- Dollar stays strong amid safe haven flows and inflation risks
- US prel. PMIs and Powell’s speech to be closely monitored
- ECB expected to stand pat, focus to fall on forward guidance
- Pound traders await PMIs, but stay convinced about August BoE cut
- Alphabet and Tesla earnings results also on tap
Investors Scale Back Fed Rate Cut Bets
The continued to outperform all its major counterparts this week, still driven by safe haven flows amid the uncertainty surrounding the global trade landscape, as well as due to the upside risks tariffs are posing to US .
On Tuesday, the data revealed that inflation accelerated in June, with underlying inflation mainly driven by a strong increase in core goods. This was seen as proof of tariff-driven inflation and prompted investors to scale back their rate cut bets, nearly erasing the probability of a July reduction.
Even September is not a done deal, with the probability of a quarter- at that meeting dropping to 60%. Even after Wednesday’s numbers pointed to a slowdown in producer prices during last month, investors were not convinced to bring bets back to the table.
Will Powell Crack Under Trump’s Pressure
Next week’s agenda includes the preliminary for July, due out on Thursday, but earlier on Tuesday, Fed Chair Powell will speak at a conference hosted by the Federal Reserve. With US President Turmp ramping up his attacks on him lately, it will be interesting to see whether the pressure has affected his stance. Trump has repeatedly called on Powell to lower interest rates, with reports this week suggesting that the US President has discussed with other Republicans the idea of firing him. However, Trump was quick to downplay the discussions, saying that “it is highly unlikely” that he will fire the head of the Fed.
Thus, should Powell insist on defending the Fed’s independence by highlighting once again that they should remain patient and wait for more data to reveal the impact of tariffs, the dollar is likely to extend its recovery. That said, it is still too early to start arguing about a bullish reversal in the US dollar. Yes, the world’s reserve currency is responding positively to headlines adding to tariff-related anxiety lately, but should tariffs begin refueling fears of recession, traders may start reacting the way they did back in April, when they were selling dollars.
Thursday’s will provide an updated picture of how the world’s largest economy has been performing in the midst of all this trade-related uncertainty, with the prices charged and employment subcomponents likely to draw extra interest. for June are due out on Wednesday and for the same month on Thursday.
Will Lagarde Sound More Dovish This Time?
In the Eurozone, the ECB will decide on monetary policy on Thursday. In June, this Bank decided to by 25bps, taking the deposit rate to 2.0%. At the press conference, President Lagarde noted that they are in a “good position” with the current rate path, while a couple of days after the decision, a Reuters report noted that there was broad agreement at the meeting about taking the sidelines in July, with some members making the case for an even longer pause.
Since then, data revealed higher than expected growth for Q1, while for April accelerated. Headline ticked up to the Bank’s objective of 2% and the held steady at 2.4%, corroborating the notion that the Bank could wait for a while before cutting again.
According to money markets, investors expect only one additional quarter-point cut before this easing cycle ends, and they are fully factoring it in for December.
However, even if the Bank keeps rates untouched, Trump’s threats of a 30% tariff on European goods could complicate the Bank’s decision-making and should Lagarde appear more concerned about the trade landscape this time around, investors may start bringing forward the timing of the next rate cut, which could weigh on the . A disappointing set of preliminary PMIs for July ahead of the decision could prompt traders to add to their rate cut bets even before the rate announcement.
UK PMIs in Focus as Pound Traders Bet on August BoE Cut
traders will also have to digest , as just after the Eurozone’s numbers the preliminary numbers from the UK will be released. This week, the UK data showed that inflation unexpectedly accelerated in June but did little to alter bets of an August rate cut, by the BoE.
After all, the BoE has been sounding dovish lately amid a deteriorating labour market, being already aware that inflation would accelerate this year. With that in mind, the may have the potential to shake rate-cut bets more than the inflation data. The numbers for June pointed to some improvement in business activity, and should this trend continue in July, traders may feel confident to reduce their rate cut bets. Even if they remain convinced that an August is appropriate, they may push back the timing of the next reduction from December to February next year. A strong set of retail sales figures on Friday could also help, allowing the pound to recover some of the recently lost ground.
Elsewhere, the RBA publishes the minutes of its latest decision on Tuesday, while during the Asian session on Friday, Japan’s for July will be released.
Wall Street Locks Gaze on Alphabet and Tesla Earnings
On the earnings front, Google’s parent Alphabet and Elon Musk’s Tesla (NASDAQ:) will announce their results on Wednesday after the closing bell.
Getting the ball rolling with Alphabet (NASDAQ:), results for the previous quarter exceeded estimates, but for Q2, analysts expect growth to slow down. The earnings-per-share rate is forecast to have declined to $2.18 from $2.27 in Q1, and while revenue is expected to have increased to $93.9bn from 90.2bn, the year-on-year rate will decline to 10.85% from 12.04%.
The rise of AI chatbots has undermined Google’s search business, weighing on the advertising revenue. Therefore, investors may be on the lookout for clues about how the firm will expand its user base of its own Gemini chatbot without further hurting its traditional search usage. With Alphabet’s forward price-to-earnings ratio also falling from its high of this year of 21.56x to 18.4x, decent results may help the stock extend the recovery that started back in April.
With regards to Tesla, its Q1 report revealed that revenue fell 9%, while management withdrew its full-year outlook, citing “evolving trade policies” and “uncertain macroeconomic conditions.”
Thus, the spotlight is likely to fall on the 2025 guidance, as well as any comments by Elon Musk on tariffs and politics in general, especially after his public spats with US President Trump. Investors will also be eager to learn updates about the robotaxi initiative. Following reports of erratic driving after the launch in Austin, it will be interesting to see whether Musk will address safety concerns and restore confidence in the firm’s autonomous driving plans.