Three G10 central banks meet as oil spikes 25% in three weeks. The dollar is rising on rate differentials; the euro and yen are under pressure. Fed odds of a hike hit 33%.
The week ahead packs three G10 central bank decisions into a market already rattled by a Middle East war that has pushed September WTI up more than 25% over three weeks. The Federal Reserve, the Bank of England, and the Bank of Japan all meet. The dollar is rising on rate differentials, and the euro and yen are feeling the weight.
The FOMC concludes July 29. Two weeks ago, the market saw a 14% chance of a hike. The jump in oil has pushed that to about 33%. The Atlanta Fed's GDPNow model sees Q2 growth at 1.3%, well below the 2.5% median in Bloomberg's survey. The first GDP estimate lands the day after the Fed decision. Durable goods orders, trade data, and inventory numbers will feed into the forecasts before then.
Rising short-term rates have lifted the Dollar Index to its highest since July 1, around 101.55. The 30-day correlation between DXY and the December Fed funds futures is roughly -0.63. The correlation with the two-year yield is about 0.65. A break above 101.80, the June 24 high, would open a path to 102.00 and then 102.70, the 50% retracement of the decline from the February 2025 high near 109.90.
The euro set its monthly high of $1.1485 on July 15, after soft US inflation data. The surge in US rates dragged it to $1.1365 on July 23, a hair above the month's low. Momentum indicators are curling lower. A return to the year's low near $1.1325 looks plausible. That level is the 38.2% retracement of the euro's rally from the February 2025 low near $1.0140. The 50% retracement sits around $1.11.
Eurozone data comes in the second half of the week. The first Q2 GDP estimate is due July 30. The consensus calls for 0.2% quarter-over-quarter, after Q1 was revised to -0.2%. The revision was almost entirely Ireland: its Q1 GDP was initially estimated at 2% growth, then came in at -12.1%. The culprit was the multinational-dominated sector, which contracted 27.1% as pharma and tech firms unwound export front-loading to beat US tariff deadlines. Domestic Irish activity actually grew 0.6%.
Preliminary July CPI follows on July 31. The risk is that higher oil prices, after a four-month slide, lift the headline after a 0.1% decline in June. The year-over-year rate could rise back above 3% from 2.8%. Before last week's ECB meeting, the market was confident another hike would come in September. President Lagarde said nothing to change that.
Sterling reached almost $1.3560 on July 15, its highest in two months. It then fell for six straight sessions, touching $1.33, the 61.8% retracement of the rally from the year's low near $1.3140. It struggled to hold above $1.3350 before the weekend. Momentum indicators are turning lower. A recovery above $1.3400 would be needed to shift the risk.
The Bank of England meets July 30. The swaps market prices less than a 10% chance of a move. The BOE last cut the base rate by 25 basis points to 3.75% at the end of last year. The economy grew 0.6% in Q1, but that pace looks unsustainable. Q2 growth is estimated around 0.2%. CPI averaged 3.1% in Q1 and slightly below 2.8% in Q2. The swaps market sees about a 65% chance of a hike at the September meeting.
The Bank of Japan concludes July 31. A rate hike is nearly off the table after last month's 25-basis-point move. The focus is on the updated forecasts, which could lay groundwork for a hike later this year. Japan's economy grew 1.1% in 2025, the fastest in three years, but is expected to slow to 0.5% this year. Q2 GDP is due August 17, with early forecasts around 0.2% annualized.
The dollar reached almost JPY164 last week, a new 40-year high. Official rhetoric has not escalated. Since the high on July 23, the dollar has not traded below JPY163.65. Additional support sits around JPY163.25. The correlation data suggests US rates matter more than Japanese rates for the exchange rate. The 30-day correlation with the US two-year yield is about 0.44; with Japan's two-year yield, it's roughly 0.06. A surprise rate hike could spike the yen, but a bigger impact would require intervention and explicit US support. That does not look like a high-probability scenario.
China reports June industrial profits and July PMIs. Industrial profits rose 21.1% year-over-year in May, after falling 9.1% a year earlier. The June manufacturing PMI stood at 50.3, up from 50.0 in May. The non-manufacturing PMI hit 50.2, the year's high. The Politburo meets in the last week of July to evaluate Q2 performance and set policy for the second half of the year. The dollar looks rangebound against the offshore yuan, roughly between CNH6.7635 and CNH6.7815. A move above the 20-day moving average near CNH6.7845 could target the July high around CNH6.81.
The Australian dollar briefly touched $0.7025 early last week before being sold to a marginal new low on July 23. It stabilized before the weekend but could not recapture $0.7000. The month's uptrend line sits near $0.6955 at the start of the week. Australia reports June and Q2 CPI. The 0.7% decline in May will not repeat, and the year-over-year pace could move above 4%. The RBA has not ruled out additional hikes after three earlier this year, but the market is not convinced for the August 11 meeting. The futures market prices about a one-in-three chance of a hike there, with a move fully discounted by November.
The US dollar held barely above CAD1.40 at the start of last week and rose to a new high near CAD1.4115 by the end. The CAD1.4125 area marks the halfway point of this month's range. The 20-day moving average is near CAD1.4135, with resistance in the CAD1.4150-CAD1.4155 area. The 30-day correlation between USD-CAD and the US two-year premium over Canada is a little below 0.75, the highest since Q1 2018. Canada reports May establishment survey data on July 30 and May monthly GDP on July 31. The economy contracted in Q4 and Q1 but started Q2 with 0.5% expansion in April. The Bank of Canada projects Q2 growth around 2.5%.
The Mexican peso faces two data points: the June trade balance on July 27 and Q2 GDP on July 30. The trade surplus has grown through May, reaching almost $5.77 billion in the first five months, compared with a $918 million surplus in the same period last year. The economy likely rebounded after a 0.6% contraction in Q1. The median forecast in Bloomberg's survey calls for 0.6% growth in Q2. The dollar traded in a roughly MXN17.37-MXN17.65 range last week, finding support near the lower end and peaking near MXN17.55. The risk of further escalation in the Middle East war keeps the peso vulnerable to risk-off flows.
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