IC Markets Europe Fundamental Forecast | 1 August 2025
What happened in the Asia session?
The Asia session on August 1, 2025, was defined by a sharp risk-off turn in response to new U.S. tariffs, renewed pessimism for regional exporters, and persistent worries about China’s manufacturing sector and global growth prospects. Export-driven Asian stocks (tech, autos, industrials), South Korean equities, copper and metals, regional currencies (KRW, TWD, INR), and the U.S. dollar.
Surge in U.S. protectionism, weaker Chinese manufacturing, global growth uncertainties, and volatile commodity flows dominated the session. Defensive and risk-off, with little relief from recent tech and earnings optimism. Ongoing headline risk from trade, upcoming U.S. jobs data, and central bank moves (Fed, BOJ) continue to keep volatility elevated.
What does it mean for the Europe & US sessions?
The European and U.S. trading sessions are kicking off under the shadow of sweeping new U.S. tariffs and mixed trade deal outcomes, with markets on alert for retaliatory moves and data surprises. Key jobs and manufacturing data from the U.S. will set the pace for equities, bonds, and the dollar. The tone is defensive, but solid tech earnings and hopes for trade de-escalation may temper risk-off moves as volatility stays elevated.
The Dollar Index (DXY)
Key news events today
Average hourly earnings m/m (12:30 pm GMT)
Non-farm employment change (12:30 pm GMT)
Unemployment rate (12:30 pm GMT)
ISM manufacturing PMI (2:00 pm GMT)
ISM manufacturing prices (2:00 pm GMT)
Revised UoM consumer sentiment (2:00 pm GMT)
What can we expect from DXY today?
The US dollar index hovered near 100 on Friday, holding at a two-month high after President Donald Trump reaffirmed a 10% baseline global tariff and imposed reciprocal duties of up to 41% on countries without trade agreements. Trump also announced a 40% tariff on goods deemed to have been transshipped to circumvent existing duties, heightening trade tensions and fueling demand for the greenback as a safe haven.
Investors also turned cautious ahead of the July jobs report, which is expected to offer fresh signals on the strength of the labor market and the Fed’s next policy move. On Thursday, data showed core PCE prices, the Fed’s preferred inflation measure, rose 0.3% in June and 2.8% from a year earlier, muddying prospects for a rate cut in September. The dollar remained firm against major peers, hitting a four-month high versus the yen.
Central Bank Notes:
- The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25% to 4.50% at the July 29–30, 2025, meeting, keeping policy unchanged for the fifth consecutive meeting.
- The Committee reiterated its objective of achieving maximum employment and inflation at the rate of 2% over the longer run. While uncertainty around the economic outlook has diminished since earlier in the year, the Committee notes that challenges remain and continued vigilance is warranted.
- Policymakers remain highly attentive to risks on both sides of their dual mandate. The unemployment rate remains low, near 4.2%–4.5%, and labor market conditions are described as solid. However, inflation is still somewhat elevated, with the PCE price index at 2.6% and core inflation forecast at 3.1% for year-end 2025, up from earlier projections; tariff-related pressures are cited as a contributing factor.
- The Committee acknowledged that recent economic activity has expanded at a solid pace, with second-quarter annualized growth estimates near 2.4%. However, GDP growth for 2025 has been revised downward to 1.4% (from 1.7% projected in March), reflecting expectations of a slowdown in the coming quarters.
- In the revised Summary of Economic Projections, the unemployment rate is expected to average 4.5% in 2025, and headline PCE inflation is forecast at 3.0% for the year, with core PCE at 3.1%. Policymakers continue to anticipate that inflation will moderate gradually, with ongoing risks from tariffs and global conditions.
- The Committee reaffirmed its data-dependent and risk-aware approach to future policy decisions. Officials stated they are prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede progress toward the Fed’s goals.
- As previously outlined, the Committee continues the measured run-off of its securities holdings. The pace of balance sheet reduction, which slowed since April (monthly redemption cap on Treasury securities reduced from $25B to $5B, while holding agency MBS cap steady at $35B), was left unchanged this month to support orderly market functioning and financial conditions.
- The next meeting is scheduled for 16 to 17 September 2025.
Next 24 Hours Bias
Strong Bullish
Gold (XAU)
Key news events today
Average hourly earnings m/m (12:30 pm GMT)
Non-farm employment change (12:30 pm GMT)
Unemployment rate (12:30 pm GMT)
ISM manufacturing PMI (2:00 pm GMT)
ISM manufacturing prices (2:00 pm GMT)
Revised UoM consumer sentiment (2:00 pm GMT)
What can we expect from Gold today?
Gold remains flat to mildly lower near three-week lows on August 1, pressured by a strong U.S. dollar, global market volatility, and shifting safe-haven preferences. While not seeing mass liquidation, gold is lacking upside momentum in the current environment. Key U.S. data later today will be pivotal for direction into the next trading week. Gold struggled as the U.S. dollar index surged above 100 amid sharp global risk aversion. New sweeping U.S. tariffs triggered broad declines in Asian and European equity markets, pushing demand toward cash and dollar assets rather than gold, despite the rise in geopolitical and trade uncertainty.
