's yield disadvantage has widened steadily rather than through any single decision.
The safe-haven argument has also worked against the currency this quarter. The unresolved standoff with Iran and the partial closure of the Strait of Hormuz have generated repeated bursts of risk aversion, and the flows have gone to the US dollar rather than the franc — the greenback offering both deeper liquidity and a yield the franc cannot match. USD/CHF traded near 0.8130 during one of those episodes in early August.
The tension is that the franc's traditional role and its current pricing point in opposite directions. When risk aversion is sharp enough, capital does still find the franc regardless of where the SNB sits. It has simply not been sharp enough this quarter for that to matter.
Switzerland's own calendar offers little, which leaves the franc taking its direction from Wednesday's FOMC minutes and Friday's flash PMIs.
The Middle East is the genuine two-sided risk. A material escalation — a renewed closure of Hormuz, or a breakdown in the Iran standoff — would produce the kind of sharp risk aversion in which the franc has historically outperformed the dollar rather than trailed it. A continued slow normalisation of shipping traffic would remove even that possibility and leave the currency trading purely on a rate differential that runs against it.
The FOMC minutes cut the other way. A hawkish read would widen the gap between a Fed still debating a hike and an SNB at zero, and the franc has the least room of any major currency to absorb that.
NZD: the week's strongest major as September hike pricing firms
The New Zealand dollar was the strongest of the majors on Friday, gaining around 0.7% against the US dollar to finish near 0.5890 and approaching the 0.5900 level, after rebounding from a two-week low earlier in the week. The move combined the week's broad dollar weakness with a domestic rate story that is now the clearest in the G10.
Markets price the probability of a Reserve Bank of New Zealand hike at the September meeting at around 88%, following the first increase of the cycle delivered last month. Beyond that, implied pricing carries roughly 3.7 further hikes by June next year and close to five by August — a tightening path steeper than anything priced for the Fed, the ECB or the RBA. That differential is doing real work, and it is why the kiwi outperformed on a day when every G10 currency gained against the greenback.
The recovery has been substantial. The currency traded below 0.5650 as recently as late June, which puts the move at more than four cents in under two months. Some of that is dollar weakness common to every major, but the kiwi's outperformance against the Australian dollar — roughly 0.3% on Friday alone — isolates the domestic component.
The caution worth naming is that pricing this aggressive leaves little room for a central bank to underdeliver. Nearly five hikes priced by next August is a demanding path for an economy that was cutting rates a year ago.
China sets the tone. Industrial production and retail sales land on Monday and the People's Bank of China decides on Thursday, and the kiwi tends to trade the combination as closely as the Australian dollar does. Soft Chinese activity followed by an easing move would test whether New Zealand's rate story can hold up against a weaker regional demand picture.
The 0.5900 level is the near-term question. A dovish read of Wednesday's FOMC minutes would likely carry the currency through it without much resistance. A hawkish read would put the kiwi's steep hike pricing directly against a revived Fed hike premium, and that is the configuration in which the currency's recent gains would unwind fastest.
Friday's flash PMIs close the week. With no domestic top-tier data due, the New Zealand dollar spends the coming week trading other people's calendars — which, given how much is already priced at home, may be the more comfortable position.