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
Core CPI flash estimate y/y (9:00 am GMT)
CPI flash estimate y/y (9:00 pm GMT)
What can we expect from EUR today?
The euro extended its decline to $1.14—the lowest level since mid-June under pressure from a stronger dollar, as traders reacted to the Fed’s latest policy decision. The Fed kept the federal funds rate unchanged as expected, but Chair Powell noted that no decisions had been made regarding September, and his hawkish tone dampened expectations for a rate cut at the next meeting. Meanwhile, fresh figures showed the Eurozone economy grew a modest 0.1% in Q2, slowing sharply from 0.6% in Q1 but still exceeding expectations of no growth.
However, the data revealed asymmetries, with GDP in Germany and Italy contracting by 0.1%, while France and Spain recorded expansions. In addition, investors remain concerned that the recently announced US-EU trade agreement disproportionately benefits the US. Expectations for ECB rate cuts have also been pushed further out. Markets now assign a 90% probability of a 25bps cut by March 2026, while the likelihood of a move in December has fallen to 30%.
Central Bank Notes:
- The Governing Council kept the three key ECB interest rates unchanged at its July 24 meeting, maintaining the main refinancing rate at 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%, following eight consecutive cuts preceding this decision.
- The decision to hold rates steady was driven by evidence that inflation is stabilizing near the Governing Council’s medium-term target of 2%. Policymakers communicated that further moves on rates would be data-dependent, explicitly refraining from pre-committing to any future path amid persistent global and domestic uncertainties.
- According to the latest Eurosystem staff projections, headline inflation is expected to remain around 2.0% for 2025, with projections indicating 1.6% for 2026 and a rebound to 2.0% in 2027. Downward revisions from previous forecasts primarily reflect lower energy price assumptions and a stronger euro. Inflation excluding energy and food is seen averaging 2.4% in 2025 and 1.9% in 2026–2027, little changed from prior projections.
- Real GDP growth for the Eurozone is forecast at 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027. The projections note that a strong first quarter offsets a weaker outlook for the rest of 2025. While business investment and exports are dampened by ongoing trade policy uncertainties—including recent U.S. tariff measures—rising government investment, particularly in defense and infrastructure, is expected to progressively underpin growth.
- Household spending should be supported by firm real income gains and a still-solid labour market. More favorable financing conditions are expected to help strengthen the economy’s resilience to further global shocks. Wage growth, although still elevated, continues to moderate, with profit margins partially absorbing cost pressures.
- Amid significant geopolitical and economic uncertainty, the Governing Council underscored its commitment to ensuring inflation stabilises sustainably at the 2% target. The ECB reiterated it would pursue a meeting-by-meeting, data-dependent approach to its monetary policy stance.
- Future rate decisions will be guided by the assessment of incoming economic and financial data, the outlook for inflation and underlying inflation dynamics, and the effectiveness of monetary policy transmission. The Council continues to stress that it is not pre-committed to any specific rate trajectory.
- The asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are continuing to decline in an orderly and predictable way, as the Eurosystem has ceased reinvesting principal payments from maturing securities.
- The next meeting is on 11 September 2025
Next 24 Hours Bias
Strong Bearish
The Swiss Franc (CHF)
Key news events today
No major news event
What can we expect from CHF today?
The Swiss franc has come under sustained pressure following the U.S. announcement of a 39% tariff on Swiss exports, driving notable losses versus the dollar and euro and raising volatility in both FX and Swiss equities. The SNB has recently lowered its policy rate to 0% and may be forced to act further to stabilize conditions. The trade situation creates substantial short-term downside risk for the franc, with all eyes on potential Swiss policy reactions and the next developments in global trade relations.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, from 0.25% to 0% on 19 June 2025, marking the sixth consecutive reduction.
- Inflationary pressure has decreased further as compared to the previous quarter, decreasing from 0.3% in February to -0.1% in May, mainly attributable to lower prices in tourism and oil products.
- Compared to March, the new conditional inflation forecast is lower in the short term. In the medium term, there is hardly any change from March, putting the average annual inflation at 0.2% for 2025, 0.5% for 2026 and 0.7% for 2027.
- The global economy continued to grow at a moderate pace in the first quarter of 2025 but the global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions.
- Swiss GDP growth was strong in the first quarter of 2025, but this development was largely because, as in other countries, exports to the U.S. were brought forward.
- Following the strong first quarter, growth is likely to slow again and remain rather subdued over the remainder of the year; the SNB expects GDP growth of 1% to 1.5% for 2025 as a whole, while also anticipating GDP growth of 1% to 1.5% for 2026.
- The SNB will continue to monitor the situation closely and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.
- The next meeting is on 25 September 2025.
Next 24 Hours Bias
Weak Bearish
The Pound (GBP)
Key news events today
No major news event
What can we expect from GBP today?
The pound is on the defensive, pressured by expectations of an imminent BoE rate cut, softer domestic data, risk-off global mood from new U.S. tariffs, and a resilient U.S. dollar. Near-term upside for GBP is limited unless the BoE surprises with hawkish messaging or U.S. data underperforms. Technical forecasts favor further downside risk toward $1.30.
For traders, macro headlines, upcoming BoE guidance, and global risk flows will be the dominant factors shaping GBP direction into next week. The British pound traded down to around $1.3200 against the U.S. dollar, touching its weakest level since mid-May. The GBP has fallen by over 3% in July, making it the worst month for sterling since September 2022. Over the last 24 hours, the currency slipped about 0.06%, and over the past week, it declined by nearly 2% in value.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6 to 3 to maintain the Bank Rate at 4.25% on 19 June 2025, with three members preferring to reduce the Bank Rate by 25 basis points.
- The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes and financed by the issuance of central bank reserves, by £100 billion over the next 12 months to a total of £558 billion, starting in October 2024. On 19 June 2025, the stock of UK government bonds held for monetary policy purposes was £590 billion.
- There has been substantial disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations.
- Twelve-month CPI inflation increased to 3.4% in May from 2.6% in March, in line with expectations in the May Monetary Policy Report. The rise was largely due to a range of regulated prices and previous increases in energy prices.
- Underlying UK GDP growth appears to have remained weak, and the labour market has continued to loosen, leading to clearer signs that a margin of slack has opened up over time.
- Measures of pay growth have continued to moderate and, as in May, the Committee expects a significant slowing over the rest of the year.
- Global uncertainty remains elevated while energy prices have risen owing to an escalation of the conflict in the Middle East, prompting the Committee to remain sensitive to heightened unpredictability in the economic and geopolitical environment.
- There remain two-sided risks to inflation. Given the outlook and continued disinflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate and the Committee will continue to monitor closely the risks of inflation persistence and what the evidence may reveal about the balance between aggregate supply and demand in the economy.
- Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further and the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.
- The next meeting is on 7 August 2025.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news event
What can we expect from CAD today?
The Canadian dollar is under pronounced pressure at the start of August 2025, hit by the hike in U.S. tariffs to 35%, a defensive Bank of Canada policy stance, and fresh evidence of domestic economic weakness. With uncertainty around trade policy, potential for further monetary easing, and an unfavorable global risk backdrop, the loonie is seen as vulnerable, and traders expect volatility to remain elevated in the near term.
Central Bank Notes:
- The Bank of Canada maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70% as of July 30, marking the third consecutive meeting with rates on hold.
- The Council cited ongoing U.S. tariff adjustments and unresolved trade negotiations as driving factors for elevated economic uncertainty. The persistence of tariffs well above early-2025 levels continues to present downside risks for growth and keeps inflation expectations elevated, supporting a cautious approach to monetary easing.
- The lack of a clear U.S. policy path, plus frequent threats of additional tariffs, led the Bank to highlight risks to Canadian exports and broader demand, amplifying uncertainty about future growth.
- Canada’s economic growth in the first quarter came in at 2.2%, slightly stronger than the original forecast, while the composition of GDP growth was largely as expected. Consumption slowed from its very strong fourth-quarter pace, but continued to grow despite a large drop in consumer confidence.
- Canadian GDP growth is expected to be near 0% in Q2 2025, closely aligned with the more optimistic scenario outlined earlier in the year. Weakness in manufacturing activity—driven by both U.S. trade disruptions and sector-specific challenges like wildfires—contributed to softer output. A partial recovery is anticipated in Q3 due to rebuilding efforts and stronger retail sales in June.
- Consumer spending slowed, especially as households front-loaded durable goods purchases ahead of tariffs. Housing activity remains subdued, with resales and construction still soft despite some government tax relief measures.
- Headline CPI inflation continued to ease, holding close to 1.7% in June, aided by declines in energy prices following the removal of the fuel charge. However, the Bank’s measures of core inflation and underlying price pressures moved up further due to higher import costs from tariffs and lingering supply disruptions.
- The Governing Council reiterated it will carefully weigh ongoing upward inflation pressure from tariffs and cost shocks against the gradual downward pull from economic weakness. While additional rate cuts remain possible, timing and scale will depend on trade policy developments and inflation’s path..
- The next meeting is on 17 September 2025.
Next 24 Hours Bias
Strong Bearish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil prices enter August with volatility elevated as markets digest new U.S. tariffs, OPEC+ supply increases, and mixed fundamental data. The balance between ongoing geopolitical risks, supply changes, and macroeconomic signals will dictate the direction, with the $65–$73 per barrel band remaining key for traders in the days ahead.WTI crude oil futures fell more than 1% to $69.3 per barrel on Thursday, retreating from six-week highs and ending a three-day rally, as traders assessed both geopolitical risks and US inventory data.
Investor sentiment remains cautious amid growing uncertainty over President Trump’s renewed push for a rapid resolution to the war in Ukraine. The President pleadged 100% tariffs on Russia’s trading partners within 10–12 days unless progress is made and warned China of steep tariffs if it continues to purchase oil. Adding pressure, US crude inventories unexpectedly rose by 7.7 million barrels last week due to weaker exports, sharply contrasting with expectations for a draw.
Next 24 Hours Bias
Medium Bullish
